Service Operations Management

CASE :
SOUTHWEST AIRLINES

Group-6
-Avjit Bisaria
-Gaurav Bhandari
-Nikhil Mahendru
-Ravi Prasad
-Raunak Khanna
-Shashank Kumar
 About Southwest Airlines

•Started in 1971 and made 1st flight in June’71

•Entered in Texas intrastate market and has consistently been profitable since then
•By 2011 its market value alone was more the other US airline carrier together
•Their complete focus was on CUSTOMER & EMPLOYEE to achieve distinctive results
• Its strategy was simple “ TO BE AIRLINES SERVICE WITH CHEAPEST FARES ”
•Today SW has more than 55000 employees (as in July’17 )
•It makes more that 4000 Departures /day in peak season
• Only airline to win “Triple Crown” customer satisfaction award
•Operates more than 537 planes – soon will be up scalled to 700 approx
 The Question ?
Why has southwest been so much successful than its competitors?
4 reasons :-

COST

TIME FUN

HASSLE
 How did they gave such low fares ?- VISIBLE DIFFRENTIATIONS

By not Giving
By Giving
•No long Flights rather short travels
•Low fares ( thus high demand )
( < 90 minutes)
•Frequent Flights ( thus increasing visibility
•No in flight meals
to passengers & multiple timings for travel)
( excepts Peanuts – Quickly served &
•Point – to – Point travel
considered a munchies)
•Less served airports ( eg Islip Airport )
•No First class – (thus more seats / plane)
•Using less congested airports
•No seat assignment ( no settling time
• Where more business travellers were
required )
•No interlinking of passengers or bags available
•No hub & spoke route structure
•Achieving a TAT of 10 minutes initially

Competed with Road Travel cost for same distance - Place the ticket
prices below the cost of Road travel & 60 % less that Airline Rivals
How did they gave such low fares?- LESS VISIBLE DIFFRENTIATIONS

Culture & People Focus

•Hiring Positive personalities with good sense of

humour thus creating a joyful workplace ( low attrition /
high productivity / no conflicts)

•Average salaries but ESOPS & Profit sharing ( No

upfront cash flow or cost burden)

•Employee engagement by Cultural Committee –

recognitions & celebrations though self funded ( thus
low cost affair & high retention)

•Warrior Spirit ( Encourage sense of cost cutting in each member Credits : www. https://www.southwest.com/html/about-
southwest/careers/culture.html
of company)

Every action & policy focused on reducing the Operating Costs

and raising Machine & people productivity
 How did they gave such low fares?- In-VISIBLE DIFFRENTIATIONS
1. Using Single Aircraft – Boeing 737 – 700
thus saving by:
•Low Maintenance Cost: due to similar preventive maintenance schedules / parts
•Low Spare parts inventory: due to low variety of spares required
•Low Procurement Costs: EOQ models could be implemented due to less variety
•Low Training needs & Low multiskilling need : so less training or retraining cost incurred

2. Using less Marginal employee / increased flight

Multiskilling employees at various tasks / activities ( eg Using pilots as ground staff etc )

Revenue is not a problem in Airlines – Cost is !

 How SW brought the “FUN” factor ??

•Hiring The Right Fit ( Individuals with Enthusiasm & Humour )

•Nurturing & investing in CULTURE ( Where Employees are free to go extra mile to serve their
Customers )
•Focus on care of both Employee & Customer ( Believed that a happy employee will do everything
possible to make customer happy)
•Creating the Brand Identity of Young, Friendly , Refreshing & Exciting ( a service that gives a
memorable experience)

SW marketed in a way to Induce demand by giving memorable

Experience
 The Question ?

How has the original strategy been altered in recent years? How, if
at all, have these changes affected Southwest's key success factors?

Core Strategy : To give Short Flights which is Cheap , Fun & Profitable from inception

New Strategy : Longer Flights to underserved destinations & uncongested airports

“ Expand Revenue generation by capability development & offering new products and
services ”
 New Strategy- Implementation
To Fuel Growth in challenging times Following steps were Taken

- Adding longer duration flights ( upto 3 hrs thus cover entire US geography )
- Code Sharing with ATA in Chicago/ Midway
- Developed Technology like IT Infrastructure
- Change in Boarding process ( 3 line entry system ) but with Business Select
-Fuel hedging ( practicing Financial Risk Management- better planned Cash Flows and Cost
management)
- Exploring New Markets ( using “ The Power of Network”)

- Cut Throat Pricing ( 60 % less that competitor)

SW Induce demand from uncongested Airport but with only

marginal rise in Costs like No. of Employee req/ new flight
New Strategic pricing boosted demand at new destinations
 Analysis on LaGuardia

Airport situated in Midtown New York with only 1 Air Strip

 Arguments for Recommendation

On-Time travel is a far bigger challenge

Weekdays are as Busy

as it can Get

Week end are mildly

Islip airport traffic busy

majority is a Business traveller – who is

usually not very price sensitive to such
locations – Competing with Low Price
make less business sense
 Arguments for Recommendation

Share Of business is not Competitive

ATA’s minor service exposure can not

give option to scale up the service thus
will lag “Economies of Scale” unlike
other airports

Due to less service share bidding for

busy time slots i.e 6:00am – 6:00pm
would be extremly costly
 Arguments for Recommendation

Customer’s Perception – a Marketing challenge

As the Survey suggest Elite / Niche Business class didn’t like the Boarding process

High Landing cost

Only 7/8 Flights possible out of airport out of 3200 flight operated / day by SW

For 7/8 flight complete Employee & infrastructure required

Service could not be started earlier that end of 2009 ( thus blocking working capital),
rather would incur admin costs

Power of network concept could not be replicated here owing to delay issues

Now business was more about Variable cost ie Fuel Cost than Fixed cost i.e Plane
cost- In air wait was a common phenomena
 Recommendation about La-Guardia

LaGuardia Challenge:

Though a lucrative business opportunity by volume but managing Flight Delay ,

Cancellation is trade-off with Core Service Competency i.e right Time travel at low
Cost

We recommend NOT to enter La-Guardia Airport

Case : Southwest Airlines – LaGuardia Challange

THANK YOU