Enhancing Service at Southwest Airlines

Group No. 1
Section C
Submitted By,
SUNIDHI SHRIVASTAVA (17139)
ATHUL KASHYAP T (17104)
BASAPPA SAGAR K S (17105)
PRATIK TRIPATHY (17126)
POOJA A HONNAVAR (17125)
Date of submission: 08-11-2017

Executive Summary

Southwest Airline established in 1967 by Herb Kelleher. It started its operating form 1971 in
Dallas. Southwest was the first UASs low cost carrier. Although airline industry suffered a
major problem from the attack made by terrorist on WTO on September 11th, Southwest airline
is still sustained strong, where other airline companies are in debt. The major success to their
continued due to its low-cost model and competitors are know that they cant match with
Southwest Airlines low prices so they stared dropping the price even lower. Caused the other
companies went to bankruptcy. The company had even achieved a 12% increase in revenue in
2008 as the U.S falled into recession. But in the winter and spring season of 2009 had been
suffered, with passengers decreased to 10%. Price wars had begun in earnest, with offers as
low as $99 for coast to coast travel. Southwest airline differentiated itself by its simplicity and
its low cost service. Problematic situation faced by southwest airline was new leadership
management that appointed in 2001 this caused dramatic change in Southwest culture, and
increasing cost for fuels and wages. The recommended plan is to overcome the problems is to
reduce the cost doing more research and development. And also by giving promised services
to the customer to satisfy them. (https://www.ukessays.com, 2015)

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Statement of the problem

To find the best possible expansion strategy amongst the three options of routes.
Expand within the current system of operation.
To expand globally by entering into partnership with other airlines
Even though Southwest was able to run in the profit over every year for over three decades,
the profit margin was decreasing over the last three year (as per the cost sheet and balance
sheet provided). Decrease in passengers rate by 10% may have caused the airline industry a
dent in their profit margins. The tag bus of air travel may have impacted negatively to the
image of the company, where passengers are not offered with food, high quality wines or any
beverages, as the company prefers low fare strategy. Southwest also doesnt offer
preferable seats feature to passengers, as they think that would cause more grievance than
satisfaction to the customer.
Long term issues:
Finding ways to utilize low fare strategy in the long run
Explore global market and to utilize long distance flight market
To find best expansion strategy
Short term issues:
Whether to partner with overseas airlines to expand
Serving high quality beverages and providing facilities Wi-Fi
justifiable to their profitability
Strategies to keep the employees motivated and involved in effective
way

Causes of the Problems:

1. Point-to-point model-This model refers to the transportation system which travels

directly to the destination, instead of going through a central hub. Southwest airlines
did not prefer hub-and-spoke centre instead they deployed point-to-point model. After
deploying point-to-point model, Southwest chose smaller and lesser crowded airports
in medium sized cities (like Manchester NH instead of Boston) or secondary airports
(like Midway in Chicago rather than OHare). The smaller airports which provided
benefits like decreasing runway costs and the capability to lease multiple gates.
Southwests smaller airports reserved flight time as much at 15-20%, which depended
on the airport. However, this also became tedious for passengers to connect to other
airlines.

2. Recheck-in baggage: Passengers who are connected with flight have to pick up their
checked baggage when they are going to switch to another airline and again recheck-
in with the next airline which implies that the airlines did not provide high customer
service value. Southwest did not coordinate its service well with the other airlines. To

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 strengthen its position among competitors, it has to give an advantage for the
customers who make reservation earlier.

3. No assigned seat for passengers: When Southwest adapted check-in online via the
website while still using the numbering whereas the approach was first-come-first-
serve in seats assignment. The new web-based process allowed to reserve some low
numbers for frequent travellers showing unethical favouritism which again lead to
customer dissatisfaction. There exists no rapport between employees and customers.
This is an issue because passengers might easily change their preferences and fly with
other airlines.

4. Lacked in Services: Southwest failed to provide services like assigned seats, WIFI
internet access and other refinements such as extensive wine and coffee service that
concluded over and over again that it would slow its service causing greater customer
dissatisfaction. They thought they are different than the competitors with no meals, no
seat arrangements and a single class of service. Rather than emphasizing on meals and
differentiated service, the Southwest model focused on fun which presented the image
of happy family. This kind of model will not earn the customer loyalty in long run.

5. Rewards count on trip: The credit was not given to passengers on the basis of total
number of miles they flew. They lacked to understand customer grievances and to
know customers feedback regarding services. Hence, customers would choose
Southwest airlines only for short flights because the length of flight is not a factor in
company reward system. In a way there was no proper co-ordination between
employees and customer

6. Tough competition in the industry: Even though Southwest was able to run in the
profit over every year for over three decades, the profit margin was decreasing over
the last three years (as per the cost sheet and balance sheet provided) because the
Southwests competitors were attracting its loyal customers by providing low fare
pricing and they emphasized on providing differentiated services such as internet
facility and other refinements. Therefore, Southwest airlines faced huge competition
in the airlines industry. (WIKIPEDIA, n.d.)

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Decision criteria and alternative solutions

Focus on secondary charges

Southwest with its Bags fly free concept has been able to attract customer, where the company
does not charge for the first two bags checked in by the customers. The move has helped them
in distinguishing from its competitors. But from the below data where companies like Spirit
airlines which handles almost 20 times lesser customers than Southwest, charges heavily for
baggage and other secondary services provided.
We feel southwest cannot sustain longer in low cost strategy with its current operation
model as expenditure over the years are increasing and profit margin has been decreasing (even
though its less, its an alarming issue).

3Q 2011 Airline 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 3Q 2010-

Rank 11(%)
1 Delta 259.5 219.1 198.0 226.3 232.5 -10.4
2 American 151.2 148.9 137.2 156.1 152.8 1.1
3 US 131.8 125.5 120.9 134.8 128.8 -2.3
Airways
4 Continenta 90.5 83.5 76.3 91.3 94.3 4.2
l
5 United 83.9 73.4 66.2 71.1 74.8 -10.8
6 Alaska 34.4 28.0 36.2 40.3 46.1 34.0
7 AirTran 38.1 39.8 39.3 46.1 42.8 12.3
8 Spirit 22.9 25.7 28.2 34.4 36.9 61.1
9 Frontier 14.7 18.0 16.7 18.0 20.2 37.4
10 JetBlue 15.5 13.7 14.3 15.9 17.4 12.3

Table 1: Revenue from Baggage and Secondary operations (in million dollars)

From Table 1 (BTU, 2012), where Southwest company, which is one of the USs largest
airlines is not even in the list of top 10 airlines which obtains millions of dollars per quarter.
Southwest should start concentrating on increasing its revenues from secondary operations
also, still offering it lesser then the competitors price.
Pros:
Increased revenue
Company will still be in competitive edge as the increased cost is less compared to
competitors
Cons: Since the Baggage cost is most visible cost among the services provided, company might
lose its low fare flier tag.
Increase carrying capacity
To maintain the cost or to still reduce the operating costs Southwest can opt for increasing the
carrying capacity with more of Boeing 737-MAX which has more fuel efficiency and carrying
capacity than Boeing 737 700, 300 and 500 aircrafts.

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This helps in maintaining relatively low operating, as cost spent on average mile by the
company decreases.
Cons: The challenge here will be to use those aircrafts to its full efficiency as Southwest has to
attract more customers in order to fill the additional seats in the flight, failing which company
will start incurring huge losses as less number of seats in bigger aircrafts leads to high
maintenance and operational expenses.
Explore global market:
As the competitive advantage of Southwest is low cost strategy, airlines can explore overseas
in Asian continent where countries like China and India prefer to fly in economical carriers.
Pros: Huge opportunity in Asian countries for low fare airlines
Cons: The threat here would be to compete with the high competition with already existing
budget airlines.
Continue to excel in their differentiated services
The important competitive edges company has over its competitors are:
Playful ads, attractive services provided by their employees (flight crew)
Adopting innovative ways to reduce cost(reducing time spent in turning)
Ability of adopting to changing technology, rules and regulations
Cross functional support from the employees (no competitor has it as they regulate
an employee from one department to involve support other department employee)
These functions by Southwest has strengthened its competitive position in the industry
Pros: These adopted methods have been proven to yield better results for the company

Recommended Solution, Implementation and Justification

Among the alternative solutions discusses above we recommend company to concentrate on
excelling in their current differentiated services and keep investing in R&D, in order to
innovate low cost servicing methods.
To provide structured and continuous learning programs to the employees which will
contribute in better services to the customers and also retains the employees, decreases the
attribution rate, improves the employee management relationship. Employees in Southwest
are playing exceptional roles making the company stand apart from its competitors. Hence
Human Resource policies to be refurbished to suit their needs. Cross functional contribution
by employees has made them save time in turning of plane which has helped them to
increase the number of trips. Hence company should concentrate more on building healthier
relationship with development plans to employees.
Investing in R&D, has proved profitable to the company as they have made use of
differentiated. Using plastic, reusable boarding cards, avoiding smaller runways to save 20%
of flight time. With zero incidents that reports passenger calamities, R&D of southwest has
proven its Hence, company should reserve a surplus amount in innovating new methods and
techniques which could reduce its operating cost. Focusing on fuel efficiency can contribute
more than expected as fuel expenditure alone conquers around 25-30% of total cost
incorporated by the company. Increase the usage of single engine taxi, instead of using the
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thrust reversers on landing, which saves fuel and landing time of the aircraft. Introducing low
cost services as Wi-Fi has been profitable for the company as providing internet services at
over 30,000ft from grounds has been astonishingly attracting customers.
Threats in expanding globally with partnership may be, partners may not incorporate the fun
and customer centric attitude from the Southwest airlines, which can decline the brand image
of the company. Also the cross functional contribution by employees, innovative methods
used to save the cost may not be applicable to partners airlines. Hence team proposes to
expand globally in an organic way in long run. But, increase its market share and revenue in
short run through innovative technologies that could save cost and helps in retaining the low
fare- flier tag for the company and also to motivate the employees in order to serve the
customers better.

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 Appendix
Scrutinizing key questions posed in the case with counterview:

1. Would high-quality wines or greater beverage selection conflict with their operating
model?

Solution: Kellys thought on providing high quality wines and coffee service was definitely a
subject of scrutiny since, a key component in providing competing Customer Service and
creating a relative stable environment for itself was low fares. For this to happen they must
focus on controlling their costs. It traditionally emphasised on lowering costs and increasing
productivity and quality. They internally engineered their processes and collaborations on the
will to pass on cost savings. Successful in creating a trustworthy environment for its
suppliers, customers and employees. Employees were expected to behave ethically and also
pursued tactics which aided in cost cutting.
Since, they had made low fares as their selling point. Simplifying its operations was the most
important driver to save money. Strategies such as having "One type of aircraft", "cash-
register receipts as tickets", "no computer reservation system" and "no meal service" are
some examples of its low cost arrangement. Southwest is well aware of the fact that airplanes
yield earnings only when they are in the air. In addition, to the "point-to-point" strategy,
Southwest chooses to operate by the most productive way of adopting the concept of "high
average velocity" instead of prevailing "hub-and- spoke" system.
In order to pursue low fare cost affair, the company had excluded the meal service from its
flights, by serving beverages, peanuts to the passengers during flights. Another factor
contributing to cost advantage was the work force the company has, the shortest turnaround
time, in comparison with the industry average of about an hour, its thus able to squeeze more
flight hour.
They used web means to sell tickets thereby saving cost of paying travel agencies. To sum up
the answer wed like to state that incorporating these extensive services into their portfolio
will require careful assessment as they are about to deal with beverages of exotic range that
would require careful selection of suppliers, understanding tastes of a plethora of people since
they attract customers from a variety of segment. Whether or not the suppliers comply with
the companys nature of doing business. Seamless supply is important since they have set a
very low turnaround time for the flights and have maintained it through as a differentiating
service feature, which has created a win-win situation for both the business and customers.

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But since its ability to adapt to change is appreciable as well as significant. As it has time and
again suited itself to policies and tailored strategies to benefit it in the long run like the
famous ten minute turn time after it had sold one of its carrier preceding to a bankruptcy.
The growth in revenue during the global economic meltdown is another such instance where
it had showcased, how innovation can fair well! Change in security check policy by the
government and its immediate response to it by empowering the customers to print out a
check in paper from internet in the same time following its own tactic of numbered
assignment of seats. We are of the view that it can comfortably scout for the right parties and
embody the proposed service in its business.

2. Was free Wi-Fi consistent with their fun services?

Solution: Internet accessibility using Wireless Fidelity through a satellite proposed by Garry
Kelly is a topic of debate certainly since, it traditionally was involved in a jovial kind of
interaction among its customers, its flight attendants cracking bold jokes while following
standard procedures, non-formal attire, most appealable being the occasions of Halloween
and Christmas, worn by the flight crew. All of these adding up to form a strategy which
Southwest airlines bragged of as economical but not unsafe. Thus, exhibiting cost effective
models and endeavours, setting up standards for recruitment of personnel, their conduct in the
work place were essential in establishing the firm at the pinnacle of success. Annexing
markets through gregarious advertising, frequent mock-ups at the competitors and the
famous persona of the erstwhile CEO and founder Herb Keller his association with humour
and tastes- his fondness for cigarettes and bourbon, which helped the firm realise its plan to
differentiate its services through humour took a form of a moral fibre in the organisation.
Thus, bringing in internet (through Wi-Fi) could turn up as a Trojan horse for the effective
strategy theyd been following since long and which had ensured profits in terms of securing
a place in customers minds and helped them in justifying their low cost operations. As it
would create distraction from the activities which the company has been following as a plan
to make their service appealing to the customers. Also, since they generally operated between
destinations which were very near in term of distance so procuring Wi-Fi for customers
would rather be a cost than being an extensive service scheme. Thereby, hurting its profits.

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3. Could International partners help Southwest Airline continue to grow without
slowing down its operations?
Solution: A fairly young fleet with an average age of about ten years which helped it remain
in air for long prior to a spree of maintenance which they had engineered to ten minutes turn
a plane scheme and it further increased their capability. Consistent use of Boeing 737 jets
which were the least in size in the category added advantage in terms that they could increase
their flying arsenal by adding more flights (since less costly) and maintain them healthily.
With a relatively lower lift of the aircraft to its weight ratio which represented a measure of
the stress to which the structure of the aircraft is subjected to i.e. 71.2 percent it could limit
damage to the engine and structure of the airplane significantly.
All the above mentioned operational tactics were highly efficient in positioning Southwest
Airline as a major player in the aviation category. If it were to seek out for potential
associations the most important criteria after compliance with work culture had to be
inclusiveness of the jets which the airline featured and vice-versa which go against its
consistent availability and thus, would turn up to be a friction for the combination. This could
also go on to hurt the low cost model followed by Southwest Airlines.
On the other hand if the parties could come upon a consensus that Southwest would indulge
only in less distant flight schedule and extend its help only in the form of adding flight crew
could work out. So, overall a deliberate exchange and involves trade-offs. Although,
expanding to a different geographic location, in terms of culture and talent, seems to a costly
and hence distant fling and thus, falls under high degree of scrutiny.