Instructions: Carefully read the Case below and respond fully to the issues

outlined below Credit will be given for clarity of expression and logical

presentation of relevant materials.

Southwest Airlines (SWA) has made significant success consistently and earned profits every year for 32 years. They won the Triple Crown (best on time performance, fewest complaints, fewest lost bags) for 5 years in a row and 13 straight yearslowest customer complaints. Their operating costs were 20% below the industry average and serves over 60 cities with 32,000 employees.

Business Strategy

Southwest Airlines has maintained the same strategy and operating style. It concentrates on flying to airports that are underutilized and close-in to a metropolitan area, such as, Love Field in Dallas, Hobby in Houston, San Jose and Oakland in the Bay Area, Midway in Chicago - although it does fly to major airports like LAX and SFO. The company also began flying fuel-efficient 737s, and now has over 200 of them, the only type of aircraft it flies. Southwest service involves frequent on-time departure as well as low cost fares. They emphasize point-to-point routes, with no central hub and an average flight time of 65 minutes. According to its 1993 annual report, 80 percent of their customers fly non-stop to their final destination. By avoiding a hub and spoke system, they are able to avoid the delays often associated with connecting flights. This pays off in shorter turnaround times (70% of their flights had a 15 minutes ground time in 1991) and higher equipment utilization. For example, Southwest aircraft spent an average of 11 hours in the air daily compared to an industry average of 8, and they averaged 10.5 flights per gate versus 4.5 for the industry.

Following this strategy, Southwest has always seen themselves as competing not so much with other airlines as with surface transportation. For instance, in 1993 the average passenger fare was roughly $60 for a trip of 500 miles. In 1984 the comparable numbers were $ 49 and 436 miles. For example, in August of 1994, the roundtrip fare from Oakland to San Diego, a distant of over 1,000 miles, was $ 135. Southwest uses these low fares and frequent flights to increase passenger volume two to three times. For example, somewhere around 8,000 people used to fly between Louisville and Chicago weekly; after Southwest entered the market, that number climbed to 26,000. They dramatically lowered the fares and increased the frequency of flights. For instance, in August of 1994 they flew 39 times roundtrip daily between Dallas and Houston; 25 times between Phoenix and Los Angeles; and 20 times between Sacramento and Los Angeles. When America moved out their San Jose hub because they were losing money, Southwest moved in and were profitable from the first day of service. In 1992, they were the leading carrier in passenger boardings in 27 of the 34 airports served. They dominate most of their major markets with almost 70 percent of the intra-Texas and over 50 percent of the intra-California markets in 1994.

Consistent with their strategy of low costs, low fares and frequent flights, Southwest also keeps their fares simple. Unlike other airlines that rely heavily on computers and artificial intelligence programs to maximize flights revenue, Southwest typically offers only two fares on a route, a regular coach fare ( there is no first-or business-class) and an off-peak fare. It also tries to price all fares the same within a state (for instance, currently $69 to fly anywhere within California).

To further simplify their operations, Southwest has never offered meal service on its flight. Meals can add $40 per passenger to the cost of a flight. Instead, passengers on Southwest are served beverages, peanuts (referred to a frills), and on longer flights, crackers or other light snacks such as cookies. There is no assigned seating. Upon arrival at a Southwest gate, each passenger holding a reservation is given a reusable plastic boarding pass with numbers from 1 to 137 the maximum load of their 737 aircraft. Passengers are loaded in groups of 30 and the boarding passes are collected for use on the next flight. Standby passengers are boarded if seats are available in the order in which they sign up at the departure gate.

Overall, Southwest Airlines has been profitable in every one of the last 21 years, a record achieved by no other major U.S. airline. It was consistently profitable even during the 1991-1992 period, during which some 40 percent of the total capacity of the U.S. airline industry was seeking bankruptcy protection or ceased operation completely. According to Money magazine, for the twenty-year period 1972-1992, Southwests stock earned the highest returns of any publicly traded U.S. stock - a compounded return of over 21,000%. Only Wal-Mart comes close to being as good as an investment over this period.

Although the reasons for Southwests success were many, one highly visible advantage could be seen in their cost structure. Herb Kelleher recognized that short-haul flying was inherently more costly than longer flights (the plane is taking off and landing more often and has to be handled at every gate). He understood that the lowest-cost provider could leverage that cost advantage most where costs are highest. Southwests costs averaged roughly 7.1 cents while the larger airlines had costs up to 10 cents or more per mile, 20-30 percent higher. This achievement is even more striking when noting that Southwests costs in 1984 were 5.86 cents. So, over a decade its costs had increased by only about 20 percent.

Part of this cost advantage derives from the remarkable productivity Southwest gets from their work force. For example, they routinely turnaround an aircraft in 15 minutes from the time it arrives at the gate until it leaves. United and Continental average 35 minutes. Southwests gates are typically manned by a single agent and with a ground crew of six or fewer, rather than the three agents and twelve ground crew common at other airlines.

These low costs also come from other sources. Southwest pilots, for example, spend more time in the air than pilots at other airlines. While pilots at United, American, and Delta earn up to $200,000 a year for flying an average of 50 hours a month, Southwests pilots average $100,000 a year flying 70 hours a month. Flights attendants and pilots help clean the aircraft or check passengers in at the gate. Harold Sirkin, an airline specialist with BCG said, Southwest works because people pull together to do what they need to get a plane turned around. That is a part of the Southwest culture. And if it means the pilots need to load bags, theyll do it

Southwests employees also routinely volunteer to help customers in need. Once a customer arrived at the airport for a vacation trip with his dog in tow, only to learn that he couldnt bring the dog with him. Rather than have him cancel the trip, the gate agent took care of the dog for two weeks so the fellow could enjoy his holiday. Another employee accompanied an elderly passenger to the next stop to insure that she was able to change planes. Stories of this sort abound.

These efforts pay off in employee productivity. In 1993, for example. Southwest had an average of 81 employees per aircraft while United and American had 157 and 152 respectively. The industry average was in excess of 130. Southwest served an average of 2,443 passengers per employee while United and American served 795 and 840, about the industry average. This means that Southwest needs a smaller load factor to break even than the other carriers (usually around 55 percent). Second, the point-to-point strategy and the use of less congested airports improves the efficiency of light operations and helps insure high levels of aircraft utilization. Finally, by using a single type of aircraft, Southwest was able to save on maintenance and training costs.

But Southwest is not just a low fare/low cost carrier. It also emphasizes customer service. In fact, the word Customer is always capitalized in all Southwest corporate communications, whether it is the Annual Report or an internal Newsletter. Colleen Barrett, Executive Vice President- Customers, and highest ranking woman executive in the airline industry, insists on this. She is also adamant about treating employees as internal customers and tries to make sure that Southwest is a comfortable and fun place to work. If youre comfortable, youre smiling more and you give better service, Barrett says. It doesnt take a rocket scientist to figure that out. The results are undeniable. In the airline industry service is measured by on-time performance, having the fewest lost bags, and having the fewest number of customer complaints

The Chief Executive Officer at the time, Herb Kelleher, summarized the SWA strategy in the following words:

We are committed to provide our employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

Ive tried to create a culture of caring for people in the totality of their lives, not just at work. Theres no magic formula. Its like building a giant mosaic--it takes thousands of little piecesThe intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they cant buy our culture, our esprit de corps.

The People Department

About five years ago the human resources function at Southwest was renamed The People Department. This reflected a concern that the old human resources group was, in the words of John Turnipseed, manager of People Services, a police department. To counteract this, Ann Rhoades first threw away the 300 pages corporate handbook and brought in new people with marketing backgrounds. Currently, to join the department an employee must first have line experience. She sees the role of the People Department as saying yes rather than no and wants them to Do what it takes to make the Customer happy Employees are the customers of her group. Although they deal with approximately 18,000 employees, the People Department has a staff of about 100. All members of the department sign the departments mission statement, which is prominently displayed in a very large poster on the wall of their headquarters office. It reads:

Recognizing that our people are the competitive advantage we deliver the resources and services to prepare our people to be winners, to support the growth and profitability of the company, while preserving the values and special culture of Southwest Airlines.

Ann takes this charge seriously and believes in what she calls the two Cs; Compassion and Common sense. She worries about maintaining the culture and tells people to break the rules if they need to. While in many companies human resources are considered a backwater, the Department at Southwest is like the keeper of the flame says Treasurer John Owen. Ann notes that, Most HR people have no courage. They never take a chance. No guts. No capability of making a decision. Theyre so afraid of being fired.We need to have confidence in people doing the right thing To do this, she believes that it is imperative that you get the right people into HR to begin with. This also underlies the Southwest policy of hiring and firing for attitude Her department is also continually feeding back information to employees such as on-time performance, turnaround times, number of customers boarded or the cost of a days health care for the airline in terms of the number of bags of peanuts served on their flights. The intent is to keep people focused and make them aware of how their actions affect costs.

Recruiting

To insure that they get the right people, Southwest is extraordinarily selective in their recruiting. In 1993, they had 98,000 job applicants. Of these, roughly 16,000 were interviewed and 2,700 hired including one aspiring employee who submitted her resume on the icing of a large sheet cake, demonstrating the creative spirit that Southwest looks for. To ensure fit, there is an emphasis on peer recruiting. For Example, pilots hire other pilots, often coming in on their day off to do background checks. As Ann noted, They can get far more information in a phone call to the chief pilot of another major airline than anyone else. They even turned down a top pilot who worked for another major airline and did stunt work for movie studios. Even though he was a great pilot, he made the mistake of being rude to a Southwest receptionist.

Teamwork is critical. As Ann noted, If they say I too much in the interview, they dont get hired She described how one group of eight applicant pilots were being kidded about how seriously they were dressed (dark suits and black shoes and socks). They were encouraged to loosen up. Six of them accepted the invitation to wear the standard Southwest Bermuda shorts and interviewed for the rest of the day in suit coats, ties, Bermuda shorts and dress shoes and socks. They were the six hired.

To further screen for the Southwest Spirit customers are sometimes involved in the interviewing for new flight attendants. The process, consist of an application, a phone screening interview, a group interview, three additional interviews (two with line employees), and a consensus assessment and a vote. During the interview process, the applicant will come into contact with other Southwest employees. These people are also invited to give assessments of whether the person would fit in at the company. The entire process focuses on a positive attitude and teamwork. For example, applicants are given crayons to draw a picture that tells the story of their life. They look for people who are willing to draw outside the lines. Even their advertisements emphasize the Southwest spirit and convey a sense for the type of employee Southwest wants to attract.

As befits a company where selection is important, Southwest has spent a lot of time identifying the key components comprising effective performance and behavior. For instance, the People Department identified their top 35 pilots and systematically interviewed them to identify common characteristics. One key trait identified was the ability to work as a part of the team. This is now used as a part of their pilot selection process. The company believes that most skills can be learned and doesnt screen heavily on these except for certain specialist jobs, like pilots and mechanics. Attitudes are what count. Kelleher says, We draft great attitudes. If you dont have a good attitude, we dont want you, no matter how skilled you are. We can change skill levels through training .We cant change attitude. For example, John Turnipseed described an EEO complaint for not hiring a person for a position who had 15 years of experience while selecting a person who had no experience. Southwest successfully made the case that the culture was critical and had to be considered in selection.

An important awareness on the part of the People Department is that the company rejects more than 95,000 applicants each year. These are all potential customers. Therefore the recruiting process is designed not to make applicants feel inferior or rejected. Ann claims that some people have told her they had a better experience being rejected by Southwest than they did being hired by other companies. Rita Bailey, a corporate employment manager, always tries to call any internal or managerial applicants that are turned down. She uses this as a chance to counsel them, trying to be honest but not damaging their self esteem. She invites them to call again if they want to talk more. She is concerned not only how well a person will do at the job they are applying for, but also how theyll do in the next job. She says, its important to do it this way or youre setting people up to fail when they get promoted.

The company hires very few people with MBAs, and even those that do get hired are selected for their fit not for their credentials. In fact, they prefer people without extensive industry experience. For example, 40 percent of their pilots come directly from the military, 20 30 percent from small commuter airlines, and the rest from the major airlines. To encourage employees to help in the recruitment effort, Southwest offers a free space-available pass (which permits a person to travel free when the plane isnt full) to any employee who recommends someone who is hired to fill a position that is difficult to fill, such as in Finance or Information Systems. Southwest doesnt have a nepotism policy (except for officers) and has 481 couples who work for the company. When these people describe the firm as family, a common reference throughout the airline, they really mean it.

The Southwest Work Force

The company is 89 percent unionized with nine separate unions, but has had only one six- day walkout by the machinists over a decade ago. Mike Levine , former dean of Yales School of Organization and Management and current vice president for marketing at Northwest Airlines notes that, Herb really is an extremely gifted labor-relations talent, especially when you consider he has somehow managed to get union people to identify personally with this company. Obviously, those covered by a contract are paid on the basis of seniority. Kelleher insists that there be few work rules in union contracts. These data are from recent contracts and illustrate the general relationship between pay and seniority for those covered by collective bargaining agreements. Part of this includes a system whereby employees can bid for shift and work hours. In almost every job class there are people earning between $40,000 and $60,000 a year. Everyone receives a raise on the anniversary of their employment. Libby Sartain, Director of Benefits and Compensation, notes, theres no miracle compensation program here. The story is low pay at the beginning and high pay after getting seniority. Below market wages are offered to clericals and management positions. Most people take a salary cut to join Southwest. One former manager at EDS who left to join Southwest was offered two and a half times his starting salary to stay with EDS.

The Southwest Spirit

Southwest tries hard to manage and maintain its culture. Wander around the halls at the Dallas headquarters and you hear several themes over and over: customer service, hard work, equality, cost consciousness, dedication, and fun, and most frequently of all, family. Of course, this invites the cynic in all of us. One employee who had worked at several other large companies said, I was pretty dubious at first, having been at places where everyone but the top two or three people were considered commodities. But I have come to appreciate a place where kindness and the human spirit are nurtured. Aside from the efforts of Colleen Barrett and the culture committee (and its 35 local subcommittees); there are continual efforts to preserve the values that brought Southwest to its current position. John Turnipseed says that trust is built by constantly sharing information. The level of trust has never been broken. In many organizations, everybodys against someone union versus management, head office versus the field, etc. Not here.

The family spirit can be seen in many ways. For instance, there is the catastrophe fund, which in the last two years raised $500,000 in voluntary contributions for distribution to other Southwest employees who needed help. During the last oil crisis, without informing management, the employees raised $130,000 to help defray fuel cost. When a former employee developed a drug problem, the company arranged to pay for his medical care so long as he stayed in the rehabilitation programme.

Training & Development

Training is an important part of SWA. In 1995 alone, 6,500 employees went through Southwests University for People. The training group offers a variety of courses ranging from the New Hire Celebration designed to get new employees enthused and excited, to senior management courses. SWA believes that, our level of external service is only as good as our internal service.

New Flight Attendants go through four weeks of classes, typically with less than five percent attrition. Much of this training is oriented towards customer service - the care and feeding of customers. Customer expectations about service are quite high, and these are communicated to both new and experienced employees.

All new hires are exposed to the history, principles values, mission, and the culture of the company. They are also told how the company views leadership and management. In all training, there is emphasis on teamwork, and teambuilding, all in good humour. For instance, all new hires often do a celebratory skit at the conclusion of their training. One new pilot class donned dark sunglasses and white canes and stumbled into Kellehers office.

For managers, there is a three and a half day course on leadership, pricing, revenue management, and on how the business works. A member of senior management always attends a two hour session and talks openly with the participants. Training is virtually 100 percent internal. If it isnt born and bred here, they dont want any part of it, .

Frontline leadership gets a specially designed two-day course each year. These programmes are designed to address particular needs. .They involve managers from different levels and different parts of the organization, but never had a superior and subordinate in the same session. Each year as the new programme begins, the senior team is always the first to go through it. In addition to this special programme, supervisors receive 80 hours of training per year. Courses include.communication, time management, and career planning as well as others emphasizing the employees role in creating legendary customer service and more interpersonal explorations around accepting responsibility and developing trust.

The other highlighted training is the Front-Line Forum in which 12-15 individuals with 10-15 years experience in the company are brought together to discuss how the company is doing and how it has changed. They meet with top officers and explore questions like we promised you something around the culture and spirit of the company. Have we delivered? Although the selection is done randomly, the idea is to assemble some people in the group who would monitor the system to draw attention to what needs to be done to keep the culture alive.

It is clear on the whole that training is an important form of two-way communication. Not only are the values of hard work, fun, and cost consciousness inculcated, but the training is used to get internal customer feedback.The issue is to figure out how we can get better everyday

Requirements:

1. Drawing on the lessons from the SWA experience, discuss the following:

i) Business Strategies of SWA (8marks)

ii) Leadership and Management Style (8marks)

iii) Customer Service (5marks)

iv) Human Resource Strategies of SWA (25 marks)

- Recruitment/selection

- Compensation and Motivational Systems

- Training & Development

v) Organizational Culture (5 marks)

vi) Teamwork (5 marks)

vii) Union Management Relations (5 marks)