final soutnwest airline presentation

Southwest Airlines:Culture, Values, and Operating

Practices

Company Background

Southwest Airlines, Inc. (NYSE: LUV)

major domestic airline that provides :… primarily short haulhigh-frequencypoint-to-pointlow-fare service

The third-largest airline in the world by number of passengers carried and the largest in the United States by number of passengers carried domestically.

Founded 1971Fleet size 472Destination 63Headquarters Dallas, Texas

Company Background

Company Background

Core Values2 core values- LUV and FUN.

LUV- compassion, caring, loving attitude.FUN- company sponsored parties &

celebrations.Culture committee to promote “ positively outrageous service”.

Nurturing SW culture:Co hearts mentoring program.

South West spirit. “LUV lines” and “as the plane turns.”

Company Background

History History 1967 Company is incorporated as Air Southwest Co.

1971 Airline launches first route, connecting Dallas, Houston, and San Antonio

1973 SWA posts first profit and begins RUSH cargo service

1975 Southwest goes public on the American Stock Exchange

1976 Company is renamed Southwest Airlines Co.

1977 Shares migrate to the New York Stock Exchange

1978 Herb Kelleher becomes Southwest's outspoken new chairman

1981 Kelleher is named company president and CEO

1982 SWA begins flights to West Coast

1990 Revenues exceed $1 billion, making SWA a major airline

1994 Morris Air and Arizona One are acquired

1996 Online booking site is launched

2000 SWABIZ corporate booking tool is introduced

Herb Kelleher & leadership team

Herb KelleherBecame Southwest’s CEO in 1981

Listen, observe and offer encouragementPeople referred to him as “Clown prince”

Combative and flamboyantFiscal conservatism

Optimistic and confidentOptimistic and confidentSocialistic viewSocialistic viewGrowth mindsetGrowth mindset

Herb Kelleher & Leadership team

Herb KelleherChairman of Board of Directors & Head of

Executive Committee

James F. Parker(1986)

Colleen Barrett(1984)

Chief Executing Officer

Chief Operating Officer

Non financial motivation

Network of contact across company

High profile amongst the employees

Former Executive Vice President of

Customers, Keeper of Corporate Culture

Former General Counsel and

Vice President

Chief Labor Negotiator

Former member of Executive Planning

Committee

Rich Experience

Similar personality to Kelleher

Fortune-ranked 20 in the list of most

powerful women in American Business

Southwest Airlines Strategy

♥ The beginning StrategyTriangular route

(Dallas, Houston, and San Antonio)

Southwest Airlines StrategyInnovation

Low Cost Innovations Terminal Innovations Point-to-Point strategy Airport Location Innovations Travel Booking Innovations Single Aircraft Innovation Customer service Innovations Leadership at Southwest Airlines Employee Ownership Culture Southwest Employee’s Unions


Internal Rivalry: High- Price is primary differentiator- Exit Barriers are high

- Difficult to dispose of planes- Loss making companies take longer to close down

Threat of New Entrants : Medium♥ Inter competitors♥ Large Capital Requirement

– Continental Lite, United Shuttle, Delta Express, US Airways MetroJet

Threat of Substitutes: Low♥ Train♥ Bus♥ Webcam

Supplier Power: Medium♥ Ticketing System Company♥ Boeing 737♥ Fuel Company♥ Snacks Company♥ Beverage Company

Buyer Power: Medium♥ Destination

Dependent♥ Price Sensitive♥ College Students

Porter’s Five Forces


“Just Plane Smart”“The Somebody Else Up There Who Loves You”

“THE Low Fare Airline”“Symbol of Freedom”“Wanna get away?”

“[ding] You are now free to move about the country”

Advertisement strategy

Southwest Airlines StrategyAdvertisement

strategy

Some southwest planes feature special themes, rather than the normal livery

Shamu One/Two/ThreeCalifornia OneArizona One

Lone Star OneTriple Crown One

Sliver One

Financial

Year 1998 1999 2000 2001 2002

Operating ratio 0.83 0.83 0.82 0.88 0.92

Working capital -$276498 -$329461 -$466867 281034 798132

Current ratio 0.674 0.657 0.6404 1.125 1.55

Long-term obligations $623309 $871717 $760992 $1327158 $1552781

Stockholders’ equity $2397918 $2835788 $3451320 $4014053 $4421617

Passenger revenue per mile

12.76 cents 12.51 cents 12.95 cents 12.09 cents 11.77 cents

Operating revenue per seat mile


Operating expenses per seat mile


Operating profit per seat mile


Financial analysis

How Southwest is best Comparison with

other Airlines

CompanyRevenue per Available seat mile

Net Income

Passenger Revenue

Freight Revenue

Fuel cost per gallon

Customer Available seat mile

AmericanAirlines $0.107 $504M $20.7B $8.25B $2.12 $0.114

Continental Airlines $0.112 $459M $13B $453M $2.18 $0.108

Delta Airlines $0.112 $1.61B $16.9B $482M $2.24 $0.119

Jet Blue Airways $0.0826 $18M $2.64B $0 $2.09 $0.0838

Southwest Airlines Company

$0.099 $645M $9.46B $130M $1.7 $0.091

People Management practices

and Cultures

Operative principle- “employees comes first and customers comes second”

Thesis- keep employees happy they will keep customers happy

Changed personal department to people department


and Cultures

Hired employees for attitude and trained them for skills

Screening:looked for people oriented applicants

focus on other people.

Traits for selection:Team work for all job categories

Judgment for pilots and flight attendantsUnselfishness for flight attendant

In 2002 company reviewed 243,657 resumes hired 5,043 new employees.

Recruiting, Screening and Hiring


and CulturesTrainingTraining activities designed and conducted by southwest’s

university

Curriculum includes courses for new recruits, employees, and leadership training

Orientation courses conducted two to five times a week for new recruits

Good coaching and good listening on the part of supervisees


and CulturesManagement StyleManagers are expected to spend 1/3rd of the time out of the office.No suggestion box.Informal office ambience.

Executives approachable.Called by first names.Employee empowerment.Suggestions for reducing costs.Empowerment for innovation.Saved $250,000 by not putting logos on trash bags.Replacing paper tickets with e-tickets.Lean organization structure. Candid meetings.


and CulturesPROMOTION & COMPENSATION

• Supervisory position filled internally• “Leading with integrity” classes for new appointee• Six months training for managers of large operation• 360 degree feedback • 10 % above industry average• Benefit packages relatively good• Profit sharing plan • employee bought shares of the company


and CulturesEMPLOYEE RELATION &

NO-LAYOFF POLICY Highly unionized U.S. Airlines

Employee – harmonious and non adversarial No restrictive work rules and no narrow job classification

No layoff policy

Employee productivity & awards

High labor productivity Good on time performance by employee Number one in consumer satisfaction

Most admired airline in world Top awards from business week & pc magazine

♥ Immediate Responses♥ Heightened Security and Regulation♥ Competitive disadvantage♥ Industry Bailout and Taxation

Financing assistance Two types of tax increase costs

♥ New Competitive Position ♥ Labor Relations

Aftermath of September

9/11

Aftermath of September

9/11Airline Industry Southwest Airlines

The number of flights were cut by around 20 percent

No flights were cut

Employees laid off no employees were laid offTemporary freeze on hiring until Jan 2002

The delivery of new aircraft on order deferred or cancelled

Negotiated a revised delivery schedule for the 132 Boeing 737 jets on order

Speculation on how much to cut fares to induce passenger to fly and on low long traffic might stay depressed

Fare sales in January, March, April, July, August, October and December 2002

KEY SUCCESS FACTORS• Low Fares • More destinations • Operational Efficiency

• Turn Around Time• Hub / Secondary Locations• Aircraft Utilization• Single Model Usage• On time Performance

• Service Standards (Basic) • Safety

KEY SUCCESS FACTORS• Low Fares • More destinations • Operational Efficiency

• Turn Around Time• Hub / Secondary Locations• Aircraft Utilization• Single Model Usage• On time Performance

• Service Standards (Basic) • Safety

STRATEGIC COMPETENCIES• Cost & Service culture

• Team of talented people

• Operating Efficiency

• Technology for cost reduction

• Mgt of human capital

• Excellent Union Relations

STRATEGIC COMPETENCIES• Cost & Service culture

• Team of talented people

• Operating Efficiency

• Technology for cost reduction

• Mgt of human capital

• Excellent Union Relations

Southwest Airlines provides reliable service and passenger care at the lowest fares to the short haul, frequent-flying, point-to-point, non-interlining traveler.

Southwest Airlines provides reliable service and passenger care at the lowest fares to the short haul, frequent-flying, point-to-point, non-interlining traveler.

Southwest Airlines

Just Plane Smart THE Low Fare Airline

A SYMBOL OF FREEDOM

final soutnwest airline presentation

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