In 1966, while sitting in a small diner, Rollin King, a Texas businessman presented his attorney, Herb Kelleher with an idea. The idea entailed creating a new airline, one that would offer low fares to passengers and would fly quickly between three cities: Dallas, Houston, and San Antonio. Together, they formed Southwest Airlines. Initially, the airline battled a number of obstacles from various competitors of that time, as the other airlines did not want to see a new competitor in the market who offered low cost flights to local areas. Despite various attempts made to keep Southwest a mere vision, they legally won the right to fly through the Supreme Court and began offering air service in 1971. AirTran Airways, formerly known as ValuJet Airlines, first began operating October 26, 1993. The Airline was renamed after the 1996 crash of ValuJet into the Florida Everglades, killing all 110 passengers and crew members on board. Since that time, AirTran has grown to be one of the most profitable airlines in the industry, offering service to more than 60 destinations across the United States, as well as to Mexico and the Caribbean.
On September 27, 2010, AirTran Airways made a public announcement that they entered into agreement allowing Southwest Airlines to acquire them. Numerous entities report the reasons behind the acquisition are: to make Southwest a dominant competitor in the airline industry, “Southwest is following the trend in the industry: merge or acquire in order to stay alive and competitive” (Mouawad, 2010). In addition, the acquisition would allow Southwest to mark its presence in markets they were previously unable to penetrate, “The deal would expand Southwest’s network by 25 percent and give it its first international destinations in the Caribbean and Mexico” (Mouawad, 2010). As relayed in a statement made by Bob Fornaro, AirTran Chairman, President and CEO on AirTran’s official website, “Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement.
Together with Southwest, the world’s largest passenger airline, their financial resources, tremendous brand, legendary customer service, corporate culture and decades-long record of success, we will have the opportunity to go places neither company could have gone alone.” As a result of the acquisition, which was completed on May 2, 2011, Southwest has experienced several unexpected glitches during the transitioning stages. One major issue has been with the ticketing and reservations systems, “Southwest Airlines agents struggle with AirTran Airways tickets and vice versa, sometimes leaving passengers who have been delayed and need rebooking in the lurch” (McCartney, 2013). It is reported that prices and seat availability are inconsistent on both websites when attempting to book a ticket online. Customers, who purchase early boarding passes for their itineraries, are limited to using them only for the Southwest leg of the trip, as it is not recognized by AirTran. This has caused numerous complaints with customers who pay full price for early boarding, but are only able to use it for half of the itinerary.
Southwest has been diligently working to combine both airline systems, but has not successfully completed the project to date. “Southwest, for now, have agents of both airlines trying to work two reservation systems on different windows of their computer screens so one airline can check in customers from the other. Southwest says it will have a unified system, new to both airlines, in place by the end of the year” (McCartney, 2013). A prominent issue that has resulted in the acquisition is that once AirTran has been fully integrated into the Southwest Brand, upgraded seating will no longer be available, as Southwest only offers coach class with unassigned seating. In addition, Southwest has been in the works to transition all aircraft from AirTran’s 717 aircraft, which it inherited, to its existing 737 model. “AirTran had first class, they had assigned seats, and Southwest has no first class, no assigned seats, doesn’t sell through global distribution systems-a very different product than what AirTran offered in the market. It is very distinguishable” (Boehmer, 2010).
Delta Airlines and other major competitors feel they will be able to capture former AirTran customers, who find the elimination of upgraded seating unacceptable. Prior to the acquisition, Southwest Airlines had an organizational structure which was instrumental in the company becoming a leading competitor in the airline industry. Founder Herb Kelleher’s leadership style allowed for everyone, including front line employees to play a major role in business planning and operational budgeting. Herb believed that “management decisions are made by everyone in the organization, not just the head executives” (Advance Business Consulting Website, 2013). As a part of their organizational structure, Southwest maintained over 35,000 employees, had 568 Boeing 737 model aircraft, and operated in 67 domestic cities coast-to-coast. Whereas AirTran, who operated with a similar organizational model, listed assets of 8,500 employees, 86 Boeing 717’s and 52 Boeing 737’s, operating in approximately 37 markets. Southwest Airlines has not made major changes to their organizational structure as a result of the merger. The new Southwest airlines assets contain: “43,000 plus employees, over 700 aircraft, operating in over 100 markets, serving 100 million customers”, (Bomkamp, 2010).
Southwest continues to function with three primary levels of management: Executive Vice Presidents, Senior Vice Presidents, and Vice Presidents, all positions subordinate to Chairman of the Board, President, and CEO, Gary Kelly. Since the acquisition, Southwest has taken a slow approach to integrating AirTran systems, procedures, and employees into the Southwest family. Southwest appears to believe they will be able to seamlessly integrate 8,500 AirTran employees into the body of Southwest’s existing 35,000 employees. However, industry analysts feel Southwest’s expectations are risky at best, “It will be tricky for Southwest. Southwest’s whole business model is built on a particular approach to managing employees. It’s a big bet they are making that they can swallow AirTran” (Cappelli, 2010).
According to Southwest Airlines Announcements for Reporting Structure of AirTran and Leadership Changes, Human Resources Practices were modified in effort to embrace the leadership team coming from AirTran. Almost all AirTran leaders were placed in positions with Southwest that were commensurate to positions previously held. The other leaders who were not placed in commensurate positions were hired on as full time consultants to ensure the integration of the two airlines went well. Southwest airlines have maintained a precedent that was established in 1971, when the company first began conducting business. Southwest Airlines began with four planes and less than 70 employees. During its first year of operation, the company experienced financial trouble, forcing the executives to make the decision to sell one of its planes or lay off employees. In effort to maintain the relationship with its employees, Southwest opted to sell the plane.
In return, the employees were asked to cut gate turn-around from 55 minutes to 15 minutes. The employees obliged, helping to establish one of the friendliest management/labor relationships in the airline industry, as reported by PBS.org. According to Atlanta Business Chronicles, the following statement was issued to AirTran employees in the form of a Question and Answer sheet in effort to address their concerns regarding job security, “The combination of the two airlines will result in additional employment opportunities as the combined airline continues to grow and expand the Southwest network. In its nearly 40 year history, even during the most recent financial crisis, Southwest has remained profitable and has never had layoffs.”
This statement was in attempt to calm fears that the acquisition would bring surrounding job stability. As in any industry, when employees are facing major changes in the workplace, especially as it relates to mergers and acquisitions, it is important to communicate plans for the direction of the company and the employees involved. This strategy allows time for the employees to process the information they have been given and adjust to the changes to come. It is imperative that companies model this practice as non-communication results in insecurity, chaos, and hostile work environments where uncertainty is present.
Advance Business Consulting Website (2013). Retrieved from http://www.advancebusinessconsulting.com/advance!/strategic-alignment/strategic-alignment-business-cases/the-rise-of-southwest-airlines.aspx
AirTran Airways Official Website, (2014). Retrieved from http://www.airtranairways.com/about-us/history.aspx
Atlanta Business Chronicle, (2010). Q&A on the Southwest-AirTran merger. Retrieved from http://www.bizjournals.com/atlanta/stories/2010/09/27/daily2.html
Boehmer, Jay (2010, November 08). Delta Sees Opportunity In Southwest, AirTran Merger. Business Travel News, (15), 4. Retrieved from http://elibrary.bigchalk.com
Bomkamp, S., (2010). Huff Post Travel: Southwest Airlines Buys AirTran for $1.4 Billion. Retrieved from http://www.huffingtonpost.com/2010/09/27/southwest-airlines-airtran_n_739975.html?view=print&comm_ref=false
Cappelli, P. (2010). Strategic Management North America: By Acquiring AirTran, Will Southwest Continue to Spread the LUV? Retrieved from http://knowledge.wharton.upenn.edu/article/by-acquiring-airtran-will-southwest-continue-to-spread-the-luv/
McCartney, S., (2013). The Wall Street Journal: Southwest and AirTran Airlines: Mergers and Aggravations. Retrieved from http://online.wsj.com/news/articles/SB10001424127887324448104578611980670019710
Mouawad, J., (2010). The New York Times: Southwest, Determined to Expand, Buys AirTran. Retrieved from http://www.nytimes.com/2010/09/28/business/28air.html?_r=0&pagewanted=print
PBS.Org (date not available). Chasing the Sun: The History of Commercial Aviation Seen Through the Eyes of Its Innovators. Retrieved from http://www.pbs.org/kcet/chasingthesun/innovators/hkelleher.html
Southwest Airlines Official Website. (2014). Retrieved from http://www.southwest.com/html/about-southwest/index.html?int=GFOOTER-ABOUT-ABOUT