Southwest Airlines: Culture, Values, and Operating Practices

Case Analysis

BUS 498

Table of Contents

Overview2

Strategic Approach2

Issues4

Recommendations6

References10

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Overview:

Southwest Airlines had more than a troublesome beginning, with many lawsuits slamming the company before it even began its operations. They struggled to stay economically “afloat” due to their rivals trying to discourage them from entering the market. Impressively, they were able to move past that and raised a small capital of $7 million by issuing stock and through private investors in order to purchases their first aircrafts.

It is important to mention that from the success of Southwest has been largely due to the people chosen for the job. People are the greatest asset that is never mentioned on any company’s balance sheet. It was the people’s persistence, determination, and spirit that evolved Southwest to what it is today.

Strategic Approach:

Since the late 1960’s Rollin King’s vision plan was to launch an airline that would provide inexpensive flights at convenient times, supplemented by a fun experience. As the years went by, Southwest decided to keep their business strategy firm regardless of the competition, obstacles, and changes in the industry. The airline kept that very same strategy they were known for – low cost, convenience, and good customer service.

Other companies such as Frontier began adding charges for almost every service provided as external pressures pushed them to do so. Southwest did not. Instead, they offered an “all inclusive” ticket option, so that the traveler wouldn’t have to worry about the extras. Many

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airlines had business class which would remain unfilled through most flights, Southwest did not.

That helped them implement unique boarding procedures that decreased turn-around times.

Southwest had to be responsive to attacks by competitors and one of the key players in this was Herb Kelleher who represented the airline legally and was leading the fight from the very beginning when it was difficult to even begin operations. He later became one of the best CEOs Southwest has had. Kelleher, King, and along with a cheerful and spirited marketing team were able to successfully defend Southwest from rivalry that try to put them out of business by all means.

Being low cost gave advantage to Southwest to gain new travelers, but with this tactic it also obligated them to evaluate their operations in order to see what activities add value to the company. That prompted them to use one single airplane model – the Boeing 737. Ultimately, that contributed to a reduction of costs by simplifying maintenance and training. The airline also added more flights instead of increasing ticket prices. The idea behind that was that profit margin would be small, but the increased frequency would raise significant revenue which worked.

In order to provide the best customer service experience, Southwest focuses its employees first. This has been a winning strategy of them because happy employees make customers happy. With this in mind, they empowered culture through employees by hiring hard working individuals that were innovative, respectful, caring, and fun. Their training sessions had leadership courses that inspired them to become leaders and think outside the box. Operation Kick tail was launched in 2007 that would strengthen customer value among employees (c-

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366,370). Management was encouraged to spend time out of the office and interact with employees just as CEOs. One of the CEOs even developed a network of contacts across the company in order to stay in touch with what is happening with employees and their families. Southwest also had a “no layoff policy” unlike many other competitors in the industry.

This type of culture has promoted innovation. Employees began thinking of how to cut costs and improve customer service. That is how the fuel saving idea that also prolong engine life came about which led to the modification of Southwest aircraft design. Also, an e-ticket system was invented by Southwest employees bypassing travel agents and avoiding to pay them commission. It has eased travel around the world significantly over recent years.

The fare structure strategy had also contributed to Southwest’s profitability giving different options to travelers depending on when they want to travel and if they foresee the possibility of having to change their flight. A reward system to boost customer satisfaction was also established.

The Southwest success story is based on the ability to match the strategy of being a low leader with customer satisfaction by giving a one of kind flying experience. That has proven to be definitive in reaching high profitability. Performance, People, Planet is at the heart of this idea.

In recent years, Southwest acquired another low-cost carrier – AirTran. The acquisition presented many challenges. In addition to that they initiated fleet modernization efforts to replace their older aircrafts.

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Issues:

In 2005, an incident had occurred when a Southwest plane crashed into a car during landing in a snow storm at the Chicago airport. One person was killed and 22 passengers were injured. It was determined that the pilot could have prevented the incident from happening.

Another major alert came when the media went viral with reports that Southwest failed to meet FAA deadlines for safety inspections of aircrafts. They were indications that some planes flew for over 30 months without an inspection, past FAA deadlines. Forty-six fuselage fatigue cracks on their planes were found and 4% of flights were canceled due to the issue. The airline was also fined by the FAA.

These issues bring several questions to the table:

Is Southwest focusing too much on culture and too little on safety? Could this prove to be detrimental to an airline in the long run as planes are aging?

Southwest is famous for their boarding method and quick turnaround times, but could their quick turnaround times be also be resulting from a lack of airplane inspections?

Are culture building exercises with higher priority than safety?

We look no further for answers than the acquisition of AirTran. If anything, the history of this other less famous carrier should be a lesson to Southwest. Years earlier, AirTran had merged with ValuJet which was a larger low-cost carrier that took the AirTran name to disguise a major accident which killed 110 people. Due to a fire onboard caused by mechanical issue, their plane

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broke down midair in a swamp full of poisonous snakes and alligators. “It was among the worst air disasters in Florida’s history” (CBS Miami).

Another problem with the AirTran acquisition is what it imposes to the Southwest culture. About “65% of employees” were converted from AirTran to Southwest.

However, with that big of a transition, could this possibly mean that Southwest is jeopardizing its famous corporate culture?

Could the “no layoff policy” be contributing to this?

Are we going to see a problem because of the differentiation of fleets between Southwest and AirTran?

Recommendations:

Although, the strong company culture has helped Southwest so far, we might be seeing more reasons for safety concerns as some of their planes age which should cause some asset relocation and a larger investment to focus on those issues.

Southwest has a very specific selection of prospective employees and hiring process. Because the Southwest acquisition of AirTran could be jeopardizing company culture, the company could establish a 3rd party company, wholly owned by Southwest that would use the AirTran employees that do not fit the Southwest culture to service other airlines because culture cannot be thought. That way, the “no layoff policy” would be kept. Delta Airlines has already done something similar by establishing Delta Global Services (DGS) and it has been a success.

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This approach is similar to the leasing and subleasing of AirTran aircrafts to other airlines, but it would be done with employees. Perhaps, the leasing and subleasing of AirTran aircrafts could terminate the issue of implementing AirTran fleet and transitioning it into Southwest fleet. Costs of upgrading planes is high and at some point in time, the sale of those leased and subleased AirTran aircrafts should be happening. Timing would be crucial for this as not many airlines want to buy aircrafts at the end of their usable life. Southwest must bring in experts to evaluate and make the determination of price and timing for that point of sale.

Another issue that wasn’t discussed in the case is how terrorist threats affect airlines including Southwest. Southwest should be proactive and mandate training that could potentially save many innocent lives to show increased care for the people – their employees and their customers. Transportation Security Administration and other law enforcing agencies are available at every airport, but often these events are unpredictable and happen extremely quickly. They call for immediate action and proactive planning. Southwest should use the corporate culture to promote proactive actions to prevent and minimize large impacts of human caused disasters. Airline ground personnel are often the first people customers seek help from in catastrophic events in the air and on the ground (at airports). Although, nobody wants to think of the worst possible case scenarios, it sadly is necessary at present times and FAA training at airports and minimal training done by airlines is not sufficient anymore. Many airlines implement online memos for their employees to go through, but considering the culture at Southwest Airlines, it would be most beneficial if such training is done in person rather than just point out a possible threat and suggesting measures of action. It would be a step in the right direction that Southwest considers this external environment and takes proactive measures.

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Turnaround times have helped Southwest in the past by reducing costs and increasing revenue and customer satisfaction. But there is potential for issues that arise from that. Quick turn-around times mean that all safety checks have to be completed by airline personnel rather quickly which could contribute to the lack of safety. However, on a positive note they don’t give an excess of time availability for any single person to assemble or place any man-made device on the aircraft which is something that the FAA promotes.

Overall, Southwest Airlines have had a phenomenal strategy seen in many other industries by caring for their employees and providing top-notch customer service. However, in the transportation industry safety should always be seen as a top priority. Therefore, integrating more safety practices and training beyond and above what the Federal Aviation Administration, Department of Transportation, Transportation Security Administration, and other governmental agencies call for as necessary should be considered keeping in mind that costs of such measures are transferred to the customer and the airline must stay true to the low-cost model.

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References:

“Doomed ValuJet Flight 592 Killed All, 16 Years Ago Today.” CBS Miami. N.p., 11 May 2012. Web. 18 Nov. 2015. <http://miami.cbslocal.com/2012/05/11/doomed-valujet-flight-592-killed-all-16-years-ago-today/>.

Navarro, Mireya. “Search Called Off for Survivors of Crash in Everglades; Infested Swamp Dashes Hope for Rescue.” New York Times. N.p., May 1996. Web. 23 Nov. 2015. Path: http://www.nytimes.com/1996/05/13/us/search-called-off-for-survivors-crash-everglades-infested-swamp-dashes-hope-for.html.

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