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CASE STUDY BY
• Arjun Rajan Kaul (F31020)• Sumit Singh (F31031)
Overview
• Company History• Industry Profile• Competitive Advantages• Future Challenges• Recommendations
Southwest Airlines History
• Founded in Texas in 1971 as a small regional airline• Mission – “Dedication to the highest quality of Customer
Service delivered with a sense of warmth, friendliness, individual price, and Company Spirit.”
• 31 consecutive profitable years and consistently high quality ratings– Fewest customer complaints for the 13th straight year in 2003– Multiple Triple Crown winner in U.S. DOT rankings
• Today Southwest is the largest airline in the United States
Industry Profile
• Southwest competes in the domestic airline market
• Legacy carriers – United, Delta, US Airways, Continental
• Low Cost Carriers – Southwest, JetBlue, AirTran Airways, Frontier Airlines.
Industry Competitors
Alaska
Airlines
SkyW
est Airli
nes
AirTran
Jet Blue
Continental
United
US Airw
ays
American
Airlines
Southwest
Airlines
Delta A
ir Lines
0
25
50
75
100
14.920.1 20.7 21.8
37.842.8 44.2
72.2
92.595.9
January - October 2011 Passengers (in millions)
Corporate Culture
• Southwest spends the most money on employee training in the industry.– Employees are encouraged to think outside the
box and interact with customers.• High morale.• Low employee turnover and good relationship
with labor unions.
Operational Efficiency
• No frills airline with few amenities – No baggage transfers, first class seating, assigned
seats or meal service• Short haul, point-to-point strategy – Spider-web system
• Many time options, including hourly flights in some cases
Operational Efficiency
• Advantages of Spider web system• Southwest uses Boeing 737s for all of its flights– Keeps maintenance costs low and allows for quick
turnaround– 10 minute turnaround
• Planes are in the air for 12 hours per day vs. industry average of 8 hours– Major accomplishment considering that
Southwest operates short flights
Marketing Approach
• Recently named the most desired brand in America among by men and women
• Consistently offer among the lowest fares in the industry– No baggage fees, no assigned seats
• Fun image– Employees dress up for holidays– Employees are features in commercials– Themed planes
• Unique promotions
Unique Planes
Current and Future Challenges
• High Fuel Cost• Labor Challenges• Increased Competition• Mergers & Acquisitions• Market Positioning
High Fuel Costs
• Fuel costs have increased significantly• Historically Southwest has purchased a third
of its fuel on the spot market
Labor Challenges
• Increased tension between labor unions and management
• Maintaining company culture with leadership changes
Increased Competition
• More low-far, low-cost carrier competition• Legacy carriers are offering “Southwest-style
no-frills, low-far service”• JetBlue, AirTran Airways, Frontier Airlines, etc.• New competitors offered more amenities– Luxurious leather seats, DirecTV in flight, assigned
seats, fancy drinks, carb conscious meals, etc.
Mergers & Acquisition
• Southwest acquired AirTran in 2011• Must integrate AirTran’s fleet of planes,
routes, and employees into its company.
POSITIONINGMARKET
Operating Revenue
Operating Unit Revenue
Wages/benefits Percentage of Revenue
Fuel Expense % of Revenue
Areas with Potential for Improvements
• Operating Costs • Workforce Productivity • Business Expansion• Customer Satisfaction
Recommendations
Next Generation Air Transportation System(NextGen)
• NextGen Components:– Automatic dependent surveillance-broadcast– System Wide Information Management – Next Generation Data Communications– Next Generation Network Enabled Weather– NAS voice switch
Next Generation Air Transportation System(NextGen)
• NextGen Benefits:– Direct Flight Path – Efficient Landing Method• 10% reduction in fuel consumption
– Less air traffic delays• 35% reduction
Next Generation Air Transportation System(NextGen)
• To be implemented by 2025• Current airports with NextGen technology:– Houston, Las Vegas, Atlanta, Denver…
• Using NextGen In the next seven years:– $23 billion in cumulative benefits – Saves 1.4 billion gallons of jet fuel – Reduces carbon dioxide emissions by 14 million
tons
Baggage Handling Process
• Southwest’s Problem:– Mishandled bags bags per thousand passengers:
3.65 – Total Mishandled bags in 2011: over 400 K– Cost of a mishandled bag $130– Annual cost of mishandled bags: over $53 million– Dissatisfied customers– Slower turnaround time– Less productive employees
RFID Baggage Tracking Solutions(Radio-frequency identification)
• Solution: – Automated baggage handling process
• Benefits:– Automated Sorting– Dynamic Routing– Faster Loading– Happier Customers– Faster Turnaround Time
Southwest’s Fleet
• Problem:– Outdated Planes:• 194 Boeing 737s (300-500)• Average age 20.1• High fuel consumption• High maintenance cost
– 100% Consistency• 88 Boeing 717s (AirTran)
Boeing 737 MAX • Solution:– Replacing the old plans with
the new Boeing 737• Benefits:– Higher Capacity (38 more
seats)– 17-19% more fuel-efficient– Highly Reliable– 15 minutes turnaround time,
99.7% of times– Improved Amenities
Business Expansion
• Attracting New Customers– Catering to Business Travelers– Improved Frequent Flyer Program– Marketing Campaigns
• Expanding to International Markets– Caribbean, Mexico, Canada, etc.
• Expanding to New Domestic Markets
Company Culture
• Emphasizing on the importance of corporate culture• Introducing new employees to Southwest’s unique
culture• Rewarding and recognizing individual achievements
Questions?