Southwest airlines case study   operations management
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Southwest airlines case study operations management

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Operations Management

Operations Management

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  • 1. CASE STUDY
  • 2. Overview• Company History• Industry Profile• Competitive Advantages• Future Challenges• Recommendations
  • 3. Southwest Airlines History• Founded in Texas in 1971 as a small regional airline• Mission – “Dedication to the highest quality ofCustomer Service delivered with a sense ofwarmth, friendliness, individual price, and CompanySpirit.”• 31 consecutive profitable years and consistently highquality ratings– Fewest customer complaints for the 13th straight year in2003– Multiple Triple Crown winner in U.S. DOT rankings• Today Southwest is the largest airline in the UnitedStates
  • 4. Industry Profile• Southwest competes in the domestic airlinemarket• Legacy carriers – United, Delta, USAirways, Continental• Low Cost Carriers – Southwest, JetBlue, AirTranAirways, Frontier Airlines• Hub and spoke vs. spider web• Difficult financial time for the industry– Rising fuel costs, economic downturn, post 911 fallout
  • 5. Industry Competitors14.920.1 20.7 21.837.842.8 44.272.292.595.90255075100Alaska Airlines SkyWestAirlinesAirTran Jet Blue Continental United US Airways AmericanAirlinesSouthwestAirlinesDelta Air LinesJanuary - October 2011 Passengers (in millions)
  • 6. Hub-and-Spoke vs. Spider-Web System• Largest US Hubs by number of passengers:– Atlanta, Chicago, Los Angeles, Dallas/FortWorth, Denver, Las Vegas
  • 7. Corporate Culture• Herb Kelleher – longtime CEO credited withcreating the family friendly atmosphere thathas led to high employee morale• Unconventional CEO– Quarterly he would perform employee tasks suchas load bags, serve drinks, and had out boardingpasses– Settles disputes “the old fashioned way“
  • 8. Corporate Culture
  • 9. Corporate Culture• Southwest spends the most money onemployee training in the industry– Employees are encouraged to think outside thebox and interact with customers• LUV program• High morale and camaraderie• Low employee turnover and good relationshipwith labor unions
  • 10. Operational Efficiency• No frills airline with few amenities– No baggage transfers, first class seating, assignedseats or meal service• Short haul, point-to-point strategy– Spider-web system• Many time options, including hourly flights insome cases
  • 11. Operational Efficiency• Advantages of Spider web system• Southwest uses Boeing 737s for all of its flights– Keeps maintenance costs low and allows for quickturnaround– 10 minute turnaround• Planes are in the air for 12 hours per day vs.industry average of 8 hours– Major accomplishment considering that Southwestoperates short flights
  • 12. Marketing Approach• Recently named the most desired brand inAmerica among by men and women• Consistently offer among the lowest fares in theindustry– No baggage fees, no assigned seats• Fun image– Employees dress up for holidays– Employees are features in commercials– Themed planes• Unique promotions
  • 13. Unique Planes
  • 14. Current and Future Challenges
  • 15. High Fuel Costs• Fuel costs have increased significantly• Historically Southwest has purchased a thirdof its fuel on the spot market
  • 16. Labor Challenges• Increased tension between labor unions andmanagement• Maintaining company culture with leadershipchanges
  • 17. Increased Competition• More low-far, low-cost carrier competition• Legacy carriers are offering “Southwest-styleno-frills, low-far service”• JetBlue, AirTran Airways, Frontier Airlines, etc.• New competitors offered more amenities– Luxurious leather seats, DirecTV in flight, assignedseats, fancy drinks, carb conscious meals, etc.
  • 18. AirTran Airways Acquisition• Southwest acquired AirTran in 2011• Must integrate AirTran’s fleet ofplanes, routes, and employees into itscompany
  • 19. Areas with Potential for Improvements
  • 20. Operating Revenue
  • 21. Operating Unit Revenue
  • 22. Wages/benefits Percentage ofRevenue
  • 23. Fuel Expense % of Revenue
  • 24. Areas with Potential for Improvements• Operating Costs• Workforce Productivity• Business Expansion• Customer Satisfaction
  • 25. Recommendations
  • 26. Current Air Traffic Control System• Based on World War II-era Technology• Analog Transmission• Ground-based Radar– Limitations:• Cannot penetrate mountains• Impacted by bad weather• Cannot reach across oceans
  • 27. Next Generation Air Transportation System(NextGen)• NextGen Components:– Automatic dependent surveillance-broadcast– System Wide Information Management– Next Generation Data Communications– Next Generation Network Enabled Weather– NAS voice switch
  • 28. Next Generation Air Transportation System(NextGen)• NextGen Benefits:– Direct Flight Path– Efficient Landing Method• 10% reduction in fuel consumption– Less air traffic delays• 35% reduction
  • 29. Next Generation Air Transportation System(NextGen)• To be implemented by 2025• Current airports with NextGen technology:– Houston, Las Vegas, Atlanta, Denver…• Using NextGen In the next seven years:– $23 billion in cumulative benefits– Saves 1.4 billion gallons of jet fuel– Reduces carbon dioxide emissions by 14 milliontons
  • 30. Baggage Handling Process• Southwest’s Problem:– Mishandled bags bags per thousand passengers:3.65– Total Mishandled bags in 2011: over 400 K– Cost of a mishandled bag $130– Annual cost of mishandled bags: over $53 million– Dissatisfied customers– Slower turnaround time– Less productive employees
  • 31. RFID Baggage Tracking Solutions(Radio-frequency identification)• Solution:– Automated baggage handling process• Benefits:– Automated Sorting– Dynamic Routing– Faster Loading– Happier Customers– Faster Turnaround Time
  • 32. Southwest’s Fleet• Problem:– Outdated Planes:• 194 Boeing 737s (300-500)• Average age 20.1• High fuel consumption• High maintenance cost– 100% Consistency• 88 Boeing 717s (AirTran)
  • 33. Boeing 737 MAX• Solution:– Replacing the old plans withthe new Boeing 737• Benefits:– Higher Capacity (38 moreseats)– 17-19% more fuel-efficient– Highly Reliable– 15 minutes turnaroundtime, 99.7% of times– Improved Amenities
  • 34. Business Expansion• Attracting New Customers– Catering to Business Travelers– Improved Frequent Flyer Program– Marketing Campaigns• Expanding to International Markets– Caribbean, Mexico, Canada, etc.• Expanding to New Domestic Markets
  • 35. Company Culture• Emphasizing on the importance of corporateculture• Introducing new employees to Southwest’s uniqueculture• Rewarding and recognizing individual achievements
  • 36. Questions?