Case #11: Southwest Airlines

Group Members
Muhammad Kashif
Muhammad Sarfraz

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Contents

Overview of the case

Question # 1
Question #2
Question # 3
Southwest Airline Today
Question # 4

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 What’s in the case?
wIt cover Two aspects
w Southwest airline’s intial war with its environment forces
w Southwest’s growth while fighting with it’s competitors
Overview Of the Case


Question # 1
w That was Rollin King who put the idea on a cocktail napkin by
Question # 2 Making a triangle.
Question # 3 w

Southwest Airline Today


Dallas


Question # 4


Texas 


Houston San antonio


 The proposed route of southwest airline

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 What’s in the case?
w Initial capital 560000
w Légal Battle for thrèe years fought by Kelleher
w For three years
Overview Of the Case w No mangement

Question # 1
w No Air planes
w No employée
Question # 2
w And almost no capital
Question # 3
Southwest Airline Today

Question # 4

w
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 What’s in the case?
§ New legal issue(Just before 48 hours)
§ Restraining order from District court for ban the southwest
§ Kelleher approach another time & get approval
§ 1st flight on 1971
Overview Of the Case § No profits for One & half years
Question # 1
§ Reasons
Question # 2
§ Dallas to Houston route was okay but
Question # 3
§ Dallas to san Antonio was in loss
Southwest Airline Today
§ Low price strategy
Question # 4
§ Deregulation in 1978 as an advantage for southwest
§ Expansion of operation outside Texas

§ Chicago partnership
§ California Competition
§ Next Target Florida
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 What environmental forces affect the
southwest airline initially?
w Two Major Forces


Overview of the case Legal Rules & Regulatory issues

w CAB (Civil aeronautical Board) Federal regularity body
Question # 1
w Under CAB REGULATION, investment and operating decisions
Question # 2 were highly constrained
Question # 3
w (CAB) controlled entry, exit, and the pricing of airline services, as
well as inter carrier agreements, mergers, and consumer issues
Southwest Airline Today
w Also Didn't permit any airline for interstate activities
Question # 4 w For avoid competition
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 What opportunities southwest airline seek?
§ Improper service of Existing airlines at that time
§ Fares are high
§ Flight are delay
Overview of the case § Bad scheduling
Question # 1 § Demand of passengers still exist
Question # 2
§ That led the Rollin king & Herb Kelleher for new horizon
Question # 3 

Southwest Airline Today

§ They seek the hidden opportunity & decided to go for a airline
Question # 4 who can provide better service at reasonable fares


§ Kelleher also found that although “CAB” restrict interstate

airline activities but intrastate activities can be channelized
by fulfilling legal formalalities.

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 Southwest airline’s Business Strategy(Model).
 Profitability

Overview of the case

Lower cost Increase Revenue
Question # 1

Question # 2
Question # 3

Southwest Airline Today

On Time Flights More Customer
Question # 4

Reduced Turnaround Time Lowest Prices

Allign Ground Crew

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 How would you describe the airline industry after
deregulation?
§ It is realization that a politically controlled economy served no continuing public
interest.


§ The 1978 Airline Deregulation Act partially shifted control over air travel from
Overview of the case the political to the market sphere.
Question # 1 

Question # 2 § The Civil Aeronautics Board (CAB), which had previously controlled entry, exit,
and the pricing of airline services, as well as intercarrier agreements, mergers,
Question # 3
and consumer issues, was phased out under the CAB Sunset Act and expired
Southwest Airline Today officially on December 31, 1984.
Question # 4 

§ CAB rules limiting routes and entry and controlling prices meant that airlines
were limited to competing only on food, cabin crew quality, and frequency. As
a result, both prices and frequency were high,
w


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 How would you describe the airline industry after
deregulation?
§ Advantages of Deregulation
§ The air transport market after deregulation is remarkably different. Because
airlines compete on price, fares are much lower.

Overview of the case

§ Airline deregulation was a monumental event. Its effects are still being felt
today, as low-cost carriers (LCCs) challenge the “legacy” airlines that were in
Question # 1 existence before deregulation (American, United, Continental, Northwest, US
Air, and Delta)..
Question # 2
§ Even the partial freeing of the air travel sector has had overwhelmingly positive
Question # 3 results. Air travel has dramatically increased and prices have fallen..
Southwest Airline Today
§ Since passenger deregulation in 1978, airline prices have fallen 44.9 percent in
Question # 4 real terms according to the Air Transport Association.
§ In (1997) estimated that when figures are adjusted for changes in quality and
amenities, passengers save $19.4 billion dollars per year from airline
deregulation.
§

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 How would you describe the airline industry after
deregulation?
§ Advantages of Deregulation
§ The airlines have the freedom to innovate in routes and pricing.
§ Over time, the legacy carriers and the LCCs(low-cost carriers) will
likely use some combination of point-to-point and network hubs to
Overview of the case
capture both economies of scope and pricing advantages.
Question # 1
§ .As prices have decreased, air travel has exploded. The total number of
Question # 2 passengers that fly annually has more than doubled since 1978.
Travelers now have more convenient travel options with greater
Question # 3
flight frequency and more nonstop flights.
Southwest Airline Today
§ The LCCs have thus far successfully competed on price due to lower
Question # 4
hourly employee wages, higher PRODUCTIVITY, and no pension
deficits
§

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 How would you describe the airline industry after
deregulation?
§ Disadvantages of deregulations
§ Although the gains of economic liberalization have been substantial,
fundamental problems plague the industry.
§ Some of these problems are transitional, the massive adjustments required by
Overview of the case
the end of a half century of strict regulation.
Question # 1 § The regulated airline monopolies received returns on capital that were supposed
to be “reasonable” (comparable to what a company might expect to receive in
Question # 2 a competitive market), but these returns factored in high costs that often
would not exist in a competitive market.
Question # 3
Southwest Airline Today
§ For example, the airlines’ unionized workforce, established and strengthened
under regulation and held in place by the Railway Labor Act, gained
Question # 4 generous salaries and inefficient work rules compared with what would be
expected in a competitive market. Problems remain in today’s market,
especially with the legacy airlines.


.
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 How would you describe the airline industry after
deregulation?
§ Disadvantages of deregulations
§ Consumers became more price-sensitive and gravitated toward the lower-cost
carriers.
§ High labor costs and the network hub business model hurt legacy airlines’
Overview of the case competitiveness. Hub-and-spoke systems created high fixed costs that
required larger terminals, investments in INFORMATION technology
Question # 1
systems, and complex revenue management systems.
Question # 2 §
Question # 3 § Restrictive foreign ownership and COMPETITION laws. While labor contracts,
Southwest Airline Today
airport asset management, and other business practices are themselves high
barriers to restructuring,
Question # 4

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 How would you describe the airline industry after
deregulation?
§ Conclusion
§ The industry is still structurally adjusting to a more competitive situation and
remains subject to a large number of regulations. The capital, work rules, and
compensation practices of the airline industry still reflect almost fifty years of
political protection and control.
Overview of the case
§ We are finally seeing the kinds of internal restructuring among airlines that was
Question # 1
expected from deregulation. Yet, government still has much to do to ensure
that the airline market will thrive in the future. Land slots and airport space
Question # 2
should be allocated using market prices instead of through administrative
Question # 3 fiat..
Southwest Airline Today § If the government deregulates the grid and transitions toward a market solution,
the benefits of flow deregulation will increase, and costs for air travelers will
Question # 4
fall even more.
§

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 Southwest Airline Today.
§ Southwest is the largest airline in the world by number of passengers carried per
year (as of 2009).
§ As of May 3, 2009, Southwest operates approximately 3,510 flights daily
§ Nearly 35,000 total Employees throughout the Southwest system.

Overview of the case § Today, Southwest operates 541 Boeing 737 aircraft between 69 cities.
Question # 1
 Mission Statement
Question # 2 § The mission of Southwest Airlines is dedication to the highest quality of
Question # 3 Customer Service delivered with a sense of warmth, friendliness, individual
pride, and Company Spirit.
Southwest Airline Today
Ø To the employees
Question # 4
Ø We are committed to provide our Employees a stable work
environment with equal opportunity for learning and personal
growth. Creativity and innovation are encouraged for improving
the effectiveness of Southwest Airlines. Above all, Employees
will be provided the same concern, respect, and caring attitude
within the organization that they are expected to share externally
with every Southwest Customer.
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 Southwest Airline Today.
 Vision
§ To have a conservative increase growth, capitalize and cutback schedules of
other airlines. To continue expanding conservatively in long-haul success.

§ Organizational Structure
Overview of the case § Flat & decentralized structure
Question # 1 § Only three layer of management
Question # 2 § According to southwest philosophy bureaucracy influence the entrepreneur
Question # 3
spirit in a negative way
§ No Red Taping Kelleher himself sometimes approaches to all staff to know
Southwest Airline Today
about their feedback & suggestions.
Question # 4 § Employee can voluntarily swap their job with a colleague in a different
department one day


§ A negative aspect is job specialization doesn't go as for as other airline e.g.

 To reduce the turnaround time pilots also help to clean the plane
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 Southwest Airline Today.
 Organizational Culture
§ Southwest airline have a real fun working, friendly & family oriented culture
§ Strong internal relationship with employees
§ Celeberation on the achievments
Overview of the case  Motivational Factors
Question # 1
§ Besides the usual package of secondary
Question # 2 § Employment benefits, like free airline tickets, profit sharing, stocks, and in-
Question # 3  Surance, and the ”employee of the month” election,
Southwest Airline Today  To create a real family spirit,
Question # 4
§ All the corridors of all SWA buildings are full of pictures and memo-ries of all the parties
celebrated by the employees.
§ Presents are sent to people who get sick, are having a baby, and so on.
§ All this is done


 Because
§ The employees comes first at southwest airlines.
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 What do u think the future holds for southwest?

Competitive advantages


§ Southwest airline has a low cost structure but its not the competitive advantage
which southwest looking for the real magical trick is the way how southwest
air line motivates its employee so they in return can give the better customer
services
Overview of the case
§ The future holds best to grow for Southwest airline
Question # 1

Because

Question # 2
Question # 3 § Showing profits from consectively37 years
Southwest Airline Today § Already have a maximum Number of passengers
§ Low cost airline
Question# 4
§ Low prices
§ Excellent structure & culture
§ Most important excellent committed & motivated employees who are
assets of the company & they are ready to give their best for
customer satisfaction
§
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 Our concerns? What does Southwest need to do to continue
their success in future?

Concerns Suggestions

üEncourage family-
Keep and enhance like, friendly air
How to keep family feeling and organizational culture organizational culture üPromote Inter-branch
communication &

Management
opportunities for
üA committee
social for the
networking
Overview of the case Find a well-respected person who could replace Kellehernext CEO
How to avoid falling into narcissism üInvolve all
employees in the
Question # 1 election process
üDefine new or
(e.g., survey
Set clear goals to motivate employees corporate
yes/no voting)goal that
Question # 2 How to hire great people consistently reflects new
competitive
Question # 3 landscape
üTicket mailing
Improving service convenience service
üInternet reservation
Southwest Airline Today service & electronic
How to deliver consistently high customer satisfaction
Customer

tickets
üMaking alliances with
Question # 4
Increase market share other services (e.g.,
car rental)
üMerging with Small
How to exceed the customer expectation local Airlines
üCreate new
Create new market advertising
campaign to attract
potential customers
üAdditional
üFlying
servicesto airports
(e.g., in
How to do consistently well in the market other citiesservice)
delivery
Expand business area
Market

üDoing business in
other states
/countriesfor sudden
üPrepare
(international
How to prepare for economic/politicalDéuncertainties
fend against économico/légal issues rise of oil pricesbranch)
(buying much at a low
price)
üFight againstPage 
Wright
19
Amendment
Any questions?
Thank you!

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