Southwest Airlines in Baltimore – Case Study

Q. How does Southwest Airlines compete? What were their advantages relative
to other airlines?

Price
The pricing followed was low fares for every seat. Low fares were even more
important in the short-haul market niche where customers had the ground
transportation as a viable alternative. The key to success was to charge low fares
regardless of what other airline competitors charge. Southwest Airlines consists solely
of Boeing 737s and offers only coach seats (there is no business or first class).
Southwest Airlines also do not offer in-flight meals, only peanuts and other snacks.
Southwest is simple and direct at the goal of their service; "a primarily short-haul
airline that flies directly from city to city, with just one type of plane--the Boeing 737
- and the lowest costs"

People
One of the most crucial points for Southwest’ success was having a people force that
was motivated, intuitive and result oriented. It was the most heavily unionized airline
at that time but the transparency in setting wages and cooperative union policy by
Southwest, resulted in very favourable operational results. Independent agencies like
Fortune magazine had named Southwest Airlines one of the best companies to work
for in America. While Southwest Airlines offers no frills, Southwest Airlines do meet
customer expectations when it comes to service. They base their model on the motto,
which states that "if they're happy, satisfied, dedicated, and energetic, they'll take real
good care of the customers. When the customers are happy, they come back. And that
makes the shareholders happy," Southwest has very good relations with all their
employees.

Route Structure
Southwest used to offer lots of daily flights within the cities it served. That’s the
“high frequency” part of the short-haul, low-fare, high-frequency strategy that
Southwest Airlines used to employ. Southwest has specialized in relatively short-haul
flights and has experienced considerable threat from providers of ground
transportation (cars, trains and buses) because the buyers of these short-haul services
tend to be quite price-sensitive. Southwest has widened the market for air travel by
attracting large numbers of patrons who previously relied on ground transportation.

Turnaround Time
Its route structure has helped Southwest to experience the most rapid aircraft
turnaround time in the industry (15-20 minutes vs. an industry average of 55 minutes).
Rapid turnaround time is essential for short-haul fights because airplanes are airborne
for a smaller percentage of time than on long-haul flights. Faster turnaround also
allows Southwest to fly more daily segments with each plane, which in turn increases
its assets turnover.

Airplane Fleet
The company only flies Boeing 737 planes and has committed to fly the 737
exclusively. Southwest developed a close relationship with Boeing that enabled it to
develop comparatively favourable purchase terms. The homogenous fleet composition
reduces the complexities of training, maintenance and service. Savings exist in almost
all operating areas including scheduling, training, aircraft deployment and use, wages
and salaries, maintenance and spare parts inventories.

Flight Connections
Southwest does not offer connections to other airlines, which simplifies its ground
operations. However, this also limits access for many passengers, particularly from
international flights.

Q. The plane turnaround process requires coordination amongst twelve

functional groups, matching an incoming plane to its new passengers and
baggage in a brief period of time. Critically evaluate SWA’s turnaround process
at Baltimore – how is the process working?

A high level of coordination was needed between among 12 distinct functional

groups: pilots, flight attendants, gate agents, ticket agents, operations agents, ramp
agents, baggage transfer agents, cargo agents, mechanics, fuelers, cleaners and
caterers. These groups were stratified by status, expertise, and were evenly spread out
at the terminal. These groups of workers traditionally did not have a good history of
cooperation. Southwest invested time and money in selecting employees for attitude,
teamwork and service orientation.

Flight Connections
SWA’s reservation system does not allow passengers to book connecting flights
within the airline that has a connection time of less than 35 minutes between the
arrival of the first flight and the departure of the second flight. This helps to ensure
that there are no customers who are missing connections.

Ground Operations
Other airlines centralised their aircraft turnaround, ground operations and managed
daily flights from a headquarters using an integrated computer system. Southwest de-
centralised this coordination, leaving it up to employees on site in airport stations.
Operations supervisors onsite had to plan ahead to identify possible problems
throughout the day and would come up with a design solution to these challenges e.g.
delaying a plane for departure if the incoming flight had connecting passengers.

OTIS – Operations Terminal Information System

Southwest operations staff would update this internally developed system for tracking
flight information. It contained information regarding: passengers, revenue, baggage,
weight, fuel as well as flight times and delays.

Q. What strategic advice would you offer to SWA based on the information
available at the time (2003)?

Southwest Airlines were able to operate their business relatively undisturbed. It was
only in poor economic conditions that suddenly Southwest Airlines' method of
operation became the ideal model for its competitors. While the publicity is beneficial
in raising employee morale, and raising stock prices; Southwest Airlines is now the
target of their competitors' focus.
Engage in price war
A tactic that Southwest Airlines can do to inflict damage to competitors is to slash
prices. This type of tactic is typical of a big company that has a monopolistic rule in
an industry squeezing other competitors. This tactic is advisable when competitors are
near bankruptcy or are in dire situations. Because competitors cannot match
Southwest Airlines' prices, the most they can do is narrow the gap of the price
difference. Southwest Airlines, which has consistently made a positive profit, can
increase the price gap by lowering their prices. Southwest Airlines will incur losses
from this move, but the goal of this move is to drag the competitors further into debt.
Because this move affects both companies, this move is very risky and should not be
done unless Southwest Airlines is sure that their competitor is near bankruptcy.
Possible reasons for this move would be to eliminate the weakest competitor in the
industry, which would free up the market held by that company.

Expand customer reach

Southwest Airlines, however, is not without weaknesses. No matter how successful,
Southwest Airlines serves only 29 states and cannot compete against the bigger
companies that serve nationally or even internationally. Furthermore, Southwest
Airlines does not utilize a hub system that allows for bigger competitors to reach
further out. Such competitors are aware that they cannot match Southwest Airline's
prices; their market is larger and is not able to offer cheaper tickets at the cost of no
in-flight meals. Instead, competitors narrow the price difference between Southwest
Airlines and themselves and stress on the quality of these frills. Others, through use of
flight hubs, are the only ones who can economically serve remote customers.

Expand Fleet
Another weakness of Southwest Airlines is their preference of Boeing 737s. Being
limited to one type of airplane leaves them with little flexibility when the model
receives a bad reputation or a critical flaw is discovered. Such would be a costly
venture for this company, who've used only one type of airplane and in the face of a
dire situation would face a costly venture of finding replacements or counteracting
bad publicity.

Stop flight connections

Southwest Airlines needs to stop allowing customers to book connecting flights
through their network. Instead, customers should book two separate flights and treat
these as independent of each other. This means that the onus is on the customer to
allow enough time for connections and possible delays. This alleviates the stress put
on ground operations in the airports and will save the airline both time, resources and
costs. It will also help to ensure that turnaround times are kept at 15 minutes.