Samantha Sears

Ann Roberts
 Brief History

• Started in 1971
• Herb Kelleher (CEO)
• 3/Texas
• Now
– 300 in 55 cities
– Fourth largest U.S. Airline
 Mission Statement

• Dedication to the highest quality of

Customer Service delivered with a sense of
warmth, friendliness, individual pride, and
Company Spirit
– desire to serve the customer
– desire to provide safe, affordable, reliable,
timely, courteous, and efficient air
transportation and baggage handling service
 Long Term Objectives

• Grow slowly and strategically

• Provide job security
• Competitive wages
 Business Level Strategies
• Low cost leadership
– low fares
– low labor costs
– fuel efficient
– maintenance
– commissions
– point-to-point service
– trash bags
 External Analysis

• Porter’s 5 Forces
– Buyers
– Suppliers
– Competitors
– Substitutes
– Entry/Exit Barriers
 Buyers
• Business travelers, vacationers, and infrequent
travelers
• Price sensitive
– purchase is a small portion of cost
• Bargaining power
– many buyers
– buyers well informed
– low switching costs
 Suppliers

• Boeing
– favorable terms in contracts
– pay cash
 Competitors

• Switching costs
• Major competitors
– Delta, American, Northwest, United
• high-provide similar service
 Substitutes

• Teleconferencing, videoconferencing

• Car, bus, train

• Low fares makes these less desirable

Entry/Exit Barriers

Economies of scale-high

Customer loyalty

Capital and Resource requirements

 Strengths and Weaknesses
• Reputation for • Successor for Kelleher
excellence service • Labor union
• Safety and baggage • Service area limited
handling
• Ontime performance
 Opportunities and Threats
• Streamline • Competition
maintenance • Industry over capacity
• Conservative amount • Rapid growth
of debt
• Profit sharing plan
• Information
technology
 Remote Environment
• Society
– Bargain shopping for flights
• Technology
– Fleet has an average age of only 8.3 years
– Boeing 737-700 (51)
– Boeing 737-500 (25) and 300 (193)
– Each aircraft fly an average of 9 flights/day or
12hrs/day
 Distinctive Competencies

• One way airfare

• Number one in fewest customer complaints
• Triple Crown-92-96 performance
– fewest complaints
– best ontime performance
– best baggage handling
 Distinctive Competencies Cont’d

• First Profit sharing plan (1974)

• Approx. 85% unionized
• Member of Fortune 500
 Sustainable Competitive
Advantage

• Duplicating-How quickly can it be copied?

– Transparent
• Southwest knows the business
– Transferable
• Culture
– Replicable
• Low cost
 Value Chain

A low cost strategy…..

Firm Infrastructure
HRM
Technology

Purchasing

Service
Operations

Marketing
Logistics
Inbound

& Sales

…tries to pull the arrow back…..

 Value Chain Cont'd

• Benchmarking
– reduced turnaround time by studying pit crews
on the auto racing circuit
 Organizational Structure

• Flat
• Flexible
– All employees are encouraged to take initiative,
assume responsibility and operate outside the
company’s formal structure.
– “Our leanness requires people to be
comfortable making their own decisions and
undertaking their own efforts.” -Herb Kelleher.
 Organizational Culture

• Unique attitude towards humor and fun in

the workplace.
• Family like culture.
• Formed a Culture Committee.
 Managerial Philosophy

• Three key principals.

– Cost Controls - Kelleher personally approved
every expenditure over $1000.
– Customer Service - Your customers can help
you identify what ‘s wrong with your company.
– Egalitarian notion - CEO leads by example.
• Employees come before customers.
 Human Resources

• General Information
– Never laid off an employee.
– Lowest turnover in the industry at between 4
and 7 %.
– High level of employee job satisfaction.
– Changed name from Personnel Department to
People Department indicating the importance
and value placed on employees.
 HR Policies & Programs

• Planning
– Southwest’s CEO does not embrace formal
strategic planning.
– Short-term actions and tactical maneuvers to
meet a variety of competitive situations.
• This advanced strategic thinking enables Southwest
to “…respond quickly to industry changes, focus on
future scenarios, and respond to new initiatives by
other air carriers.”
 HR Policies & Programs
• Recruitment
– Personality Profile,
• Humorous ads give indication of culture and expected
personality.
• Attitude and fit with culture more important than
skills.
• Panel interviews
– Look to see team work in group interview.
– Second interview consists of separate interviews with peer,
recruiter and representative department.
 HR Policies & Programs

• Interviews follow principals of targeted

selection.
– Interviewing technique that identifies specific
dimensions necessary for matching people to
jobs.
• Critical dimension - Team work.
 HR Policies & Programs

• Appraising
– Not mentioned in article.
– Since they look for team work in recruiting we
would hope that would have team based
performance evaluation.
• Performance evaluation should be behaviorally
oriented.
 HR Policies & Programs

• Training & Development.

– Training Department renamed University for
People.
– Orientation
– Management Development
 HR Policies & Programs

• Compensation.
– Rewards seniority.
– Competitive wages.
– Stock Options.
– Other benefits.
 HR Policies & Programs

• Labor Relations.
– Background
• Labor relations in industry covered by Railway
Labor Act (RLA).
– Encourages narrowly defined craft unions.
• Air Transport one of the nation's most highly
unionized industries.
• 84% of Southwest’s employees belonged to labor
unions.
 HR Policies & Programs

• Labor Relations Cont’d

– Unions at Southwest
• Teamsters- represent airline mechanics, stock clerks
and aircraft cleaners.
• IAM- International Association of Machinists
represent customer service and reservation
employees.
• TWU- Transport Workers Union represent flight
attendants
 HR Policies & Programs.

• Labor Relations Cont’d

– Unions
• SWAPA- Southwest Airline Pilots Association.
• ROPA- Ramp Operations and Provisioning
Association represents baggage handlers.
 HR Policies & Programs.

• Labor Relations Cont’d

– Relationship with the unions.
– One strike since 1971.
– Used corporate culture to facilitate labor-
management cooperation.
•.
 HR Policies & Programs.
• Labor Relations Cont’d.
– Southwest’s union contracts unique to industry.
• Kelleher persuaded the unions to give up restrictive
work rules and narrow job classifications for flexible
employment practices.
• Contracts say any qualified employee can perform
any function allowing them to cross-utilize crew
members, achieve a record turnaround time and save
money.
– Examples- Pilots and flight attendants.
 Organizational Strategy

• Southwest has a cost reduction strategy.

– Characteristics of that strategy.
• Tight Controls
• Overhead minimization.
• Economies of Scale.
 Organizational Strategy

• Key elements of Southwest’s strategy.

– Cost Reduction Strategy
– Employee flexibility
• Contrary to cost reduction strategy practice of fixed
jobs and explicit job descriptions.
• Flexibility key to increased productivity which
leads to lower labor costs.
 Organizational Strategy

• HR policies & practices that underline how

they have implemented their strategies;
– Recruitment focuses on necessary behaviors.
– Compensation tied to company’s success.
– Unique union contracts.
– Value employees.
• Never laid off employees.
• Internal promotion.
 Organizational Strategy

• Southwest’s Competitive Advantage

– Unique culture
• Extremely difficult to remake a current company’s
culture. This culture may clash with other airline’s
image.
– Unique labor contracts.
• Flexibility in job descriptions other airlines can not
get from their unions.
 Looking to the Future
• The company should continue to pursue the same
strategy as it give them a competitive advantage.
• How to deal with flight attendant union?
– Include employees and union officials in strategic
planning.
– Include the union in strategic staffing issues
– Continue to base compensation on company’s
success.
 Looking to the Future
• Other options with union.
– Since the issues are compensation & shorter hours,
use part-timers.
• May reduce benefits and overtime while giving current
attendants shorter hours.
• Risk angering flight attendants.
• May effect labor cost advantage.
– Taking a hard stand with unions but that risks
damaging the relationship and could intensify labor
problems.
 Looking to the Future

• The company should pursue longer routes.

– Con
• Flying non-stop will jeopardize their labor cost
advantage.
– Pros
• Apply their current strategy to longer routes and
adopt the wheel and hub system other airlines use.
 Looking to the Future
• Southwest did in fact pursue longer routes by
adapting their strategy.
– They proclaim themselves the only shorthaul, low-
fare, high frequency, point-to-point carrier in
America.
– Applied the strategy to longer routes by requiring
plane changes on longer routes.
– Continue to apply same strategy of turning over
planes quickly so they can fly more routes.
 Looking to the Future

• Compensation
– Team based compensation for crews.
• Examples
– Flight crews get higher compensation for more miles
flown
– Ground crews base compensation on number of planes
served as an incentive for higher turnover of planes.
 Looking to the Future

• Recruiting and Staffing

– Remain the same as they look for the behaviors
and skills necessary to ensure that cost
leadership remains a successful strategy.
 Looking to the Future
• Training & Development
– Continue to develop internal career paths.
– Develop multiple career ladders.
– Foster mentoring relationships between the different
levels of managers.
• Planning
– Only change would be a higher degree of
participation between employees and especially from
unions.
 Looking to the Future

• Appraisal
– Results oriented.
– High employee participation.
– Group criteria.
 Looking to the Future
• What should Southwest do to survive and
prosper after Kelleher’s retirement?
– Develop and practice succession planing
– Survey internal and external labor markets.
– Instead of trying to find one person to fill all the
roles Kelleher played, look for senior mangers that
have some of those qualities.
– Let the management team as a whole fill the
various roles.
Thank You