Southwest vs. Lufthansa Quality Management Creating Value

Southwest vs. Lufthansa

quality management

Creating value through quality management

Southwest Airlines is famed for having one of the most unique business models and philosophies of any airline. It began as a ground-breaking organization that offered bare-bones, low-cost services to passengers. Flight crews were entertaining and responsive to passenger needs, and even though no in-flight meals were served, customers flocked to Southwest. The company openly advertises that it selects its employees because they have a certain 'attitude' and are willing to joke, be silly, break into song, and have 'fun' with their jobs. Although a larger percentage of its employees belong to unions than any other major carrier, it has never had a strike. Employees are the best-paid workers in the industry, but costs are kept low: "Since Southwest has about 30% fewer employees per aircraft than its network competitors, it has the lowest non-fuel C.A.S.M. (cost per available seat mile) of any of the major carriers" (Brancatelli 2008). Even management ranks are lean: "but well compensated and, most importantly, productive. I once calculated that the top executives of Southwest generated 10 times more revenue per dollar of compensation than did the C-suite types at some of the network carriers" (Brancatelli 2008).

Southwest began as a regionally-focused airline, eschewing a wide-ranging outreach and instead stressed frequent, direct flights to popular places: "Most of its flying is nonstop between two points. That minimizes the time that planes sit on the ground at crowded, delay-prone hubs and allows the average Southwest aircraft to be in the air for more than an hour longer each day than a similarly sized jet flown by a network carrier" (Brancatelli 2008). Southwest has streamlined the type and size of its planes to save money. "Unlike the network carriers and their commuter surrogates, which operate all manner of regional jets, turboprops, and narrow-body and wide-body aircraft, Southwest flies just one plane type, the Boeing 737 series. That saves Southwest millions in maintenance costs -- spare-parts inventories, mechanic training and other nuts-and-bolts airline issues. It also gives the airline unique flexibility to move its 527 aircraft throughout the route network without costly disruptions and reconfigurations" (Brancatelli 2008).

Southwest focuses on minimizing the time it takes to get people in the air -- until recently, it adopted a 'cattle call' style of boarding with no priority seating. It has no different 'grades' of classes and no assigned seats. It is simple and democratic in its services. However, passengers are pleased because of the high levels of quality and low prices. Keeping prices low, minimizing all extraneous costs through streamlining and passing value onto the customer requires close monitoring of costs. The final key component of Southwest's business model is its fuel-hedging program which has saved it an estimated $3.5 billion since 1999 (Brancatelli 2008).

In contrast to Southwest, the German airline Lufthansa is an internationally-focused airline. But like Southwest, it too has deployed a fuel-hedging strategy to minimize costs. Its CEO recently announced that "Lufthansa is hedged on 75% of 2011 fuel needs…We had not at all taken the rise in oil prices into account, but have been protected against it by our hedging policy" (Webb 2011). Lufthansa is Europe's second-largest carrier, and like Southwest, it has weathered the recent economic downturn better than expected.

Southwest has been expanding while larger airlines have been contracting, adding new flights and destinations, thanks to its reasonably steady profits. The larger Lufthansa, however, is trying to engage in cost-cutting: "trimming winter capacity growth to 6% from 12% by using smaller planes, deferring planned routes and shutting the Lufthansa Italia unit, while wrapping up a program to cut costs by 1 billion Euros from 2008" (Webb 2010). Streamlining for Southwest was a continual process and part of the daily operations of the company business model since day one, while Lufthansa has adopted a more conventional approach of thinking big and then downsizing when the levels of consumer demand could no longer justify its growth.