Twenty-nine years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. They began with one simple notion: If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.
Within 28 years, Southwest Airlines became the fifth largest major airline in America. With the addition of service to Buffalo-Niagara International Airport on October 8, 2000, fly more than 57 million passengers a year to 57 great cities (58 airports) all over the Southwest and beyond. And she does it over 2,600 times a day.
Company also got more than 330 of the newest jets in the nation, with an average age of 8.4 years. In her fleet are included three flying killer whales, Shamu One, Two and Three. Lone Star One, painted like the Texas flag, to celebrate Southwest Airlines’ 20th Anniversary in a style and manner second to none. Arizona One, a symbol of the importance of the state of Arizona to Southwest Airlines; California One, a high-flying tribute to the state of California; Silver One, our 25th Anniversary plane; Triple Crown One, dedicated to the Employees of Southwest Airlines for their marvellous achievement of five consecutive annual Triple Crown awards and the newest member of the family – Nevada One, a high-flying tribute to the state of Nevada.
The Term Paper on Five Year Plan Stalin State Soviet
By 1928, Stalin had ousted Trotsky and the rest of the Left opposition. In four years, Stalin had single handedly taken major steps away from Lenins collective leadership and free inter party debate and replaced them with his autocratic dictatorship. Stalin began to secure predominant power over the communist party and the state by destroying passive opposition from the peasantry and former Lenin ...
In May 1988, were the first airline to win the coveted Triple Crown for a month – Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints. Since then we’ve won it more than thirty times, as well as five annual Triple Crowns for 1992, 1993, 1994, 1995, and 1996.
And no other airline has contributed more to the advancement of the commercial airline industry. Southwest were the first airline with a frequent flyer program to give credit for the number of trips taken and not the number of miles flown.
Also pioneered senior discounts, Fun Fares, Fun Packs, a same-day airfreight delivery service, ticket less travel, and many other unique programs.
In 1966, Herb Kelleher was practicing law in San Antonio when a client named Rollin King proposed starting a short-haul airline similar to California-based Pacific Southwest Airlines. The airline would fly the “Golden Triangle” of Houston, Dallas, and San Antonio, and by staying within Texas, avoid federal regulations .
Because of the fact that, U.S government was imposing very strict regulations regarding commercial airlines by regulating airline route entry and exit, passenger fares, mergers and acquisitions, and airline rates of return, the primary idea was to focus on a single state area (avoiding governments interfering) and to a substitute market (local) where major operators weren’t giving the proper attention.
Typically, by that time only a few carriers provided service in the market, although there were routes covered by only one carrier. Cost increases were passed along to customers and price competition was almost non-existent. The airlines operated as if there were only two market segments: “those who could afford to fly and those who couldn’t.”
Kelleher and King incorporated a company, raised initial capital, and filed for regulatory approval from the Texas Aeronautics Commission. Unfortunately, the other Texas-based airlines, namely Braniff, Continental, and Trans Texas (later called Texas International), opposed the idea and waged a battle to prohibit Southwest from flying. Kelleher argued the company’s case before the Texas Supreme Court, which ruled in Southwest’s favor. The U.S. Supreme Court refused to hear an appeal filed by the other airlines. In late 1970, it looked as if the company could begin flying. Southwest began building a management team and the purchase of three surplus Boeing 737s was negotiated.
The Essay on Southwest Texas Life Part University
I believe that attending the fine institution of Southwest Texas State University would enrich the goals I have set for myself in life more than that of any other university in the state. Being it, as it may, I have lived a closed life in a suburb of a major metropolitan city (Dallas), and I would think that leaving my home to live and go to school in San Marcos would aid me in attaining life ...
Meanwhile, Braniff and Texas International continued their efforts to prevent Southwest from flying. The underwriters of Southwest’s initial public stock offering withdrew and a restraining order against the company was obtained two days before its scheduled inaugural flight. Kelleher again argued his company’s case before the Texas Supreme Court, which ruled in Southwest’s favor a second time, lifting the restraining order. Southwest Airlines began flying the next day, June 18, 1971
In October 1978 when Deregulation accomplished, airline fares tumbling and allowed many new firms to enter the market. The financial impact on both established and new airlines was enormous. The fuel crisis of 1979 and the air traffic controllers’ strike in 1981 contributed to the industry’s difficulties, as did the severe recession that hit the U.S. during the early 1980s. During the first decade of deregulation, more than 150 carriers,
Many of them new start-up airlines, collapsed into bankruptcy. Eight of the major 11 airlines dominating the industry in 1978 ended up filing for bankruptcy, merging with other carriers, or simply disappearing from the radar screen. Collectively, the industry made enough money during this period to buy two Boeing 747s3 . The three major carriers that survived intact—Delta, United, and American—ended up with 80% of all domestic U.S. air traffic and 67% of trans-Atlantic business.
Competition and lower fares led to greatly expanded demand for airline travel. By the mid-1990s, the airlines were having trouble meeting this demand. Travel increased from 200 million travelers in 1974 to 500 million in 1995, yet only five new runways were built during this time period.
During the 1980s, many airlines acquired significant new debt in efforts to service the increased travel demand. Long-term debt-to-capitalization ratios rose dramatically: Eastern’s went from 62% to 473%, TWA’s went from 62% to 115%, and Continental’s went from 62% to 96%. In contrast, United and Delta maintained their debt ratios at less than 60%, and American Airline’s ratio dropped to 34%.
The Essay on United Airlines Employees Pension Plans
"UNITED AIRLINES PENSION PLAN WOES" An event in the headlines today that will require human resource involvement is United Airline's decision to most likely terminate all of its employees pension plans due to bankruptcy and turn them over to the PBGC or Pension Benefit Guaranty Corporation. The PBGC is a federal agency that insures traditional pensions in case companies go "belly up." Basically ...
Despite the financial problems experienced by many airlines started after deregulation, new firms continued to enter the market. Between 1992 and 1995, the FAA certified 69 new airlines. Most of these airlines competed with limited route structures and lower fares than the major airlines. The new low-fare airlines created a second tier of service providers that saved consumers billions of dollars annually and provided service in markets abandoned or ignored by major carriers.
One such start-up was Kiwi Airlines, founded by former employees of the defunct Eastern and Pan Am airlines. Largely employees funded kiwi: pilots paid $50,000 apiece to get jobs and other employees paid $5,000.
Although deregulation fostered competition and the growth of new airlines, it also created a regional disparity in ticket prices and adversely affected service to small and remote communities.
Airline workers generally suffered, with inflation-adjusted average employee wages falling from $42,928 in 1978 to $37,985 in 1988. About 20,000 airline industry employees were laid off in the early 1980s, while productivity of the remaining employees rose 43% during the same period. In a variety of cases, bankruptcy filings were used to diminish the role of unions and reduce unionized wages.
When Southwest began flying to three Texas cities, the firm had three aircraft and 25 employees. Initial flights were out of Dallas’ older Love Field airport and Houston’s Hobby Airport, both of which were closer to downtown than the major international airports. Flight attendants in hot pants staffed flamboyant from the beginning, original flights. By 1996, the flight attendant uniform had evolved to khakis and polo shirts. The “Luv” (“love”) theme was a staple of the airline from the outsetbecame the company’s advertisement campaign along with ticker symbol on Wall Street. Mission Statement.
Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit
Vision Statement.
“ Open up the skies for ordinary people”
Goals
§To make profit
§Achieve job security for every employee
§Make flying affordable for more people.
The Business plan on Continental Airlines Strategy Costs Company
... in a struggling environment in spite of discount airlines. 6. One alternative for Continental is to continue operating as they ... to changing consumer preferences. Another option for Continental Airlines would be to surrender their current strategy and adopt the strategy of discount airlines ... even in times of low demand. Finally, Continental faces high operating costs as a result of in-flight meals ...
Core Competencies
§Short hall
§High frequency
§Low fare
§No-frills
§Point- to -point
Strategies.
§Conservative growth pattern
§Cost-containment policy
§Commitment of its employees
§Expansion Strategy (not less than 12 flights/day)
§Flying large numbers of passengers on high frequency.
§Short hops (usually one hour or less) barging fares.
§Avoid hub-and-spoke.
§Avoid most congested major airports.
§Creates market segments peculiarly (for adapting changes that are most efficient and economical)
§Longer non-stop trips (to save changes to “ticket tax 1997”)
§Faster turnarounds, Plastic Cards, No assigned seating, Low Cost
§Only (737) jets.
§Operating cots/available seats 15-25% lower than rivals.
§Flexible work rules.
§Employee retention policy.
§Maximizing profitability.
§Full fare ticket along with “Chivas Regal”. …………And more fatherly discussed.
Assessing the nature of the environment.
Since one of our major problems on strategic management is coping with uncertainty, it is useful to begin by considering how uncertain the environment is and why.
Regarding the fact that, uncertainty increases the less the environment is stable or the more it is dynamic, and also by extend to which it is simple or complex. Wanted to evaluate into which environment Southwest operates, we can easily understand the company operates in a complex environment also with dynamic conditions.
This conclusion generates, by the fact that Airline Companies that operate into a constantly changing environment with many rabid classifications ex. (11th of September), the different parts of an organization must be responsible for different aspects diversity; and also to have the authority to handle their own part of the environment.
Chair President and CEO
Herbert D. Kelleher.
Corporate ServicesJohn G. DenisonExec. Vice-PresidentCustomersCollen C. Barrett.Exec. Vice-PresidentOperationsGarry A Barron.Exec. Vice-President and COOInternal Audit and Special Projects.Al DavisVice-PresidentSchedule Planning.Pete McGladeVice-President
Therefore, Southwest operates into a multi-divisional structure, as it subdivided into units (divisions) on the basis of products, services, geographical area or the processes of the enterprise. This is an attempt to overcome problems that functional structures have in dealing with the diversity of the environment. The products and markets that Southwest operates are so diverse that it could be impractical to bring the tasks together in a single body. So divisions can be created which related closely to the SBU’s, allowing tailoring of the product/market strategy to the requirement of that SBU and improving the ownership of the strategy by divisional staff. The main advantage is the fact that Southwest was able to concentrate on the particular business (SBU) and opportunities of the environment. Ex.
The Research paper on Southwest Still Flies High
A case study on Southwest Airlines management process. Submitted To Group – K Roll Name Q: Name at least two things that Southwest is doing efficiently. Name at least two things that Southwest is doing effectively. In what ways do efficiency and effectiveness support each other at Southwest? In what ways do they contradict each other? Answer: Efficiency at Southwest Airlines: Efficiency or being ...
§Purchase 3 brand new 737’s at bargain-basement prises because Boeing had over produce in periods of slump.
Environmental Influences (P.E.S.T Analysis)
Environmental forces, which are especially important for one organization, may not be the same for another; and over time, their importance may change. Southwest might be especially interesting in understanding policies and legal governmental matters, since it operates in different states, with different operating plants or subsidiaries with different political systems. It is also likely to be concerned about labor costs and exchange rates, which will affect the ability to compete with multinational competitors entering the environment
For that carrying out a PEST analysis we will find the key influences of change and providing the basis of examining the extent to which these influence has major or no impact to Southwest.
A PEST Analysis of Environmental Influences
Political/Legal§Federal Ticket Tax 1997§Block Approval with temporary restraining order§Deregulation of flights.§Wright Amendment for “Love Field”§Labor UnionsEconomic Factors§Operating costs were fixed or semi-variable.§Federal Ticket Tax 1997§Price sensitive customers.
Socio-cultural §Price sensitive customers§Time oriented customersTechnological §Internet §737’s
Wanted to better evaluate the PEST diagram, we consider vital in this point to identify a key number of environmental drivers of change, by identifying the:
Key drivers of change and the differentiate impacts of environmental influences.
The Essay on Nutrition and Super Market Cost
Higher taxes should be imposed on soft drinks and junk food to encourage healthy eating. ” Many people go out and buy junk food or drink soft drinks because of how cheap it costs. Majority of the healthy foods out in the super market cost more. Even if they tried to put higher taxes on junk foods, there wouldn’t be a difference because people don’t care about the price if they really want junk ...
Furthermore, the impacts of Socio-cultural environment is consider crucial as South west must satisfy 2 different types of opposite cultures: Price sensitive, Time oriented. To achieve that must focus, to a low-cost time oriented strategy, as this two target groups are the most important.
Also, technological factors (Internet) are considered vital, as must focus on look-to-look ratio. And, 737 are considering crucial as to provide efficient response (ER) to customer’s need, wands, demands. (turnaround, knowledge,…)
And finally flight deregulation must be a key point in “competitive arena”, to operate in more flexible ways.
Controlling Scenarios (What if……?)
Scenario planning is essentially useful in circumstances where it is important to take a long-term view of strategy, probably a minimum of 5 years, where there is limited key factors influencing the success of a strategy, but there is higher level of uncertainty among relevant factors. For that a scenario analysis is considered vital.
Step 1: High Impact, High Uncertainty factors in the Environment.
High
Potential
Impact
Low
Low Uncertainty High
(Source: Developed by the author, Exploring Corporate Strategy”, Gerry Johnson-Kevan Scholes, 5th Edition, Prentice Hall, 1999)
A.Oil Crisis.
B.Government regulation about not using the “Love Field”
C.Increase Airport fees.
D.Cost of maintenance and spare parts increase.
Step 2: Identify different possible features by factor
A: rapid change C: High
Measurable change Increasing
B: Favourable D: High and increasing
Unfavourable Favourable
Step 3: Build scenarios of plausible configurations of factors.
Scenario 1: A rapid change in Oil (a) along with a favourable government regulation (b) and a high and increasing Airport Fees (c) with a favourable increase in maintenance costs (d).
Scenario 2: A high and increase cost of maintenance (d) with a measurable change in oil (a) along with a unfavourable regulation (b).
Scenario 3: An high Airport fee (c) along with a high and increasing cost of maintenance (d) and a Measurable change in Oil (a).
According to that scenarios Southwest must be ready to restructure Efficient and affectively her strategy in order to prevent changes, and to able to maintain her low-cost, low frequent, low fares strategy.
With the 5 forces analysis we will try to identify the forces which affect the level of competition in an industry, and thus that it will help us to identify bases of competitive strategy.
The Threat of Entry
This factor is closely related to weather there are barriers to entry or not.
Southwest operates in a differentiation strategy that makes competitors very difficult to enter. By offering, low fare (25% lower than every other company that tries to imitate), point-to-point delivery (no hub-and-spoke), plastic boarding cards (to recycle back), and no designated seats is considered a powerful advantage to burry competitors.
Also the offer of “Chivas Regal” in a double fee ticket., and also the short hub routes along with the philosophy It not now, then when? If not us, then who?” are having the basis for a strong differentiate strategy.
The Power of Buyers and Suppliers.
Moreover, the relationship of buyers and sellers are can have similar effects in constraining the strategic freedom of an organization and in influencing the margins of this organization.
Regarding this, there are some major factors that affect the organizational strategy. It is well known, that in market that there is big concentration of buyers the flexibility reduces.
Southwest has to deal with big groups of people, meaning that their barging power is consider strong. Although, the company by offering the lowest prices along with satisfaction, reduces or either eliminate the barging power or the “switching of suppliers”.
Moreover, the company by doing a forward integration makes her self a supplier, which connected with the customers.
The Threat of Substitutes.
Southwest understood that for short-haul destinations, surface transport (car) was a substitute of flying. By concentrating on the factors that lead people to choose one of these forms of transport over the other, and eliminating or reducing anything else, the southwest concept created.
The key was to consider, why people are flying over driving for short destinations; because they want, luxury, multiple seating, meals, drinks, etc… The answer is, no.
There is only one reason that makes people to fly over driving: speed. People fly to save time.
Competitive Rivalry.
Even though this considers a philosophical term, southwest manage to eliminate competitors by using flexible strategy.
Expansion strategy (not least than 12 flights), ideally commitment of employees, concentrate on flying “big number of passengers” (big market share), and with point-to-point, manage to be “the worlds only short haul, high frequent, low fare carrier.
Competition and Collaboration.
Southwest followed some major steps concerning the direction and the method of developing the organizations strategy.
1.Market penetration (in substitute industry) where the attention was small
2.Product development on existing and with new competencies (“Love field”, new737, low fare, point-to-point, short hub delivery)
3.Market Development into new markets, territories (Texas, then interstate, smaller market niches in time oriented and price sensitive customers)
4.And then Diversification (no hub, point to point, 10 minutes turnaround , same airplanes, multi-operational employees)
Marketing.
Southwest operates in small market niches, focus on people that want to fly in small routes (time oriented) and to those that there where price sensitive, knowing that this target market was consisting the biggest market share.
Also by marketing research, offers the opportunity for mass marketing to those niches. Moreover, by negotiating for a full-fare ticket along with “liqueur” push to the market the full fare ticket, knowing that the full fare will give more “processing customers”
Management.
Southwest was the only large airline to operate without major hubs, although cities such as Phoenix, Houston, and Dallas were increasingly becoming important transit points for Southwest trips. For example, daily departures from Phoenix, Southwest’s busiest airport, had increased to 170 in 1999 .
Point-to-point service provided maximum convenience for passengers who wanted to fly between two cities, but insufficient demand could make such nonstop flights economically unfeasible. For that reason, the hub-and-spoke approach was generally assumed to generate cost savings for airlines through operational efficiencies. However, hub-and-spoke arrangements resulted in planes spending more time on the ground waiting for customers to arrive from connecting points.
Turnaround time —the time it takes to unload a waiting plane and load it for the next flight—was15 minutes for Southwest, compared with the industry average of 45 minutes. This time savings was accomplished with a gate crew 50% smaller than other airlines. Pilots sometimes helped unload bags when schedules were tight. Flight attendants regularly assisted in the cleanup of airplanes between flights.
Relative to the other major airlines, Southwest had a “no frills” approach to services: reserved
seating was not offered and meals were not served. Customers were handed numbered or color-coded boarding passes based upon their check-in order. Seating was first come, first served. As a cost-saving measure, the color-coded passes were reusable. As to why the airline did not have assigned seating,
Kelleher explained: “It used to be we only had about four people on the whole plane, so the idea of assigned seats just made people laugh. Now the reason is you can turn the airplanes quicker at the gate”.
And if you can turn an airplane quicker, you can have it fly more routes each day. That generates more revenue, so you can offer lower fares.”
Financial Analysis
Southwest Airlines is a commercial airline that provides passenger and freight transportation to 56 airports in 55 cities in the Midwestern, Southwestern, and Western United States. The airline specializes in short-haul routes and targets business commuters. The company’s most-traveled routes are intrastate flights in California and Texas. Its fleet consists of about 310 Boeing 737s. Passenger transportation generates almost all revenue, accounting for more than 96% of the total. In fiscal 1999, Southwest’s average aircraft trip was 465 Southwest has managed to steer clear of nearly all the woes that afflict its competitors. Over the past few years, the Dallas-based carrier has done a much better job of protecting itself against high fuel costs and labor disputes than industry rivals. It has avoided being associated with airport gridlock in the minds of travelers because, in many regions, it flies in and out of smaller, less congested airports, such as Love Field.
Instead, it appears to be ignoring the consolidation wave while staying on course by serving smaller regional airports where congestion has not reached epidemic proportions.
Corporate Culture
The culture of this company is what helps make it a wonderful place to work for. The leaders of this company have tried their best to develop a place where everyone loves to come to work and wants to work. Managers who do not follow this theory are stuck with employees who just come to get as little done and still get paid.
It’s a company that not only nurtures nuttiness but also makes its pleasure a requirement for employment. And it’s a company unique culture, which includes a order that people have fun at work which are part of Southwest, which set itself on low fares and low frills, serving peanuts instead of meals. Employees also are constantly reminded that they are No. 1 in the company’s eyes. The reminders include cards, notes, gifts, celebrations – and profit sharing to motivate them that there are “our children”
In fact they believe: “Yes, Southwest it’s a good home”
EDI
Although, southwest where a new company in the it manages to turnover from browsers to buyers. The company gave grate attention to the construction of the site presenting the major advantages of electronic booking (no seat, payment in the plane, competitive prices, receive the ticket on board,) , the site was giving real time examples for price sensitivity and time orientation strategy.
SWOT~EFE, IFE
Internal Strengths WEIGHTRATINGWEIGHTED SCORE
§10 minutes turnaround0.1540.60
§Only 7370.1030.30
§Point-to-point0.2040.80
§Loyal Employees0.2040.80
§Not congested airports 0.2040.80
§Low operating Costs0.1540.60
TOTAL1.003.90
Internal Weakness WEIGHTRATINGWEIGHTED SCORE
§Try to convince customers that what the airline offers it a real value to them.1.0022
TOTAL1.002
External OpportunitiesWEIGHTRATINGWEIGHTED SCORE
§Purchasing three 737’s at basement barging price0.3020.60
§Internet0.3030.90
§Deregulation of flights0.3030.90
§Med Link0.1020.20
TOTAL1.002.6
External Threats
§United Air0.2020.40
§Delta0.2020.40
§American Airlines0.2020.40
§“Ticket tax in 19970.4031.20
TOTAL1.002.4
The major airlines had also taken steps to compete directly with Southwest. The Shuttle by United, a so-called “airline within an airline,” was started in October 1994. United’s objective was to create a new airline owned by United with many of the same operational elements as Southwest: a fleet of 737s, low fares, short-haul flights, and less-restrictive union rules. Although offering basically a no-frills service, the Shuttle provided assigned seating and offered access to airline computer reservation systems. United predicted that the Shuttle could eventually account for as much as 20% of total United U.S. operations.
Cost was the major problem for United in competing with Southwest. For two main reasons, the Shuttle’s cost-per-seat mile remained higher than Southwest’s. First, many passengers booked their tick- ets through travel agents, which resulted in commission fees. Second, many of the Shuttle’s flights were in the San Francisco and Los Angeles markets, both of which were heavily congested and subject to costly delays. As well, the Shuttle was unable to achieve the same level of productivity as Southwest.
Nevertheless, by launching the Shuttle, United was able to gain market share in the San Francisco and Los Angeles markets, largely at the expense of American, US Airways, and Delta. The Shuttle also offered first-class and reserved seating.
Concluding, we must state that weather the other companies try to imitate Southwest, the result where very disappointed because the southwest has realized that there is only for that market, and she is well aware with that.
Concluding we must state that the reasons for Southwest success are well documented: It focuses on short-haul industries with an average distance of 425 miles. Thorough away meals, in flight films, designated seats, membership, central airports and a hub and spoke system-all the above assume that are closely relevant.
Also, with plastic cards, small or smaller airports and a 10 minute turnaround (30-35 usually for other companies) succeed the inevitable.
Southwest understood that for short-haul destinations instead of surface transport (car) was a substitute of flying. By concentrating on the factors that lead people to choose one of these forms of transport over the other, and eliminating or reducing anything else, the southwest era created.
The key was to consider, why people are flying over driving for short destinations; because they want, luxury, multiple seating, meals, drinks, etc… The answer is, no. There is only one reason that makes people to fly over driving: speed. People fly to save time.
There is also and the opposite direction, on why the people are choosing the south west instead of the car; because they can take it and leave whenever they want.
That’s why southwest delivers high frequent flights; to give this opportunity to her customers.
Moreover, despite the competition Southwest gain the biggest market share; although other market offered grate opportunities on substitute markets; The fact is that southwest concentrate in price-sensitive and time-oriented customers that there were consisting the biggest percentage of the environment.
Bibliography
§“Exploring Corporate Strategy”, Gerry Johnson-Kevan Scholes, 5th Edition, Prentice Hall, 1999)
§“Economics”, John Sloman, 3rd Edition, Prenctice Hall, 1994
§“Strategic Management”, Fred R David, 8th Edition, Prenctice Hall, 1999
§“The management of business logistics”, Coyle, 6th edition, WEST
§K. Freiberg & J. Freiberg, Nuts: Southwest Airlines’ Crazy Recipe for Business and Personal Success (Austin, TX: Bard Press, 1996), p. 61.
§K.S. Krause, “Tougher Profit Story, Traffic World”, June 7, 1999, p. 29-30.
§“Bank Management”, Koch McDonald, 4th Edition, Dryden Publishing.
