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Southwest Airlines : Case Study

by Sarang Bhutada on Aug 26, 2009

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A classroom presentation of the legendary Harvard Business case study on Southwest Airlines.

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Southwest Airlines : Case Study Presentation Transcript

1. Just Plane Smart Harvard Business School Case Study

Summary Abhishek Mehra Balaji P Saruabh Ranadive Sarang Bhutada

2. The setting Its summer of 1993 Southwest is expecting

delivery of two uncommitted planes McGlade needs to find a way, to put these planes in operation, keeping the organizational objectives are intact Final decision would have to preserve the Southwest culture and spirit About Southwest Started as a intra-state operator in Texas Budget airline philosophy, survived a severe price-war Operating out of Dallass Love Field airport, hence the ticker LUV 7 th largest in the country by April 1993 Expanded to become a national carrier, serving major cities Short-haul, high-frequency, low-cost strategy 12 time winner of the coveted triple crown award

3. The Southwest Model 4. Hiring - Identify attitudes rather than skills Rigorous

interviewing Peer hiring People skills of Southwest Structure Centered on team-building Cross-training encouraged Broad latitude offered 10% of stock held by employees Advancement Recognition, an important element Celebrations quite common Most promotions internal Compensation Varied with position At par with industry norm Pension through a profit-sharing plan Culture H A Patina of Spirituality ugs common across office Casual dress code Field visits Strong guidelines to everyone At par with industry norm Pension through a profit-sharing plan

5. After lengthy deliberation at the highest executive levels,

and extensive consultation with our legal department, we have arrived at an official corporate response to Northwest Airlines Claim to be number one in Customer Satisfaction Liar Liar. Pants on Fire

6. Product: Southwests product is travel Competition - not

just other airlines but any mode of transportation. frequent, conveniently timed flights and low fares. point-to-point route system as compared to hub-and-spoke direct nonstop Target Market: Market

Segmentation cost- and value-conscious consumers. mostly male small business executives travel short distances prefer low cost fares frequent schedules The other half consists of value-conscious consumers (male, female, families, and senior citizens) best value for their dollars Senior citizens are a sub-segment that receives special attention than a loyal customer - customer evangelist

7. Competitors and Competition 11 major carriers (2003):

Alaska Airlines Aloha Airline America West American Airlines Continental Airlines Delta Airlines Northwest Airlines TWA United Airlines U.S. Air Southwest Airlines Southwests brand exudes an element of fun: Obviously Fun Love Theme, Love Potions(on-board drinks) Love Machines( ticket writing machines) Product Positioning only low-fare short-haul high-frequency point-to-point carrier fun to fly Average cost of serving meals per passenger in the industry - $5 For Southwests - 20 cents Seemingly weird things- Not assigning seats Weird Color Scheme

8. Product Positioning Example of Southwest Airlines

nuttiness - use of the word love One ad titled " How Do We Love You? " - flight schedule. Another ad titled " We're Spreading Love " - the rapid growth of the airline. Word " love - dedication to customer service Marketing Strategies Southwest offers a travel product that is built around flights targeted to specific demographics and ticket pricing that is simplified so that passengers know exactly what they are getting for what they pay. Building Brand Loyalty What is the Southwest Effect? Air fares go down Tourist traffic increases Economic mini-boom ensues Marketing Blitz !!!! - Smart Campaign

9. Pricing Strategies Charge the lowest possible fare Compete

with all other forms of transportation, including automobiles Instead of increasing fares when market gets busier and more people are flying, it simply increases the number of flights. Distribution and Promotion Product Distribution Strategies SWA does not rely on travel agents Travel bookings - direct marketing Does not interline or offer joint fares with other airlines Southwest's Internet ticketing saves it $50 million a year, or 1% of revenue "We're not competing with other airlines. We're competing with ground transportation"

10. Promotion Strategies: Marketing Mix Southwest Airlines

wants to differentiate itself from other airlines as the airline that can get passengers to their destinations when they want to get there, on time, at the lowest possible fares while having fun. Frequent Flyer Awards Rapid Rewards-based on number of trips taken Way of showing Southwests philosophy that every customer is equally important as the other and making ALL passengers feel special. Advertising Dont believe the hype. Fares offered by other

discounters and airlines on the Web are not good buys. Southwest attempts to do three things in their advertising: intrigue Entertain persuade Wed like to match their new fares but wed have to raise ours!!"

11. Television Sports Advertising Sports television

programming Reaching the corporate set via sports and other venues In 2000, Southwest renewed its multi-year sponsorship agreement with the National Football League (NFL). Public Relations Aims for Free publicity Triple Crown Award for the fifth time in a row Named a plane Triple Crown One and painted 24,000 employee names on it Internal Marketing Core Business - Customer Service businessthey just happen to provide airline transportation Southwests philosophy Service for Smiles and Profits Encourages employees to treat customer service as the most important aspect of their job CEO Kelleher, " We want people who do things well, with laughter and grace. "

12. OPERATIONS Did all of its ticketing (not making seats

available through computerized systems) Did not operate in the huband spoke route system Flew into uncongested airports of small cities, less congested airports of large cities Did not transfer baggage directly to other airlines Only drinks and snacks often peanuts served on board Travel agents had to contact the airlines directly to book seats SWA passengers flew non-stop origin to destination. Did not promote connecting services Savings in reduced taxi time, fewer gate holds and less in-air waiting time It doesnt coordinate its services with other airlines

13. OPERATIONS Usually do not share the ground handling

crew until unavoidable Other airlines flew variety of jet aircrafts, as many as 5 distinct ones including McDonnell Douglas, Airbus and Boeing 737s had average life of 20 years US industry average was 55 mins. 84% unionized labor force but its labor relations were excellent Only flew Boeing 737 - Fleet of 150 and avg of 1500 trips per day. Average age of SWA was 7 years (lowest in the industry) Differentiation in terms of turnaround time , 2 out of 3 planes were turned-around in 15 mins.

14. COST CONTROL Airlines dont have revenue problems,

they have cost problems

15. GROWTH STRATEGY Conservative Growth Strategy :

Expansion within the current route structure was the first priority (85% expansion was internal) External expansion was opportunity driven: After the collapse of Midwest Airlines in 1991, Southwest moved to Midway Airport in Chicago and anchored there. Scheduling department decides the appropriate market: They dont do a lot of

market research. Choose a market, negotiate for gates and look for controlled growth. Growth with consistency: When they enter a new city they want to make sure that they do the business which is consistent throughout the system.

16. MARKET ENTRY STRATEGY How the company prices its

new routes? They look to grow in the market when they enter the city (quadruple and quintuple the number of passengers in a particular route) Pricing against the ground transportation as much as against existing air service (atleast 60% below competitive fares) Low operating costs They think slightly differently about load factors: Initially higher than average load factors Low price expand market faster than they can add equipment Demand outpaces supply Competitors drop prices that stimulates demand further Keep adding more service to balance out demand and supply Eventually leads to maturing of load factors On the Oakland-Burbank route, SWA quadrupled the passenger market within two years and drove out USAir and United in 3 years time.

17. South west North west Number of employees Revenues

per employee Revenue Vs. Employees ( DEA )

18. Wages as % of total expenses 29.78% ( Industry

average = 35.17%) Lowest among Non-Chapter11 Airlines for the year 1992 . How was it possible ? Employee required per each additional trip Number of departures from a city Ground crew staffing efficiency Competitors runs with at least three times as much staff . E.g., SouthWest effect on Burbank Oakland market. Ground Crew Staffing Levels based on number of departures at an Average Southwest city Departures People Marginal emp reqd per departure 10 35 3.5 20 45 1.5 30 60 1.5 60 120 2

19. ASM: Average Seat Mile ; RPM : Revenue Passenger Mile

Employee productivity (1992)

20. South West Airlines built numbers on its culture where as

most competitors let the culture to shape up by their focus on numbers Other large Airlines F O C U S CONCLUSION F O C U S NUMBERS CULTURE SCHEDULING STRATEGY CULTURE SCHEDULING STRATEGY NUMBERS

21. Thank You

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