Southwest Airlines: The corporate culture of the LUV airline
Southwest Airlines is known for a unique corporate culture that is particularly distinctive, in contrast to its competitors. Southwest Airlines has "a raucous corporate culture that is the exception in the grim airline industry" (Bailey 2008). From the Airline's inception, its founder and chairman, Herbert D. Kelleher ensured that there was "a startling amount of office hugging and kissing in lieu of handshakes; elaborate practical jokes; and on-the-premises beer drinking at headquarters, as long as it is after 5 p.m." (Bailey 2008). The Airlines' quirky sense of humor is communicated through everything from its abbreviation on the stock exchange (LUV) to its behavior of flight attendance on board, which often involves cheering, singing and dancing. "The service, while no-frills, is generally cheerful. And on many days that is enough to distinguish it from other airlines, where the workers have a hard time masking bitterness over pay cuts, increased workloads and often contentious relations with management" (Bailey 2008).
This is deliberately orchestrated by Southwest, which takes pride in hiring personalities not simply focusing on the candidate's resume. "We at Southwest put a lot of effort into our selection process. We received over 100,000 applications every year and hired a very small percentage of those people, maybe 2,000 or 3,000. We used to say that we hired for attitude and trained for skill" (Holstein 2008). Character and personality cannot be trained, unlike skills. Training of all employees is extensive, and regardless of the position filled by the employee, the stress is upon understanding Southwest as a holistic corporate culture. Southwest tries to enable all employees to understand how they 'fit in' to the processes of the company, which is designed to eliminate the interdepartmental and interpersonal rivalry which has plagued many airlines. Every "new employee would come in for orientation. It would be all sorts of employees, everybody from pilots and ramp agents to reservation agents to mechanics to executives" (Holstein 2008). There are no executive dining halls or separate areas where employees are segregated by rank and function. This creates a 'we're all in this together' collective mentality.
Southwest also views it as incumbent upon itself to create a positive corporate culture that supports its people. "You can hire great people…… [Read More]
Effectiveness of Southwest Leadership
Southwest management has defined a clear and simple business purpose. The management has also chosen the right business model that supports the business purpose. The management consistently demonstrates the core values and behaviors derived from the key business purpose (Emerald, 2005). The quality of the airline customer service is synonymous with warmth, friendliness, individual pride, and company spirit. This has kept the staff morale high. The leadership has opted not to do their business the usual way by providing low fare air transportation service in 34 states in the United States of America (Emerald, 2005). This has forced its competitors into bankruptcy. The airline's decision making bodies are capable of executing the business model through perfect strategic alignment. Southwest Airlines' organization is kind of upside-down pyramid making it very much in line with the way they want to do business. The upper management is at the bottom and supports the frontline employees who are the experts.
The experts execute the day-to-day and yearly business planning and operational budgeting which is done bottom-up. This unorthodox leadership style was put in place by Herb Kelleher who was its co-founder. Under this kind of leadership style, management decisions are made by everyone in the organization not just the top executives (Roybal, 2011). Emphasis is not put on structures. Employees are instead allowed to think freely without constraints. The way Southwest Airlines do business is unique to them. Their fleet solely consists of 737 Boeing. They strictly offer economy seats. There are no in-flight meals save for peanuts and other snacks. This set them apart from their competitors. The Herb Kelleher leadership style motivates Southwest Airlines employees who are valued for their ideas, their hard work, their extra effort, and extraordinary work ethic. They feel valued, respected, and motivated to perform to even 110%.…… [Read More]
Southwest Airlines originally began operation in 1967, but as Air Southwest Co. In 1971 its name was changed to Southwest Air Co. The purpose behind its foundation was to provide passengers with a cheap means of air travel within Texas. Today they have a fleet of 550 Boeing 737s and 37000 employees. Although it's a relatively small, domestic airline, taking passengers to 73 American cities, but it provides remarkable customer satisfaction. Its $178 million Net income provides a good estimation of its profitability. The company has a high position in the Fortune 500 companies and the Department of Transportation's survey of customer satisfaction placed it at number one. Its complaints ratio per passenger is the lowest among all airlines operating in U.S.. Its popularity among customers as well as employees is legendary. The airline empowers employees with decision making rights for immediate resolution of problems. The airline boasts of: close interdepartmental connections - departments exchange gifts, a strong leader, open door policy for employees and strict accountability. The airline answers consumer letters regularly through personalized responses (Bunz, U.K & Maes, J. D, 1998).
Current Trends in the Airline Industry: The airline industry in U.S. has also suffered from effects of recession, however now the industry is facing a rapid increase in demand for air travel. To cope with this increase in flights and planes is needed. Secondly, airlines are forming links with firms providing related services, such as travel agencies, resorts and cab service. There is a new focus on environmentally responsible flying. Airlines in Europe are required to submit carbon dioxide emission reports and U.S. airlines are buying eco-friendly fuel. They are trying to come up with ways of reducing carbon dioxide emission. Increased travel incentives bring 15% more sales and create around 2.4 million jobs which makes them popular among airlines. Unions are being given more power (Dirk, T. 2012).
Southwest is one of the top six airlines to have seen an increase in passengers, numerically a 12% increase. The company already has many links…… [Read More]
The deregulation of the United States domestic civil aviation industry in 1978 saw airlines begin to compete freely. However, the capital-intensive nature of the business, along with undifferentiated products and services, has led to 120 airline bankruptcies since then. In the light of this context, Southwest's ability to compete is particularly interesting as it has not only continued to expand, but has been the only one to earn a profit every year since 1973 (Freiberg, 1998, p. 4-5).
Today, Southwest is the fourth largest major airline in America, flying more than 64 million passengers a year to 58 cities (Southwest Airlines, 2002). Southwest attributes its success to its unique business model of rock bottom fares, low costs, and outrageous customer service that entails getting passengers and their baggage to their destinations on time and ensuring that they have some fun along the way (Peters, 1998, p. xiv). This business model is the basis of the airline positioning itself as a low fare airline that is fun to fly.
Southwest does not assign seats on its flights in line with its business model of keeping its costs and fares low. Not assigning seats gives the airline the advantage of helping cut boarding time to twenty minutes and reducing costs by reducing ground time. The principle, here, being that lower unit costs per flight and higher revenues are achieved by increasing the number of hours that an aircraft flies (Freiberg, p. 82-82). Thus, the aforesaid and several other cost cutting measures have enabled Southwest to successfully occupy the position of a low fare airline. The airline fulfilled its second positioning dimension of 'the airline that is fun to fly' through developing the concept of 'luv.' Everything the airline does is seen to revolve around this concept, including the low fares and flight schedules it offers: "LUV is our stock exchange symbol, selected to represent our home at Dallas Love Field, as well as the theme of our employee and customer relationships." (Southwest Investor Relations)
Southwest's concept of 'luv' is used across its promotional media, and has been central to its advertising theme since 1971 (Freiberg, p.216). For example, a print ad promoting its high frequency flight schedules in 1971 was captioned "How do we…… [Read More]
Southwest Airlines Case Analysis
Southwest Airlines is a company that has grown from a small regional carrier in Texas and surrounding states to the largest U.S.-based airline. The primary strategy of the company is to be the low-cost, no frills option for people wanting to travel within the United States. Recently, Southwest acquired another carrier so they will soon begin international flights to the Caribbean and Mexico. This paper discusses the company, its competitive environment, how it relates to external forces, and how the company has built and maintained its reputation with a creative internal focus.
Until recently the company has maintained a spotless maintenance record, but there have been several incidents that have worked to temporarily tarnish the reputation of the airline. Due to some faulty aircraft inspections, Southwest has had to rethink it maintenance program. Since the issue was connected with maintenance, the primary recommendation of this paper is to implement new standards which will work to re-instill confidence in customers. Also, the airline should also look to upgrading its fleet of airplanes to phase out older models and acquire newer planes which do not have the stress issues of the older planes.
External Analysis of the Environment
Macro Environment Analysis
The principle method used to analyze the larger environment external to a company is encompassed in the acronym PESTEL. The six elements that are comprised in the acronym -- political, economic, social, technology, environment, legal -- are meant to give the company a view of the overriding forces that effect industry. As of right now, Southwest primarily flies within the United States, so is only concerned with U.S. government and laws. However, the company recently purchased a small airline that has routes that fly to the Caribbean so will soon have to deal with those nation's political and legal guidelines. The U.S. political system is stable, and legally there are no issues that Southwest airlines will have to deal with either. Because it is the largest American carrier, there may be of some concern regarding antitrust, but that will probably never be an issue since the FAA regulates the ability of airlines…… [Read More]
Value chain and resource-based view of the firm
Southwest Airlines has a famously unique business model for an airline, one which has enabled it to sustain a profit even during times when the rest of the airline industry's fortunes were flagging. Southwest is a budget airline that offers relatively limited flights to a fixed number of destinations, in comparison to its competitors. However, it strives to offer superior service, thanks to its enthusiastic and well-trained staff. It offers value to customers based upon price as well as programs such as its Rapid Rewards loyalty program (Thompson & Gamble 2008: C-287). "Southwest was a shrewd practitioner of the concept of price elasticity, proving in one market after another that the revenue gains from increased ticket sales and the volume of passenger traffic would more than compensate for the revenue erosion associated with low fares" (C-287).
Southwest was also one of the first airlines to eschew the 'hub and spoke' system of flights. Instead of offering many connecting flights to prominent large airports, Southwest focused on offering shorter, direct and frequent flights. This reduced delays based upon connections. It also increased customer satisfaction by streamlining and improving customer service. Early on, Southwest focused on doing what it did very well, rather than trying to be all things to all people. It marketed itself as a low-fare, on-time airline (C-289).
In an era where service quality on flights is plummeting, Southwest still has a strong reputation for the enthusiasm of its considerate staff. It also exhibits a sense of humor as an airline, most notably in its artful 'love' campaign, a verbal play on words, regarding the location of the airline near Love Field. Southwest staff members were specifically selected for their personality, and being willing to sing and play games was a must (C-287). This strategy also increased customer satisfaction, by making the process of traveling much more 'fun,' even if there were delays. For certain consumers, such as those with an eye upon their pocketbooks, Southwest seemed to be an ideal airline. Also, for customers who travel on frequent, short trips, its Rapid Rewards loyalty program offered more value than standard frequent flyer programs, because the number of trips, versus the number of miles flown, conveyed…… [Read More]
Before 1978, the federal government regulated the U.S. airline industry. Airlines were given profitable routes but were also obligated to serve unprofitable routes in the public's interest. Increases in airline costs were routinely passed along to customers due to the lack of price competition.
In 1978, the airline deregulation act enabled airlines to set their own fares and enter or exit routes without government approval (Lam, 2003). The major airlines responded by dropping the unprofitable routes, in favor of the more profitable ones that were the long haul flights between big cities. Short haul flights still operated, but only as feeder flights to the major airports where the long haul flights departed from. In many cases, passengers had to fly short haul to a hub airport, then connect to another hub airport and take another flight to reach their final destination.
Deregulation allowed smaller regional airlines to expand quickly, being more flexible and carrying a lower level of debt than the major carriers. Their lower cost structure allowed the small regional airlines to position themselves as value airlines, competing with the big carriers on price. In the U.S., air travel rapidly became more popular, due to the size of the country and the lack of competition from alternative forms of long distance travel.
Southwest Airlines began as a small regional airline operating between Dallas, Houston and San Antonio. Deregulation enabled it to expand rapidly and in 1990, it hit the U.S.$1 million mark. Today, it remains a major carrier.
Southwest Airlines has reinvented traditional air travel by implementing super-low airfares and a wacky, irreverent style of doing business. This paper will present a historical overview of the company, discuss the reasons for the company success, identify financial strengths and provide a final conclusion.
I. Company History
In 1971, Rollin King, a San Antonio entrepreneur who owned and operated a small commuter air service, and Herb Kelleher, a lawyer, collaborated their ideas for a new type of airline (Southwest, 2003). Their plan was simple -- they believed that if an airline could offer customers fast, friendly service with low fares, people would choose to fly that airline. Their idea was on target. Today, Southwest Airlines is the fifth largest major airline in America and has flown over 50 million passengers annually…… [Read More]
Southwest Airlines: We Love Bags
Determine how Southwest Airlines' corporate culture differs from other airlines.
Southwest Airlines was founded on the premise that an airline needs to put its customers and their needs at the center of all operations, and further create a customer experience that is highly differentiated, memorable and sought-after by passengers. Southwest has surpassed even its own initial expectations in these areas. The culture of Southwest galvanizes the employees, customers, stakeholders, suppliers and partners into a cohesive value chain all aimed at keeping costs down and increasing lifetime customer value through loyalty (Krames, 2003). Due to its excellent control of costs and aggressive use of fuel hedging, all supported by a very customer-centric, positive culture, Southwest is the only U.S.-based airline to never file for bankruptcy protection, much less ask for a government handout (Rhoades, 2006). Southwest is one of the most unique service businesses in the world due to its ability to translate a core set of values exemplified by a whatever it takes attitude of service to the passenger, friendliness, individual pride, and Company Spirit (Strategic Direction, 2005). Southwest Airlines employees are empowered to take any action that is ethical and legal to ensure customers' satisfaction (Hardage, 2006).
The uniqueness and highly differentiated nature of the Southwest culture is also attributable to the thirteen core values that founder and CEO Herb Kelleher put into place with the company was founded (Freiberg, Freiberg, 1996). He wanted to create a culture of accountability, transparency and trust, in addition to allowing employees to be themselves as well. Mr. Kelleher also believed that when employees were fulfilled in their work, they would be willing to go the extra mile for customers as well (Krames, 2003). All of these assumptions turned out to be correct, and led to the definition of the thirteen values the company is based on. These thirteen values include seeking out low cost yet high value solutions to customers' challenges and problems; relentless pursuit of profitability; family; fun; hard work; individuality; ownership; legendary service; egalitarianism; common sense and good judgment in serving customers; simplicity; and altruism. These values are so critical to the success of the company that new employees are screened using procedures to see if they value them, while also submitting to a 360-degree evaluation cycle within six months of being hired (Hardage, 2006). Southwest is serious…… [Read More]
Air travel is still the preferred means of transport in the United States of America largely because it is faster. However, it has in the recent times experienced decreased growth from the peak in before the 1990s. The period between 1980 and 1990, there was a sharp increase in the number of people travelling by air. Today, major carriers have cut costs in the face of intense rivalry and low profit margins. Nonetheless, the economic downturn experienced in the U.S. has not made the situation any better for the aviation industry. Many airlines have greatly been affected by the increase in fuel prices and demand for high cost of labor. However, through product and service differentiation innovation strategy of low cost, reward and convenience, Southwest has successfully distinguished itself from market competitors in a bid to maintain profitability in this excessively aggressive industry.
Differentiation Innovation Strategy
Products and services can be differentiated in a number of ways for them to stand out as distinct. Southwest Airlines has two main differentiation innovation strategies in place, pricing and convenience. Southwest Airlines charges the most affordable fore in the market and is still able to make a profit. The low fare strategy, as made Southwest formidable in the airline industry and competitive in the transport sector as a whole as many opt to fly than drive. In addition, the airline has secured a prominent market position by defining a business model that adopts one type of aircraft; this has made operations and maintenance manageable. They are able to train their mechanics on the Boeing 737, they stock inventory for the same aircraft and the onboard and ground crew are familiar with it (Stevenson, 2012). In addition, SWA makes it possible for "bags to fly free" this limits time wastage before departure. The aircraft has short hauls, secondary airports and point-to-point (Acap, Feng, & Mattu, 2007). Nonetheless, the airline also differentiates services by not assigning seats as the other airlines, this helps turn the airplane faster at the gate thereby saving time. It is apparent that by faster turning of the airplane increases route flown daily thereby generating more revenue to facilitate lower fares.
Growth Industry Innovation strategy
It is noted that Southwest Airlines has an effect on the airline market. It is noted that the entry of…… [Read More]
Southwest Airlines is one of the most successful low-cost airlines in the world. The company's focus on constant innovation, excellent labor relations, and sound financial management have ensured its success at a time when many companies have suffered from the economic downturn. In this way Southwest Airlines has created an example of business success for many. The company's success is also due to the consistency among its organization practices, which even imitating companies have found difficult to truly replicate. Indeed, the company has used its tangible, intangible, and other resources to ensure its security in the world.
Southwest's response to 9-11 has shown its attitude and commitment to the industry. It has set itself apart from its competitors by avoiding layoffs in an industry where most major airlines cut their workforces by 16%. Southwest, in turn, maintained its labor force and expanded the availability of its product to the flying public. In this way, the company maintained its reputation as a caring employer and service provider, maintaining a high level of importance in terms of both its internal and external human relations. This attitude was difficult to replicate in the face of the 9-11 crisis and the company's reputation received a major boost where others faltered (New York Times, 2011).
Southwest Airlines also has an impressive range of physical resources to maintain its reputation as low-cost service provider. During 2011, the company's fleet amounted to 698 Boeing 737-717 aircraft. During 2011, the company's aim was also to introduce the 737-800 craft into its fleet.
Additional costs were cut down by incorporating technology in its service process. Indeed, the company was the first of its kind to introduce ticketless travel. The company website is responsible for 46% of revenue for Southwest and receives the largest amount of clicks among websites of its kind.
The company has a significant amount of financial resources, which is the result of the company's sound cash management policies. In the financial year 2011, for example,…… [Read More]
The airline industry has been one that has consistently lost money during the last decade. Even before that, if an airline did not have a good business strategy, they were most likely doomed to failure. Many people do not remember Braniff, TWA or Pan American, but for a long time they were among the largest air carriers in the world. He present model, for airlines as well as other businesses, is to determine what they can do to streamline their costs, and the costs to their customers, while still remaining profitable. This may seem like what companies have always done, but that has not been the case. When the economy is doing well customers do not care as much about pricing and carriers offer more for the price of a ticket. Unfortunately this balance has been destroyed by the economic downturn, and many businesses have not been able to survive.
There are some that have either learned the lesson of survival, or they were able to continue a business model that was consistent with the equilibrium that has been established since the crisis. Southwest Airlines has always prided itself on the fact that it is a low-cost alternative to the big name international airlines. Southwest started as a regional carrier and has become successful nationally because they have maintained a pricing strategy that is consistent with the way customers now behave. Like businesses such as Wal-Mart and thrift stores, the low-cost alternative has become the industry reality. Southwest has been able to grow its business through this economic period because of savvy decisions that were made decades ago. With new initiatives (that are actually old ones repackaged) such as "bags fly free" and new ones such as hedging fuel costs, Southwest Airlines has been able to thrive at a time when other airlines are at the brink of bankruptcy. This paper…… [Read More]
Southwest Airlines Analysis
Established in 1971 by Herbert D. Kelleher and several business partners, Southwest Airlines has secured a strong position in the airlines industry over the last 35 years. Southwest and its wholly owned subsidiary, Air Tran, serve a combined 103 destinations in 41 U.S. states, the District of Columbia, the Commonwealth of Puerto Rico, and six near-international countries (Johnson, 2011). Both entities combined offer over 4000 daily flights. The Southwest Airlines corporate vision and self-concept is "America's low-cost, low-fare airline" (West-Grubbs, 2005). This is more than an espoused philosophy -- it's part of an operational model that is permeated throughout all business operations.
Short "peanut" flights are the airline's specialty. Southwest operates almost exclusively with only one type of plane in its fleet -- the Boeing 737 -- a quieter, more fuel efficient, and easier to maintain model which has helped reduce costs. Profit potential is the driving force behind all corporate decisions, not pricing wars or an overemphasis on market share (Hill and Jones, 2009). Many employees are cross-trained. The company has strategically avoided airports with high landing and gate fees. These practices and more all contribute to the company being able to successfully live up to its vision.
This paper will highlight ways that Southwest Airlines' operations have supported its corporate objectives of providing excellent customer service and low-cost fares. The company's unique approach has allowed it to weather recent unfavorable economic conditions -- unlike much of its competition who are in deep debt or bankrupt. In the words of Herbert Kelleher, Chairman, President and CEO, "southwest Airlines has never deviated from its niche: short-haul, high frequency, low-fare service, all delivered with award-winning customer service" (West-Grubbs, 2005). There are also areas that if nurtured would position the company for even greater success. We will also take a look at those in more detail.
Southwest has successfully adopted a cost leadership strategy, maintaining operating expenses per available seat mile at 15-20% below…… [Read More]
Southwest Airlines has been an innovator in the airline industry. The company has steadily implemented one of the most interesting operational strategies since the company was founded. As a result, Southwest Airlines has earned countless awards rated against factors such as employee satisfaction, customer satisfaction, and profitability. Furthermore, Southwest was able to claim these awards while being able to also claim some of the lowest operating costs in the industry. Despite the company's long track record of success, it will face brand new set of challenges and risks in the coming years since the airline industry seems to be evolving. The evolution of the airline industry will be driven by rising fuel costs, slow demand, and many environmental issues. Therefore Southwest will have to be able to further refine its strategy to meet the challenges in the new continually evolving external environment.
External/Internal Industry Analysis
Threat of New Entrants -- Low
The global recession has created an environment in which there is little market share available for any new competitor to try to tap into. Furthermore, since the market size has stagnated, the industry is generally accepting a reduced margin on their services. Furthermore, there are many layers of industry regulations that must be considered before new competitor is to enter the marketplace. However, competition can also enter through acquisition or leave through liquidation which also provides some volatility to the industry and opportunities for a new landscape.
Supplier Power -- High
There are basically two suppliers in the aircraft industry; Boeing and Airbus (Mustoe, 2010). Not only is the number of suppliers exceptionally low, but these suppliers actually coordinate their operations to some extent. For example, the two main companies also share many of the same suppliers and have worked together to pressure some of their own suppliers for their strategic advantage.
Buyer Power -- High
In the airline industry, only a small portion of consumers have any significant loyalty to any one airline brand. In most cases consumers view different airline services as relatively equal and as substitute products. If there is ever a level playing field in terms of price and availability then consumers may have a preference of one brand over the other however this is usually a subsidiary decision. Therefore the buyer power in this…… [Read More]
Southwest Airlines Analysis Using the Maslow Hierarchy of Needs
Are Southwest Airlines Inc. leadership and policies fulfilling Maslow's needs ' theory stages? Please apply Maslow's hierarchy of needs to work motivation at Southwest Airlines, showing how various levels are or are not being met by Southwest Airlines Leadership and Human Resources Management. (for example, are there employees at Southwest Airlines ever fired? How does that relate with lower level needs, such as safety needs?)
The leadership strategies and initiatives at Southwest Airlines are deliberately designed to support each level of the Maslow Hierarchy of Needs. Beginning with the initial physiological needs, Southwest is known for being an airline that pays better than comparable national carriers, while also having excellent medical benefits compared to its competitors (DAurizio, 2008). This ensure the physiological needs of the employees are met. As Southwest is an airline, the safety concerns are a critical success factor in this business. Founder Herb Kelleher set safety and concerns over passenger health., along with employee welfare, as top priority when he created the airline (Nirenberg, 1997). This level of the Maslow Hierarchy of Needs is fully met as well.
On the next level of the Maslow model, which is love and belonging, Southwest has gone to exceptional levels to make sure its employees and customers have a very clear idea of how valued and appreciated they are. The founders of Southwest deliberately created a culture that is focused on participative leadership and customer listening (Lee, 1995). The result is an airline that is unmatched its is ability to use relationships to connect with customers and create raving fans while also creating the most stable workforce in the airline industry, unmatched in its low turn-over (Walsh, 2004).
Progressing to the Esteem and Self-Actualization levels of the Maslow Model, Southwest has a multitude of programs and initiatives in place to give employees a clear sense of task and job ownership. The depth of customer ownership of these factors leads to greater levels of brand loyalty and a consistently higher level of expectation with every experience (Laszlo, 1999). Southwest has been able to transform the customer…… [Read More]
At YUM Brands, this internal environment is characterized by an organizational culture focused on the role of people in the attainment of the organizational goals and objectives. The Yum Brand managers then recognize their employees as the most valuable assets and strive to increase their on the job satisfaction.
"We believe that our customers' experience will never exceed that of our team members. For that reason, our Dynasty Model starts with our people. We know that people don't just play a role in our success -- they are the reason for our success. Our corporate values -- what we call our How We Win Together principles -- are built around a "People Capability First" philosophy and lay the groundwork for the way we team together every day" (Website of Yum Brands, 2012).
Despite the positive attitude embraced by the Yum Brand executives, fact remains that the brands are spread out across the entire world and the four companies (Taco Bell, Kentucky Fried Kitchen, Pizza Hut and Wing Street) operate through numerous franchises. Within the franchises, the focus falls on the preservation of the brand names, the satisfaction of the customers and the generation of profitable results. The emphasis on the personnel as such tends to decrease as the managers are local persons, with different styles, cultures and different implementations of human resource management and organizational culture. In other words, it is challenging for Yum Brands to universally implement its internal philosophies, mission and vision in the spread out structure of its stores.… [Read More]
Southwest Airlines has been a model of success for the past forty years. It is a success based on company values, on low prices, on business innovation, and on the quality of the service, among other elements. The company built on these values and used an adequate promotional campaign and strategy to build brand loyalty. Today, many of the company's clients use its services because of what is known as brand loyalty: customers buying the same services because of an attachment to the company that often goes beyond simple decision making factors such as price or quality.
The paper concludes that Southwest Airlines has been successful for many different reasons, but primarily through a successful combination of good promotion, relaxed and fun marketing and advertising and a solid set of values and competitive advantages, which it continuously emphasized in its integrated communication strategy. Its promotional mix was adapted to the characteristics of the airlines industry, focusing on traditional marketing and advertising instruments rather than the online technology. Fundamentally, the idea of fun was incorporated in the mix, resulting in an informal approach that appealed to people and that strengthened brand loyalty. Brand loyalty is perhaps Southwest's strongest asset, many of its customers preferring the low cost, efficient model that the company has promoted.
This paper will aim to look at some of these aspects from both a theoretical and practical perspective. First of all, it will examine the theoretical framework, with a focus on brand loyalty and promotion. Second, it will transpose these into practice by examining how Southwest Airlines translates the theory into its own planning and approach, including through its fun-centered advertising. The third section will aim to look at how some of the things discussed throughout can be replicated in other areas, such as business to business. The paper will also look at how information technology improves the opportunities for companies such as Southwest Airlines and how it could potentially create a competitive advantage, particularly as…… [Read More]
Margins have fluctuated and are down, indicating short run cost control failure. However, company performance in the long run is strongly attributable to the corporate culture. Southwest has had consistent performance since its inception, despite many swings in the fortunes of the industry overall. This indicates that management fostered a culture that over the long run will drive customer loyalty and will drive steady, incremental cost reductions. Success for Southwest is not measure in short-term results so much as long-term and on that measure the culture has contributed to a long run of success for Southwest.
One of the strategic decisions in the case is how to deal with the declining revenue environment. The airline industry has struggled in recent years leading to industry-wide cost reductions. To address this issue it is recommended that Southwest simply ride it out. The corporate culture has been a source of value for the company, and layoffs could compromise that culture. Therefore layoffs will cost more than doing nothing even as revenues drop. The second recommendation is to use the opportunity to find new routes. As other carriers reduce capacity, space may become available at airports that would allow Southwest to drop less profitable routes for ones that are more sustainable over the long-term.
The first leadership action to implement these decisions would be to take a public stand reassuring the employees that there will be no layoffs. While layoffs are bad, the fear of layoffs is almost as bad for morale within the organization, so a public stand could assuage that fear. The second leadership action would be to ask for the employee's assistance in cutting costs further. While the culture exists, this act would reinforce the culture, by imploring the employees to buckle down and go to battle for the company. Another leadership action would be to go on the offensive -- make an internal declaration such as a mission statement for the coming year that will rally the troops against a specific target. This could be overtaking a rival airline in market share or perhaps turning a profit. In either case, these tactics will work because the instill confidence in the employees and then follow through on that by challenging them, appealing to their sense of being an underdog.
Southwest has built its success by fostering a corporate…… [Read More]
The secondary gross margin measure, Gross Margin after Depreciation, shows the costs of having a rapidly growing infrastructure to support new routes and the purchase of additional planes over the five-year period. The reduction Gross Margin after Depreciation would be flat or slightly down during a strong economic period as well. This measure of gross margin indicates that the capital investments that are often amortized over seven years as fixed assets are being depreciated on the Southwest Airlines balance sheets through the 2004 -- 2009 period. In summary, the Southwest Airlines financial statements reflect how effective the strategies of continually improving productivity through process improvement are which are tied very closely to the culture the company has worked so hard to create. The activity-based ratios shown in Table 1 including Inventory Turnover, reduction of Operating Cycles and stabilizing Days to Sell Inventory stabilized at 9 days is impressive. This says that despite the rapid growth the company has achieved, they are still as efficient as when they were significantly smaller in 2004.
Table 1: Southwest Airlines Ratio Analysis
Describe the characteristics of company's culture and how it affects company performance.
The thirteen core values of the companies mentioned earlier define a strong foundation on which trust is established and maintained between managers, employees, senior management and service partners throughout the airline's network. This trust acts as an accelerator of key business processes, as it enables much greater tolerance and resiliency to change on the part of its employees. It is noteworthy that Southwest Airlines is one of the few airlines that is not completely managed from unions at the mechanics level of operations, and the commitment to values is a major factor in contributing to keeping unions from overtaking this company (Krames, 2003). If there is a cornerstone to the culture that directly contributes to the company's ability to translate its values to profits, it is its egalitarian nature and openness, and the trust that pervades communications (Sadri, Lee, 2001). This cultural attribute above all others has led to fewer mistakes being made, fewer problems with…… [Read More]
Southwest Airlines, Inc.
Southwest is an impressive company on many levels. Most notably, it's determination to do whatever it takes to get the job done stemming from its original battles to begin operations make the company flexible in meeting the demands of a highly dynamic industry. Secondly, the company fosters innovation and has been very creative in being a leader in transforming the industry. Some of the most important examples include its ability to facilitate rapid turns, early leadership in online ticket bookings and "outrageous" marketing campaigns.
Thirdly, the belief that the employee comes first and that customer satisfaction will follow has boded well for Southwest. It's "hire for attitude, train for skills" and People Department reinforce this airline's dedication to making the working environment as enjoyable as possible. This combined with an open door policy and lean management layers promotes a strong sense of ownership and team accomplishments. Southwest consistently appears on Fortune's list of most admired airlines because its can do attitude, innovation, motivated workforce have propelled the company to be profitable for nearly thirty years even though it competes in an industry that is vulnerable to economic cycles that typically have large effects on the bottom line of airlines.
Southwest is a company with few visible weaknesses, but does have room to explore opportunities related to price elasticity in the industry as well as online sales. Currently, the airline has recognized that there are time-sensitive and price-sensitive customers and has developed on-peak/off-peak pricing schedules to reflect this. However, this is just the tip of the iceberg in exploring what options customer are willing to pay for such as assigned seats and business class cabins, features that other airlines exploit to boot their margins for every seat-mile they fly. The case doesn't reveal the fact that Southwest doesn't partner with other online travel such as Travelocity and Microsoft's Expedia. The airlines states that…… [Read More]
Internal Analysis of the Southwest Airlines RBV Framework
Southwest Airlines (NYSE:LUV) has a market cap as of September 12, 2011 of $6.3B, the most profitable and valuable American-based airlines there is today. This is a direct result of the company's ability to consistently take a resource-based view (RBV) of its inherent strengths and develop and execute successful strategies on them over time. The RBV of the airline industry illustrates how challenging it is to attain higher levels of Return on Invested Capital (ROIC) on a services-based business that is under continual price competition (Kumar, Johnson, Lai, 2009). Southwest has been able to overcome these challenges by concentrating on fuel edging strategies, greater focus on standardization of aircraft and supplies to drive down operating costs, and a focus on delivering an exceptional customer experience on each flight (Michalisin, Karau, Tangpong, 2004). Using an RBV-based analysis of the company, this report provides background and recommendations for future strategies going forward.
Southwest Airlines has successfully differentiated itself for its many competitors by taking an RBV-based approach to quantifying the contributions of its culture and employees to profitability. The foundation and catalyst of this unique aspect of the Southwest Airlines culture is predicated on the thirteen cultures the founders put into place when launching the company (Freiberg, Freiberg, 1996). Based on these thirteen values, a culture of trust permeates the company today. Given the high level of trust within and between departments, there is also a high level of creativity and flexibility in completing tasks and responsibilities, all centered on the customer experience above all else (Rhoades, 2006). It is noteworthy that Southwest is the only airline to generate a positive Return on Investment (ROI), Return on Assets (ROA), and Return on Equity (ROE) during the last recession, far outdistancing its competitors on these critical financial metrics. The greater the level of trust and an egalitarian mindset in a company, the greater the level of information velocity and corporate performance
(Kochan, 2006). In use the RBV of translating values to profitability, Southwest has successfully turned trust into the most effective accelerator of all. This gives associates the flexibility to meet and exceed any customer expectation within reason while also working to serve their…… [Read More]