Southwest Airlines - Business Success

Southwest Airlines - Business Success

Although virtually every sector of the airline industry is suffering today because of rising fuel costs, Southwest Airlines continues to boast an impressive bottom line. At the time of the writing of Nuts, a book devoted to examining the company's unique managerial and organizational approach, in 1995, the company had 224 planes serving 45 cities and revenues of almost $3 billion. Its stock had increased almost 300% since its conception (Frieberg & Frieberg 100). Not bad for a company that had four planes serving three cities an annual revenues of $2 million when it began operating in 1971. The subject of Kenneth and Jacqueline Friedbergs' book is how the company accomplished this feat by 'breaking all of the rules' regarding how to manage people.

Facts and Assumptions

When CEO Herb Kelleher was formulating his managerial approach, scientific managerial strategies were the rage -- Total Quality Management's stress upon the elimination of defects was especially popular. However, Kelleher decided to throw these assumptions out of the window. An airline is ultimately part of the hospitality business, and what makes the hospitality run is its human resources -- its employees.

Problem Statement

Southwest Airlines was at a disadvantage as a small, regional carrier serving the Southwest of the United States, in comparison to larger, international and more famous airlines. However, Southwest decided to turn this apparent disadvantage into an advantage, to make its smallness as a company part of its company ethos and branding. Southwest's CEO resolved to treat "the company's 35,000 employees like family, to make the workplace fun" through team-building exercises, parties, and a general free-for-all atmosphere of silliness ("Southwest Airlines' Colleen Barrett flies high on fuel hedging and 'servant leadership,'" 2008,).

Alternatives

Southwest could have adopted some of the popular managerial philosophies of the day instead of crafting its own company ethos. But it decided to treat its employees with as much care as some companies treat their customers, and made the idea of 'free nuts' on cheap flights (both in terms of its employees as well as its snacks) part of the company image. Value and democracy rather then exclusivity was what was important to Southwest. Company CEO Herb Kelleher even engaged in a publicity-building arm-wrestling match for the right to use the slogan: "just plane smart," the proceeds of which went to charity. The company's core belief is "to follow the Golden Rule -- to treat people the way that you want to be treated, and pretty much everything will fall into place" ("Southwest Airlines' Colleen Barrett flies high on fuel hedging and 'servant leadership,'" 2008,). This means that if a company shows respect and loyalty to its employees, provides them with fair wages and benefits, and treats their input as valuable, employees will return the favor of consideration.

Decision

Ultimately, the travel business is about hospitality and human beings. By emphasizing the human function of its 'human resources,' the company flourished. Carefully selecting employees so they embody the company work ethic were deemed essential. Once employees were 'on board,' the company made an investment in their welfare: "The costs of getting burned once in a while " by a bad employee decision "are insignificant compared to the benefits that come from people feeling free to take risks and be creative" (Frieberg & Frieberg 135). The company's informal approach can be seen in the fact that Southwest does not have a Human Resource Department -- it has a People and Leadership Development Department and Southwest's "is not afraid to use the "p" words: people, personal, personalities" (Case Study: Southwest Airlines, 2005, CPP).

The company continually stressed the human nature of travel, and strove to make airplane travel affordable and enjoyable. Many people who used Southwest Airlines had never been able to fly before. However, the 'customer did not come first' at Southwest -- rather the customer came second, even though they "still got great service" (Friedberg & Friedberg 268). The company stood behind its employees, and allowed flight crews, for example, to use their expertise and knowledge to make autonomous decisions, rather than force the crews to worry about upsetting sensitive customers. The company believed that low fares and hospitality were what most customers care about, and did not focus on catering to customers with minor complaints. "Love doesn't guarantee approval... Although many people equate love and approval, they are not the same. Real love comes without conditions; it doesn't depend on anything. Approval must be earned by our performance" (Freiberg & Freiberg 228).

Southwest fulfilled its promises to its employees with real, hard dollars as well. As well as free airfare, Southwest offered an extensive profit sharing arrangement for its employees, a competitive salary and insurance benefits. Today, its employees rank themselves as highly satisfied with the company: "Southwest receives a minimum of 100,000 job applicants per year and consistently has the lowest turnover rate of any airline. People leaving is virtually nonexistent," ("Best practices case Study: Best perks, Southwest Airlines," the Vault, 2008). Only at Southwest could a legal secretary like current president Colleen Barrett move from the position of legal secretary to the corporate suite while, working with mentor and company co-founder Herb Kelleher. Barrett states proudly that she spends "85% of her time as president dealing with worker issues," which is based upon the idea "that a happy and motivated workforce will essentially extend that goodwill to Southwest's customers" ("Southwest Airlines' Colleen Barrett flies high on fuel hedging and 'servant leadership,'" 2008).