Southwest Airlines has employed unique operational strategies, incorporating industry revolutionizing methodologies, while developing and sustaining a strong corporate culture that has allowed Southwest Airlines to be profitable for a phenomenal 30 straight years and capture the Airline Industry Service Triple Crown five years in a row from 1992 to 1996. Southwest Airlines own success threatens whether it can maintain the strong corporate culture responsible for its prosperity while growing and adding additional routes.
More pressing than the long-term strategy however were the terrorist attacks of September 11, 2001 that created uncertainty in the general environment of US economic trends and the task environment coping with new government security regulations that challenges whether the business model Southwest Airlines was founded on needs to adapt to continue to provide profits to stockholders. Southwest Airlines Organizational Structure & Culture Southwest Airlines began in concept in 1967 and took its first flights in 1971 connecting three underserved metros in Texas: Houston, San Antonio, and
Dallas. Founding members Rollin King and Herb Kelleher pursued a strategy that focused mainly on cost-leadership (goal to make flight less expensive than driving between destination points) and niche strategies (business and pleasure fliers with simple itineraries and short trips) while also offering differentiation (high frequency departures to destinations via point-to-point flights) that did not demand a premium from the customer. The founding strategy drove decisions that resulted in Southwest revolutionizing the industry.
Although the aviation industry is considered highly technological, much of Southwest’s organizational design dimensions reflect conscious choices to reduce complexity, partially as a result of regulatory constraints the company faced early in its existence. Southwest was first limited to intrastate routes when it began and following deregulation of the industry in 1978 Southwest was only allowed to fly directly to adjoining states from it base at Love Field in Dallas.
Southwest chose to standardize on one type of jet airliner, the Boeing 737. The choice of the 737 allowed for routinization of parts ordering, inventory control, maintenance tasks, and training, significantly reducing expenses. Southwest also chose not to incorporate the hub-and-spoke system intended to increase available seat utilization. The point-to-point route system allowed Southwest to turnaround flights much more quickly gaining greater seat utilization.
Other factors reducing complexity included the decision not to serve meals and limiting checked-in baggage on short flights. Early job descriptions in union contracts were not highly formalized; ground crews, flight crews, and boarding personnel were not required to adhere to subdivision of tasks and instead were asked “to do whatever else might be needed to perform the service” to get a flight off. Agents, or liaisons, with a great deal of autonomy and wide variety of resources to bear on the flight servicing process were incorporated also.
Southwest broke away from the conventional boarding system of pre-assigned seats using colorful boarding passes given to patrons on a first-come, first-serve basis encouraging early arrival of customers and preventing mediation of an accidental double assignment to a seat. In yet another innovation, after being kicked out of all the major ticketing and reservation systems except Sabre in 1994, Southwest created the first “ticketless” travel program and leveraged internet technology to become the first airline to establish a home page to sell tickets on the
Internet. Currently Southwest Airlines management is organized as a team minimizing horizontal and vertical differentiation. In addition to founder and chairman, Herb Kelleher, the management team also includes, Jim Parker (CEO), Colleen Barrett (COO), plus three executive vice presidents responsible for operations (Wimberly), customer service (Conover), and corporate staff services (Gary Kelly).
The top management members spend a great deal of time together and serve as a cross-functional team making decisions as one. Within Southwest there is minimal hierarchy of authority although the locus of power is centralized within this team. In contrast to highly vertical organizations, the team has a wide span of control since Southwest is more heavily staffed with mangers responsible for coordinating functions at the front-line operating level.
Although the organizational structure and design of Southwest Airlines are key factors to Southwest’s success and longevity, probably the most important factor is the culture that has been nurtured and firmly established by its charismatic founder Herb Kelleher that gives Southwest Airlines its sense of identity. Throughout the organization stress has been placed on the value of “family” and affects everything from the way new recruits are hired to the way union contracts are negotiated.
Southwest Airlines has a very strong “Club” Organizational Culture that incorporates at least six of the seven elements of culture: innovation (first frequent flier program, ticketless flight, first Internet home page), orientation toward people (partnering with unions, acknowledgement of exceptional employees by the culture committee), results-orientation (efficiency and adherence to 15% growth strategy that maintains a strong balance sheet to manage for bad times), easygoingness (jeans for corporate attire, Texas greetings, hugs), attention to detail (winning Airline Industry Service Triple Crown 5 years in a row), and collaborative orientation (team turn-arounds, nobody saying “it’s not my job”). Clear adherence to the core values of profitability, low cost, family, fun, love, hard work, individuality, ownership, legendary service, egalitarianism, common sense, good judgment, simplicity, and altruism are expected and reinforced through rites, ceremonies, symbols, and myths. Just being hired at Southwestern Airlines is a rite in itself that Kelleher once described as “a near religious experience”.
Candidates for entry-level positions were interviewed in groups of 30 and monitored for signs of interest, concern, and empathy for the presenter. Frequent fliers were even included in the interview panel to ensure Southwest would hire people who fit in with the “Club”. Passing the six-month probationary period is one rite of passage while being nominated to the Culture Committee was definitely both a rite of passage and a rite of enhancement providing a high amount of exposure to the corporation management and employees. Advancing to the position of operations agent is a definite rite of enhancement since it could position an employee to be a prime candidate for other front-line management jobs.
Ceremonies reinforcing the cultures and values of Southwest Airlines are the responsibility of the Culture Committee and it is tasked to create the Southwest Spirit and Culture where needed; to enrich it and make it better where it already exists; and to liven it up in places where it might be ‘floundering’. The annual awards banquet is the biggest companywide event of the year for which employees from all over the system are brought to Dallas and honored for their length of service. Southwest Airlines emphasis on personal relationships keeps the employee turnover rate hovering around 7%, further ensuring that “graybeards” are around to help enforce the values and culture of the corporation. In Dallas, at the corporate headquarters, employees find walls lined with pictures of other employees receiving awards for community service activities.
The pictures serve as strong symbols that reinforce that the Southwest Airline culture inspires extra-role performance, specifically organizational citizenship behaviors such as altruism. No doubt the awards ceremony also provides an opportunity for many of the legends of Southwest to be told that solidify the “we vs. them” mentality derived from the Southwest’s organizational experience fighting court battles just to survive and other unique events such as organizational founder Herb Kelleher arm wrestling a competitor for the legal rights to use an advertising logo. The organizational structure and design of Southwest combined with the organizational culture that has been nurtured has served Southwester Airlines well.
Southwest Airlines success is evidenced by 30 straight years of profits and being able to grow to become the fourth largest U. S. airline (in terms of domestic customers carried). However, the terrorist attacks of September 11, 2001 resulted in a dramatic drop in airline customers and the issuance of over 200 industry regulation directives in the span of 60 days. The directives had a huge impact on the task environment Southwest and the other airlines operate within. Almost overnight, in an effort to win back airline customers, all of Southwest Airlines competitors became low-fare carriers temporarily negating one of Southwest’s marketing advantages.
Security issues made the handling of passengers, baggage, and other matters more complicated and time consuming. Additionally many of Southwest’s best customers (business travelers), who due to their “last-second” arrivals at the gate, fall into the terrorist profile requiring that they be searched before being allowed to board the flight, further causing delays and threatening the validity of Southwest’s corporate motto, “you are now free to fly about the country”. Other airlines have added additional time into their flight schedules to manage perceptions of a key industry statistic that is very important to potential customers when purchasing a flight ticket; on-time arrival percentage for the particular airline.
These factors have reduced profits, almost ending Southwest’s string of 30 consecutive years of profit, and placed Southwest next to last amongst major US airlines in percentage of on-time arrivals. At this point management is pondering whether changes in the fundamental business model are necessary to protect the bottom line and increase on-time performance. Proposed Solutions Analyzing post 9/11 performance in the airline industry convinces us that Southwest Airlines business model of frequent departures, unassigned seating, point-to-point flights, equipment standardization, strong family culture, and managed growth is sound. Amongst major US Airlines only Southwest and JetBlue were profitable between first quarter 2001 and first quarter 2002.
In fact, cost/seat mile for Southwest has decreased in the period and revenue should increase as the US becomes more convinced of airline security and other airlines are forced out of the low-fare segment to try and earn profits. Management may be caught up in comparing its net income to its own past performance when they should be comparing it relative to its competitors who are doing far worse. Changing the business model in an environment of uncertainty would be disastrous resulting in employee turnover (feeling they no longer fit the company), huge hiring and retraining costs, and additional costs associated with attracting a new type of customer.
Southwest’s business model displayed its resilience and daptability, when Southwest made the decision to increase schedules, after 9/11, and to continue to add Norfolk to its list of cities served. The decision allowed Southwest to increase market share in passenger miles flown from 7. 5% in first quarter 2001 to 7. 8% in first quarter 2002. Increased market share should increase revenue and profits when security regulation stabilizes and customers return to the airlines. The on-time arrival percentage is a skewed inaccurate statistic being manipulated by Southwest’s competitors. Although turnaround times have grown from 24 to 27 minutes this is still far superior to the industry average which is twice as much.
However, to ensure last minute arrivals are boarded quickly we believe Southwest should go ahead and hire or pay for additional security in the gating areas in the short-term. Eventually new security equipment, such as high resolution x-ray scanners, will be deployed upstream of the gating areas by the US government, mitigating the need for preboarding searches. Southwest’s employees, with their strong sense of company ownership, will serve as the alarm to tell management when the added expense of federal security agents is no longer needed in the gating areas.
Adding time to flight schedules increases the likelihood that a reduction of one flight departure from each city could be necessitated at a great reduction in profit ( 56 cities X 96 passengers X 500 miles avg. flight. X $. 8 profit cents/mile = $750,000 using 2002 profit data, = $3,494,400 using 2001 profit data of $1. 30 cents/mile). In order to continue growth, Southwest should first pursue adding the long flights, similar to the Oakland to Baltimore route, connecting highly serviced cities. The high seat utilization coupled with low per-flight labor costs will increase profits without requiring additional labor expenses that would be incurred if new cities were added to the service list. JetBlue is making a handsome profit on these longer flights. When the market has stabilized Southwest should once again pursue adding new cities to their service list while continuing to add longer flights.
Finally the inaccurate perception by industry analysts, and potentially future customers, that Southwest service levels are declining should be aggressively attacked using one of Southwest’s legendary strengths, humor in advertising. The culture committee should be recruited to brainstorm advertising ideas pointing out that competitors cannot beat them in service levels so they have to cheat to beat the system. After all, Southwest Airlines continues to be #1 in fewest customer complaints for the last twelve consecutive years. Ads could humorously depict travelers boarding competing airlines in summer vacation attire, being passed in mid-flight by hot air balloons and hang gliders, and deboarding during blizzard conditions. The ending tag line would reassure current and future customers, “You are still free to move about the country”.
Courtney from Study Moose
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