Southwest Airline A Airline in Trouble?In Reference to Change ManagementEmployees First Second Customer…
Change Management • Structured Approach to shifting/transitioning.• Helping Employee to Accept and embrace change.
“It’s worth asking whether Southwest is finally facing the same issues and challengerthat legacy carriers have experienced for sometime. We believe there is a risk that as agenerational change occurs and the oldest Southwest employees retire (whoremember the early years of struggle), the company’s low-cost culture will change.” -William Greene, an Analyst at Morgan Stanley, in 2004
Southwest Airlineò The se&ng ò About Southwest • It’s summer of July 2004 • Started as a intra-‐state operator in Texas • James Parker resigns as a vice chairman of • Budget airline philosophy, survived a Southwest Airline. severe price-‐war • Gary Kelly-‐ CFO • OperaKng out of Dallas’s Love Field airport, hence the Kcker LUV • 2004 proﬁt would fall below by 54% below expectaKon. • 7th largest in the country by April 1993 • Final decision would have to preserve the • Expanded to become a naKonal carrier, Southwest culture and spirit and the serving major ciKes growth. • Short-‐haul, high-‐frequency, low-‐cost strategy
The Southwest Model Use non- Controlled, Treat Hire peopleconventional Have Fun Involve Solid growth employees as who form models for Together employees for the family the fit low-cost airlineThis model is used since the inception ofthe company.
Success Storyò Until 2003 airline has profits for 31 years in a row.ò Low cost by eliminating unnecessary cost.ò Culture – warm, informal, distinct lack of hierarchy.ò Benchmark to low cost airline industry.
Trouble Brewing Change at Southwest airline in early 2000sò Labor Problems ò 2002 flight attendants union protest. ò Better working condition. ò Appraisals. ò Stock options. ò Tentative agreement. ò Cost per seat mile increased.
Trouble Brewingò Customer Relations ò Began to change. ò Increased security post September 11 attack in USA. ò Refusal to accept e-mail v/s call customer care.
Trouble Brewingò Rising Costs ò Known to keep cost low by it’s operations. ò Fuel price in early 2000. ò Cost reaching at par with full service airline. ò Position v/s competition.
Trouble Brewingò Looming Competition ò Threat JetBlue & AirTran ò JetBlue in 2002 grew 66%. ò Service Quality. ò Early 2000s gap between low cost airline & full service.
The Change-Southwestò Transformation early 2000sò Kelleher – Charismatic personality.ò Negotiation – Employees & Personal Letter.ò Disassociation of Employee-Old V/s Newò Earlier years V/s Later Years
1996 also won the airline industry’s “Triple Crown” – the fewest delays, complaints and mishandled bags.Clearly, Southwest is doing something right. Most attempts to copy Southwest have focused solely on operational issues:• Flying just one aircraft type – to cut down on training and maintenance costs. The Change-Southwest• Using smaller, less congested airports – to avoid schedule disruptions caused by multiple aircraft demands.• Eliminating meal service and seating assignments – to allow aircraft to be turned around more rapidly.Despite following these same strategies, however, no other airline has yet been able to successfully clone Southwest’s succeWhat’s missing is the “secret sauce” Southwest uses to make all these operational factors come together effectively and efficienLying at the heart of the Southwest success story are three elements:1. 10 organizational practices which build relationships between managers and frontline employees and among employees.2. An environment which emphasizes shared goals, shared knowledge and mutual respect. The new millennium change:3. Sound communication techniques which are frequent, timely and focused on solving problems. 10 Organizational Relationships Environment å Outstanding business leadership Techniques ç Invest in the front-line leaders Shared é Hire and train for relationship excellence Frequent Goals Communication è Use conflicts to build relationships ê Bridge the work-family divide Timely Shared Knowledge ë Create positions that span boundaries Communication í Use broad performance metrics ì Highly flexible job descriptions Mutual Problem-Solving Respect î Partner with the unions Communication ï Build the supplier relationshipsNote especially the fact all ten of these organizational relationships are highly complementary. They only generate benefits whenten are present and well implemented. They work in unison rather than in isolation. It is not until all ten are present that substan
Net Income-Comparison 2001 2002 2003 2004 2005 2007 2010NetIncome(millions) 548 313 442 241 511 645 459 Net Income 700 600 500 400 300 Net Income 200 100 0 2001 2002 2003 2004 2005 2007 2010
Can Kelly Replace Kelleher At Southwest!ò Analysts thought?ò Personality- Kelly’s V/s Parker.ò Under Gary’s Leadership 2010- ò Continue to receive the distinct designation as the largest do- mestic airline.1 ò Net income grew to $459 million, a 364 percent year-over-year increase.ò Gary’s message “We credit our success to our Employees, who are our most valuable asset and our competitive advantage”