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4380 Case 21 Southwest Airlines

Southwest Airlines has experienced significant growth since 1982 but now faces new challenges requiring changes to its historic organic growth strategy. While the culture of customer service and employee loyalty built by Herb Kelleher remains integral, Southwest must consider expanding to new airports and markets through mergers and acquisitions as well as modest fare increases to sustain profitability as competition increases.

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Hillary Joiner, Nathan Fisher, Brett Huey & Phillip Duffy June 2013 SOUTHWEST AIRLINES
• In 1982, Southwest Airlines had 27 planes, 270 million in revenues, and flew to 14 cities. • We now employ 538 planes, operate in 69 cities, covering 35 states, and rank 164th on the Fortune 500 list. • For the last 39 years, we have relied on an organic growth strategy stemming from cost leadership and a unique corporate culture: • Dedicated employees allowed for competitive labor costs. Employees are paid 30% less than competitors, but are offered valuable stock options as extra compensation. • Flies out of less congested airports to get quicker turnarounds. • Only operates on Boeing 737 • No “frills” BACKGROUND
BUT… It’s time for a new strategy.
NEW LEADERSHIP • Herb Kelleher relinquishes power after building company around his image of customer service and employee loyalty • Remained chair of board with focus on long range • Colleen Barrett • New President and COO • Was the culture keeper since early days of company • James Parker • Resigned in 2004 amid labor negotiations with flight attendants • Gary Kelly • Now CEO • Expanded company to key airports through M&A • Understood further cost reductions would be hard to come by without modest fare increases and layoffs
CULTURE & GROWTH: EMPLOYEES • As company grows so does distance between employees and management • Small staff with increasing passenger load and frequency • Leads to more bags and shorter time, with no pay increase • Flight attendants asked to work longer hours • Boosted productivity but no pay increase, stock value also declining • Southwest is no longer underdog so their pay should match the success of the company
CULTURE & GROWTH: COMPANY • To increase productivity and convenience for customers, must expand to more airports • Key acquisitions of gates in Chicago, Atlanta, Pittsburg, Fort Meyers • More online reservations and narrowing labor-cost advantage with major airlines • Leads to increase in rates and possible layoffs • Expansion of JetBlue & AirTran would be direct threats • Must increase amenities to compete with similar airlines • Leather seats & in-flight entertainment
http://www.youtube.com/watch?v=DYA_ivyj3kE&t=0m40s
Strengths -Human Capital -Social Network -Culture -Overall Cost Leadership Weaknesses -Accustomed to organic growth strategies in an industry that now requires nonorganic growth -No segmentation (first class, etc.) -Most employees are unionized. Opportunities -More U.S. cities -International Flights -New target markets: Hispanics and elderly Threats -Economic recession- less people are flying -Fluctuating oil prices -Competition (Delta, US Air, etc.) SWOT ANALYSIS
• How do we continue to grow? (Alternative growth solutions) • LUV our people (Internal Strategy) • LUV our customers • Focus on new markets GIVE A LITTLE LUV
• Return to our core values • Herb Kelleher said: “We want people who do things well, with laughter and grace.” • With over 35,000 employees and the acquirement of Airtran introduce a veteran mentor program to integrate new employees into OUR culture. • Number of Departures • Maximize productivity of people and machinery, add additional departures each day. • Cost Cutting – “Airlines don’t have revenue problems, they have cost problems.” • Ensure pilots feel involved internally by contributing new ideas on how to save fuel. • Continues to keep service cost low, because who knows the skies better than our pilots. LUV OUR PEOPLE
• Core Business • Customer Service – we just happen to provide airline transportation. • Triple Crown Award Winner • Our Philosophy- “Service for Smiles and Profits” • Encourage our employees to treat customers and customer service as the most important aspect of their job. • Provide the best value for our target consumers dollar (frequent schedules, comfortable seats and on-time departures). • Add segmentation in seating for customers willing to pay more. • Our Mission • The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. LUV OUR CUSTOMERS
• Focus on Product Positioning in New Markets. • Alert customers of our: Low-fares, short-hauls, high-frequency, and point-to- point carrying. • Southwest Cities • Between 2006 and 2010, we grew from 63 to 69 in numbers of cities served. • Recognize the new markets (Washington Dulles, Denver and Atlanta) through promotion (media blitz). • Continue to pursue more U.S. cities. • Southwest Countries • Begin working on expanding to international cities. International travel is growing and growing in today’s world. • Target Hispanic and elderly populations • “We want to have greater appeal to more customers nationwide,” Kelly said. NEW MARKETS
• Southwest Cities • Southwest Countries • Target Hispanic and elderly populations OUR RECOMMENDATION: NEW MARKETS