Service Operation Management at<br />
Background :<br /> - Founded in 1967 - Love Field in Dallas, TX<br />    - 35,000 Employees (started Flying in 1972)<br />...
Fun facts (www.southwest.com)<br />Southwest reviewed 284,827 resumes and hired 3,363 new employees in 2006 (11.8%). <br /...
Southwest’s Business Model<br />Providing safe<br />Reliable<br />Short duration air service<br />Lowest possible fair<br ...
Low Cost<br />Differentiation<br />Use a single aircraft model<br />(Boeing 737)<br />Focus on customer satisfaction<br />...
The “Right” People or the “Right” Organization?<br />A Values-Based Organization View of Strategy<br />Fundamental Values ...
 What policies and practices are consistent </li></ul>  with these Values and Philosophies?<br />Design Management Practic...
SW:Anatomy of a 15-minute Turnaround<br />7:55 Ground crew chat around gate position<br />8:06:30 Baggage unloaded, refuel...
How SW strategy is Implemented<br />No baggage transfers<br />No meals<br />Limited Passenger  service<br />No connection ...
Key operation parameters of sw<br /><ul><li>Passenger Load factor-</li></ul>     is the percentage of <br />      a plane ...
Cont……<br /><ul><li>    Aircraft Utilization-in hours           and  minutes in a day a plane</li></ul>       is used<br />
SW’s Top Ten Airport-Daily Departure<br />Southwest avoided congested airport.<br />High employee productivity.<br />Relia...
Third-Degree Price Discrimination <br />The firm identifies different consumer groups, in the market, each with a differen...
Conditions for price discrimination<br />A firm must have some market power to price discriminate<br />The demand curve th...
Corporate Culture<br />Tickets must be bought from the airline itself, the phone or online <br />Extra Rapid Rewards <br /...
Looking Ahead<br />Increase more non stop flights<br />Enrich operation system<br />Include daily non stop flights in busy...
Conclusion<br />Southwest Airlines uses third-degree price discrimination to fill the plane with travelers in the most pro...
That’s It<br />
south east
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south east

  1. 1. Service Operation Management at<br />
  2. 2. Background :<br /> - Founded in 1967 - Love Field in Dallas, TX<br /> - 35,000 Employees (started Flying in 1972)<br /> - Nation’s 4th largest airline (59+ cities and 65M <br /> Customers)<br /> - Only two fares: regular coach and off-peak Only airline to win the FAA’s “triple crown” 26 different months, three full years in a row<br />best on-time record<br />fewest lost bags<br />fewest customer complaints (consistently the airline with lowest complains)<br /><ul><li>Results and Outcomes:</li></ul> - Excellent customer service (rated the best for on-time <br /> performance, fewest lost bags; fewest customer <br /> complaints – 13 years in a row)<br /> - Safest airline in the world (never had a fatal accident)<br /> - Profitable every year (33 years in a row); only airline in the world<br />
  3. 3. Fun facts (www.southwest.com)<br />Southwest reviewed 284,827 resumes and hired 3,363 new employees in 2006 (11.8%). <br />Southwest carried 96.3 million passengers in 2006. <br />Southwest served 93.8 million bags of peanuts in 2006. <br />Southwest moved 265 million pounds of cargo in 2006. <br />Southwest used about 1.6 billion gallons of jet fuel in 2006. <br />The shortest daily Southwest flight is between Ft. Myers and Orlando (133 miles). The longest daily Southwest flight is between Philadelphia and Oakland (2,508 miles). <br />Southwest has approximately 1,133 married couples. In other words, approximately 2,266 Southwest Employees have spouses who also work for the Company. <br />
  4. 4. Southwest’s Business Model<br />Providing safe<br />Reliable<br />Short duration air service<br />Lowest possible fair<br />Quality service<br />Point to Point<br />
  5. 5. Low Cost<br />Differentiation<br />Use a single aircraft model<br />(Boeing 737)<br />Focus on customer satisfaction<br />Use secondary airports<br />High level of employee dedication<br />Fly short routes<br />No meals<br />New flight services for business travelers<br />(phones and faxes)<br />S.W.A.’s Culture, Values, Philosophies & Principles<br />15 minute turnaround time<br />No reserved seats<br />No travel agent reservations<br />Integrated Low Cost/Differentiation Strategy<br />
  6. 6. The “Right” People or the “Right” Organization?<br />A Values-Based Organization View of Strategy<br />Fundamental Values or Beliefs<br /><ul><li> What are our basic Principles, Philosophies </li></ul> and Core Values?<br /><ul><li> What do we believe in?
  7. 7. What policies and practices are consistent </li></ul> with these Values and Philosophies?<br />Design Management Practices<br />That Reflect and Embody<br />These Values<br /><ul><li>What can we do for the customer better </li></ul> than our competitors?<br />Use These to Build Core <br />Capabilities<br /><ul><li> Given our capabilities, how can we deliver</li></ul> value (EVA) to customers in a way our <br /> competitors cannot easily imitate?<br />Invent a Strategy That is Consistent<br />with the Values and Uses the<br />Talents & Capabilities of People/<br />Organization to Compete in<br />New and Unusual Ways<br /><ul><li> Senior management “manages” the values</li></ul> and culture of the firm.<br />Senior Management’s Role<br />
  8. 8. SW:Anatomy of a 15-minute Turnaround<br />7:55 Ground crew chat around gate position<br />8:06:30 Baggage unloaded, refueling<br />8:03:30 Ground crew move to their vehicles<br />8:04 crew moves towards gate<br />8:15 Jet way retracts<br />8:08 Boarding call ,baggage loading, refueling complete<br />8:07 Passenger off plane<br />8:10 Boarding complete. ground crew leaves<br />8:15:30 Pushback from backs<br />8:18 Pushback disengages plane leaves for runway<br />
  9. 9. How SW strategy is Implemented<br />No baggage transfers<br />No meals<br />Limited Passenger service<br />No connection with other airlines<br />No site assignments<br />Short hual,point to point travel<br />Very low ticket prices<br />Passenger related departure<br />High aircraft utilization<br />
  10. 10. Key operation parameters of sw<br /><ul><li>Passenger Load factor-</li></ul> is the percentage of <br /> a plane filled with paying <br />passengers.<br /><ul><li> Revenue passenger miles-</li></ul> One paying passenger flown <br /> one line<br />Source:www.southwest.com<br />
  11. 11. Cont……<br /><ul><li> Aircraft Utilization-in hours and minutes in a day a plane</li></ul> is used<br />
  12. 12. SW’s Top Ten Airport-Daily Departure<br />Southwest avoided congested airport.<br />High employee productivity.<br />Reliable on time performance.<br />
  13. 13. Third-Degree Price Discrimination <br />The firm identifies different consumer groups, in the market, each with a different demand curve. <br />Southwest Airlines recognizes that any given flights has different types of travelers<br />business travelers vs. vacation travelers<br />To maximize profit, the firm sets a price for each group by equating marginal revenue and marginal cost. <br />Equivalently, by using the inverse elasticity pricing rule (IEPR)<br />
  14. 14. Conditions for price discrimination<br />A firm must have some market power to price discriminate<br />The demand curve the firm faces must be downward sloping <br />Southwest knows that it can attract more customers at lower fare price<br />The firm must have some information about the different amounts people will pay for its product.<br />Southwest must know how reservation prices or elasticities of demand differ across consumers<br />A firm must be able to prevent resale, or arbitrage. <br />Customers need to present an identity card before boarding<br />
  15. 15. Corporate Culture<br />Tickets must be bought from the airline itself, the phone or online <br />Extra Rapid Rewards <br />- frequent flier program<br /> - credits for online booking users only<br />Customers are assigned to a boarding group depending on check-in time <br /> - find their own seats on the plane<br />Colorful boarding announcements and crews that burst out in song instead of no video entertainment <br /> Meal service is less than on historically full service airlines <br />
  16. 16. Looking Ahead<br />Increase more non stop flights<br />Enrich operation system<br />Include daily non stop flights in busy air traffic route.<br />
  17. 17. Conclusion<br />Southwest Airlines uses third-degree price discrimination to fill the plane with travelers in the most profitable way<br />Depending on the price of elasticity of demand for tickets<br />Charge a higher price for business travelers who have relatively inelastic demands <br />Charge a lower price for vacation travelers who have relatively elastic demands<br />
  18. 18. That’s It<br />

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