Charissa Mae G. AmperBS in Management - IVMGT 190, MTh 1:00-2:30pm

Southwest Airlines in 2014:Culture, Values, and Operating Practices

The following are the right things done by Southwest Airlines:

1. Past Battles Fought. When Southwest Airlines was still new in the airlines industry, it faced many legal, regulatory, and competitive conflicts. One of the first battles the company fought was its refusal to transfer its flights from Dallas Love Field to the new DFW Regional Airport. The next conflict happened when the rival airline companies opposed Southwest’s application to start serving more small cities in Texas. Another fight happened when Southwest persuaded the U.S. government to investigate the predatory tactics by its major competitors, Braniff International and Texas International. In these battles, the company won. These very competitive battles have greatly contributed to the strong culture among the employees of Southwest Airlines.

2. Organizational Culture. The past battles fought by Southwest are instrumental to strengthening the loyalty and enthusiasm among Southwest employees. Southwest Airlines has a strong combative, can-do culture. The things that contributed to the strong culture of the company are: (1) selective and rigorous recruitment and selection process, (2) systematic training and coaching of new employees, (3) employee empowerment and acknowledgment, (4) senior management support, and (5) ingrained values, principles, and norms. Having a strong culture is very valuable for all Southwest employees to work together to achieve the company’s goals.

3. Sustained Growth. Through the years, the sustained growth of Southwest Airlines made it the market share leader in domestic air travel. The airlines company consistently prospered despite the changes in leadership. There was consistent growth in revenues, number of employees, number of planes, number of airports, number of states and destinations served, and number of passengers transported. Southwest also won more awards and recognitions.

4. The Employee-First Principle. Former Southwest CEO Herb Kelleher believed that employees must be treated right first for them to also treat the customers right. Southwest believes that superior customer service will be achieved not just only having employees who are passionate about their jobs but also those who know and feel that the company is concerned for them and gives them job security. The thoughts and opinions of the employees are listened to and respected by the management. It is the people who make Southwest Southwest. The employee-first principle makes employees more passionate than any other motivational program or monetary/non-monetary benefit. It shows employees that the company respects them especially for the value and success they bring.

5. Executive Leadership. The company’s investors are concerned about its leadership succession plans but Southwest was able to orderly and properly transfer power and responsibilities from one executive leader to another. The strong culture of the company was not shaken up by the changes in executive leaders since the new leaders selected were said to think much similar with the former leaders. Like the former executive leaders, the new ones also are honest, truly know Southwest’s culture, and have a good sense of humor, though there may be a few differences in

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their character and experiences. Effective business leadership is paramount to setting the goals for Southwest’s success.

6. Low-Cost, Low-Price, No-Frills Strategy. Southwest Airlines charges lower fares compared to its competitors, thus, it also has a low-cost operating structure. Despite this, the company ensures that it still provides its customers a fun, high-quality travel experience. The company’s fare structure strategy allows its customers to easily choose the fare they want. Despite the other airline companies starting to charge additional fees, Southwest still stuck to its all-inclusive fares. To trim costs, the company used only the Boeing 737 aircraft for all flights, had direct flights instead of the usual hub-and-spoke system, and performed cost-effective value chain activities. Southwest Airlines also implemented ticketless travel, online ticket purchase and reservation through its website.

7. Fun and Friendly Customer Service. To build loyalty among its customers, Southwest provides a fun travel experience specifically through its employees who have good interpersonal skills, cheerful personality, and sense of humor. Gate personnel entertain customers through trivia questions and contests and flight attendants make customers smile and laugh. Kelleher and Barrett acknowledge and congratulate these employees who are part of the company’s success. The customers’ travel experience is further improved by improving the facilities and services of Southwest such as adding business and family areas and free wireless Internet service and introducing its own mobile website and application. High-quality customer service will not just improve customer satisfaction and loyalty but will also lessen marketing costs, improve employee pride and satisfaction, and enhance competitive advantage.

8. Rapid Rewards Frequent-Flyer Program. Another way done by Southwest Airlines to strengthen loyalty from its customers is through its Rapid Rewards Frequent-Flyer Program. Members earn points when they buy tickets and the amounts are based on the fare and fare class chosen by the members. Members can also earn points when they buy in Southwest’s Rapid Rewards Partners such as certain hotels, restaurants, car rental agencies, and retail locations. Another good thing with this frequent flyer program is that the points earned will not expire as long as the member has been active for the last 2 years. Loyalty programs like this is very beneficial because they increase revenues, make customers happy, and boost the company’s reputation.

9. Witty Marketing and Advertising Strategies. The advertisements of Southwest Airlines are really attention grabbers and this fact led me to think that their witty advertising is one of their competitive advantages which made them successful in the airlines industry. Their witty advertisements are aligned with their fun culture. One of Southwest’s amusing advertisements is “We’d like to match their new fares, but we’d have to raise ours.” Southwest has also been clever in implementing their “love” campaign—Dallas Love Field, the tagline “Now there’s somebody else up there who loves you,” the Love Triangle, Love Birds, Love Potions, Love Bites, Love Stamps, Love Machines, and lastly, the stock trading symbol “LUV.”

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10. Selective & Rigorous Recruiting, Selection, and Training Process. Southwest Airlines prefer unskilled people with good attitudes since they firmly believe that it is more difficult to change one’s attitude. Southwest makes sure that the employees hired are a perfect fit to the company and its culture. The employees should live the Southwest Way by “possessing a warrior spirit, leading with a servant’s heart, and having a fun-LUVing attitude.” Employee training is led by the Southwest Airlines University which offers courses to new hires, employees, and managers. The company believes that learning is a continuous process, thus the constant need for training.

11. Promoting from Within. The management of Southwest Airlines believe that employees who have already experienced and lived the Southwest Way would be more fit and appropriate for new supervisory or other high positions offered in the company. Promoting from within is advantageous because it is less costly, inside hires have a higher performance level than outside hires, employees work harder to be promoted, and job security is given to employees.

12. Employee Compensation & Benefits. According to Exhibit 12 in the case, Southwest Airlines is the most competitive airlines company when it comes to employee compensation and benefits. The company provides the highest amount of compensation and benefits for their employees, especially that it follows its employee-first principle. Southwest’s competitive compensation and benefits would lead to higher employee motivation and retention.

13. Wide Job Classifications. Based on the contracts of Southwest with the employee unions, the employees are not bound by limiting work rules and narrow job classifications. Any qualified employee could perform any action. For example, flight attendants could clean the inside of the plane to prepare for the next flight, thus lessening costs and saving time for the company itself. This allows Southwest employees to become more productive.

14. The No-Layoff Policy. Since Southwest’s birth in 1971, it has never laid off any employee. This policy supports the employee first principle and the organizational culture. Since the company is very selective in its employee selection process, it is just appropriate for it to maintain its employees. The company believes that keeping their employees builds trust, loyalty, and security.

15. Employee Empowerment. Following its employee-first principle, Southwest Airlines empower its employees by giving them the responsibility to lead the company. Employee-led initiatives are done and are encouraged in the company. Rather than buying 800 new computers for the new reservations center in Albuquerque, the employees just bought parts and formed the PCs themselves. The employees were also responsible for the removal of company logos on trash bags and the introduction of e-tickets. This employee-led initiatives greatly helped Southwest in trimming its costs.

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These are the problems of Southwest Airlines:

1. Fuel Hedging. It was a good thing that Southwest was the first one to use fuel hedging to offset price increases of crude oil and jet fuel. Fuel hedging helped the company to lessen a great amount of costs. However, the company failed to have correct fuel hedging predictions as they had a huge amount of losses in late 2008 and 2009.

2. Heavy Dependence on a Single Aircraft Supplier. Southwest Airlines has been heavily dependent on Boeing for its aircraft fleet. Although this is a good thing since the two companies have already established a strong relationship between them, this might also be a bad thing. If the products and services of Boeing deteriorates or if their prices rise, Southwest would surely be affected. This could also cause bargaining issues and if Boeing goes out of business, Southwest would surely face big problems such as delays in looking for new suppliers.

3. Lack of Other Value-Adding Products, Services & Facilities. Passengers on flights are only given snacks and beverages, no meals are served. Certainly there are passengers, especially businessmen, who are busy and do not have enough time to eat so later they would want to take meals during the flight. There are also no first-class sections in Southwest planes and no fancy clubs where passengers could relax at terminals. These lacking services could later become reasons why Southwest Airlines might lose customers.

4. Integration of AirTran into Southwest. Southwest has a strong culture so clearly, it would be difficult for AirTran employees to adapt to the Southwest Way. Integrating the employees into the Southwest way is surely a big challenge to the company. AirTran employees will be retrained by Southwest. It is also a challenge for the AirTran employees to learn and live the strong corporate culture of Southwest.

5. Problematic Statistics. Based on Exhibit 13 in the case, Southwest Airlines has problematic statistics compared to its rival companies. Southwest’s percentage of scheduled flights arriving within 15 minutes of the scheduled time has declined from 78.7% in May 2000 to 76.7% in May 2013. The company’s mishandled baggage reports per 1,000 passengers increased from 3.08% in May 2012 to 3.72% in May 2013. Lastly, the complaints per 100,000 passengers boarded against Southwest increased from 0.14% in May 2011 to 0.36 in May 2013.

The following are recommendations to address the problems and further improve the performance of Southwest Airlines:

1. Continue the Good Things They’re Doing. It is recommended that Southwest Airlines shall continue with the good things they’re doing, those that were discussed in the first part of this report, such as its strong can-do culture, low-cost strategy, employee empowerment, and the “bag free” policy. The good things Southwest is doing are the sources of its competitive advantage so the company should continue doing or even improve them.

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2. Improve Fuel Hedging Predictions. Southwest lost a great amount of money when they were wrong in their fuel hedging predictions. To avoid great losses, the company should further improve their fuel hedging predictions. Southwest Airlines can hire professional risk managers that could surely help them manage their fuel risks more efficiently and help them reach their financial and business goals. Southwest Airlines should also be always updated with the latest global news especially those that could affect the prices of oil and fuel.

3. Look for Additional Reliable Aircraft Suppliers. Aside from Boeing, Southwest Airlines could look for additional aircraft suppliers to lessen their dependence on Boeing. Just like the recruiting and selection process of Southwest for new employees, the company should also be selective and rigorous in its supplier selection process. Southwest should be able to find new suppliers which are as reliable and high-quality as Boeing, or even much better, if there is.

4. Add More Important Products, Services and Facilities. Southwest should consider offering meals during flights for their passengers. First-class air travel could also be introduced because it can increase the revenues of Southwest. First class passengers are offered better food or menu options than the other passengers and also enjoy wider seats and space. First-class air travel is suitable for tired and busy businessmen who are part of the market served by Southwest. Offering a wider variety of products, services, and facilities would surely improve customer service and loyalty.

5. Prepare for the Integration of Southwest and AirTran. AirTran employees should be given the opportunity to see and experience themselves the culture of Southwest Airlines. They should also be trained under the Southwest University for the People and be taught with the same courses the Southwest employees were offered to be fair and consistent. Since AirTran has international flights, Southwest should study international regulations especially in those locations which are served by AirTran to avoid conflicts.

6. Improve Statistics. To improve customer service, Southwest should improve its statistics (Exhibit 13) compared to its competitors. The company should focus on customer complaints specifically regarding mishandled baggage reports and delayed flights so that they would not lose customers and revenues. Since only a few customers tend to voice out their complaints, Southwest could also survey their customers to gather more responses about their customer service and other important aspects. Southwest should be better at complaint handling to further gain the trust and the loyalty of their customers.

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