A Presentation On: South Westairlines

A Presentation on SOUTH WESTAIRLINES Presented By: RAVI MODH DIPAK PRAJAPTI MAHESH RAVAL

Southwest Airlines • Background : - Founded in 1967 - Love Field in Dallas, TX - 35,000 Employees (started Flying in 1972) - Nation’s 4th largest airline (59+ cities and 65M Customers) - Only two fares: regular coach and off-peak • Results and Outcomes: - Excellent customer service (rated the best for on-time performance, fewest lost bags; fewest customer complaints – 13 years in a row) - Safest airline in the world (never had a fatal accident) - Profitable every year (33 years in a row); only airline in the world

History of Southwest Airlines  On February 20, 1968 the Texan Aeronautical Commissions approved plans to fly in 3 states, the c5eators are Rollin King and Herb Kelleher  Expanded through 1980’s to 1990’s by 1993 Southwest Airlines could fly in 34 states in 15 states  They also expanded into new destinations California, Northwest, Florida, East Coast  The competitors could not keep up, “500 pound cockroach that was too big to stamp out:  While the airfare was dropping the traffic went up tremendously, in 1994 United started a shuttle service, the large air carriers were feeding traffic into transpacific and transcontinental routes, they could not keep up  In 2004 Southwest Airlines is fourth largest domestic carrier, customer boarded  In 2002 they traveled in 58 cities and 30 states, it has been 13 years in a row that they are profitable, even after September 11, 2001, net income fell 52.9 percent, Southwest was the only airline company that had a profit all the other companies were in the red  Was the first airline to achieve the Triple Crown, they had five difference Triple Crown dedicated to the Employees of Southwest Airlines for their excellent achievements.

Southwest Airlines and Some Other Airlines: 2008 Profit/Loss Southwest Airlines

$63.5M $32.4M*

American Airlines

$(748M)

U.S. Air

$(1.0 B)

Delta

$(1 B)

Southwest Airlines • One of “Best 100 Companies” and in the “top 10 – Most

Admired” companies to work for: - FUN emphasized! - Family emphasized! - Caring for employees emphasized! - Customers emphasized! - Identify with fellow employees (as internal customers!) - Ten-year Labor agreement! (81% unionized) •Employees “Love” to work there!!

Mission Statement • “Southwest has a dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.”

Goals and Objectives • Ensure highest quality Customer Service in the air or on the ground. • Ready to help customers under any circumstances. • Are there to ensure you make it from point A to point B safely • To stay the most successful with lowfare, high frequency point-to-point carrier.

Southwest’s Values, Philosophy, and Spirit These are three basic values (“the culture”) or philosophical pillars at Southwest Airlines: Value 1: Work should be fun ...it can be play . . . Enjoy it. Value 2: Work is important ...don’t spoil with seriousness. Value 3: People are important...each one makes a different. Beliefs: •Organizations are transparent • Family and “Hugs”

Key Ratios • • • • • • • • • •

Profit Margin: 7.23% Return on Assets: 4.01% Return on Equity: 8.98% Revenue: 7.58B Gross Profit: 2.49B Operating Cash Flow: 2.23B Market Capital: 14.41B Current: .941 Debt to Equity: .299 Total Debt: 2.00B

People at Southwest: - Hard-working (94 employees per plane vs.. Americans 160 and United 160 - Industry average of 130; serves 2,500 passengers per employee Vs. United and American average less than 1,000) - Motivated - Have FUN - fun place to work - Treat employees as internal customers - Employees are comfortable - Fundamental business philosophy is that employees come first! - Not a lot of employees!

Internal Strengths and Weaknesses • Strengths – – – – – –

Best low-fare carrier Triple Crown for annual performance Quickly seize a strategic opportunity when arises “Team Spirit” Employees come 1st not customers Made 20% of flights to one stop Even though Unionized still negotiate flexible work hours – Marketing on the web, 50% revenue from online booking

• Weaknesses – Conservative Growth Tactics – Cuts cost in customer service areas – Not subscribed to centralized reservation service – Other Co.’s now using same management strategies since found out about SW Airlines – Provides service in only 68 cities

Market share Market share

Southwest Jetblue 23

American Airlines Delta US Airways Air Tran

Airline Industry Environment Five Forces Model • Potential competitors-low • Rivalry among established companieshigh • Bargaining power of buyers-high • Bargaining power of suppliers-high • Threat of substitutes-low

PEST Analysis • • • •

Political Factors Economic Factors Social/Sociological Factors Technological Factors

Factors in Macro Environment • • • •

Consumer demand Government regulations Technological advances International agreements

Organizational Culture • Encourage participation • Employee ownership/empowerment • “Freedom, informality, interplay”

Distinctive Competencies

• Organizational culture • Customer focused • Low-cost structure

Why is Southwest Successful?

• “NOT” because of: – – – – – – – – –

Only flies 737’s Only Small Airports Low Ticket Prices Quick Turnaround Low Cost Customer Loyalty Efficiency Profitable Rate of Productivity

All Results/ Outcomes/ Effects/ Symptoms

Why is Southwest Successful?

• Because of its Internal Business Environment and/ or Execution Systems— the Causes: – Culture, Core Values, Philosophies and Principles (Vision Direction) – Effective Management of its Workplace – Effective Exemplar Structures, Systems and Processes (fit between elements of the Execution System)

Integrated Low Cost/Differentiation Strategy

Southwest Airlines Low Cost Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes No meals 15 minute turnaround time No reserved seats No travel agent reservations

Differentiation Focus on customer satisfaction High level of employee dedication New flight services for business travelers (phones and faxes) S.W.A.’s Culture, Values, Philosophies & Principles

Possible Strategies • Expand into more cities – Increase amount of shorter destination flights into the larger airports

• Increase direct flights – Purchase bigger planes – Get agreements with Airports for flights

• Eventually look to acquire American Airlines

Business Strategies • • •

Functional strategy Business level strategy Strategic fit with internal organization

Decisions • Based on QSPM, the best looking strategy would be to expand into more cities • The longer non-stop flights have more of a competitive market and would be hard to keep low cost flights

Implementation • Increase – The number of flights per day by 5% – Increase revenue by 15% • Helps to cover new increasing cost

– Flights into larger airports

• Decrease – Operating costs by 10% – Flights to cities with more than 4 flights a day

Evaluations • • • •

Quarterly reports Average daily flights Average passenger per flight Quarterly meetings to evaluate current plan and make necessary changes as needed

UPDATE!! • Expanded into 86 cities as of 2008 • Operates over 3,500 flights per day

Future Issues/ Problems for SWA

• Going International • Merger (Acquisition of another airline) • Growth: – Internal? – External? – Both?

• Will the Corporate culture change when Herb leaves?