Ateneo de Davao University

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Southwest Airlines: In a Different World
Submitted By:
Baez, Janine Blanche
Tan, Gerald
Tajan, Juan Carlo
Serafin, Charles Jondre
Submitted To:
Anthony Aguelo, MBA

Background of the Problem:

Southwest Airlines entered the airline industry in 1971 with approximately 20 round-trip flights
between Dallas, Houston, and San Antonio with three Boeings 737. The first two year[s],
Southwest Airlines posted losses and followed it with 39 straight years of profitability. Fast
forward to 2012, and Southwest Airlines posted a $178 million net income for 2011[i], over 700
Boeings 737, flying to 35 states (SWA, 2012). As in 1971, Southwest is still considered a lowcost carrier and has consistently been able to compete on cost-cutting measures and customer
service. Southwest Airlines ticker is (LUV) and their top competitors are Delta Air Lines (DAL),
US Airways (AAMRQ), and JetBlue Airways (JBLU); however, the airline industry fosters
competition among all air carriers.
Statement of the Problem:
How can Southwest Airlines improve its services through operations management to continue
its efforts to transform Southwests strategy in the face of rising costs, stiffer low-fare
competition, and changing Customer needs and behaviors?
SWOT ANALYSIS
Strengths

Southwest Airlines firm operation strategy is contributed to its focus on the point-to-point
model as opposed to the expensive hub-and-spoke model.

The putting people first philosophy has translated in great customer services and how
employee turnover compared to the industry average.

Southwest Airlines is heavily unionized with 82% of its employees represented by

unions.

Southwest Airlines excels at low-cost flights and corporate culture.

Southwest keeps it in flight services very simple. As most of Southwest flights are very
short (90 minutes), there is no class distinction, no assigned seating, no interlinking of
bags and no food.

Fuel cost is significant portion of airlines operation cost. Southwest follows a very
effective fuel hedging strategy. Till date this strategy has helped Southwest to save
approximately $4 billion.

Fleet standardization is one of the biggest strength of Southwest that helps it to keep the
cost down.

Weaknesses

Operational performance is eroding

Operations in a niche market

Short connecting time between two flights

Shorter turnaround process

Opportunities
Technological developments
Increasing demand in airports
Consumer behavior
International expansion
Threats
Rising costs
Threats of new entrants in the low price area
Imitation of the airlines operations

Alternative Courses of Action

1. Apply reward programs for customers.

If Southwest would apply reward programs for its customers, as it is generally targeted to
frequent fliers, it will be able to retain its consumer base and improve sales as time goes
by. Also, customer reward programs allow interaction between the airline and its
consumers allowing both to benefit from the exchange.
Advantages
o Customer retention
o Increase in sales
o Direct B2C information exchange
o Increase in profit
Disadvantages
o Additional Utility Costs offset by profits
2. Southwest Airlines should incentivize employee/ team performance.

Performance based incentives help the company maintain its already deteriorating LUV
service. By doing so, the airline empowers their employees to serve their stakeholders
better,
Advantages
o Better Services
o Better customer feedback
o Improved service quality

o Retention of customers
o Possibly better turnaround process due to efficiency
Disadvantages
o Additional Utility Costs
o Costs incentives
3. Improve seating and allow reservation of seats.

One of the problems that Southwest Airlines faces is the poor seating policy that has been
implemented. Because of this customers have felt inconvenience in using the service.
Advantages
o Faster and more convenient boarding times
o Better consumer feedback
o Consumer Retention
Disadvantages
o Additional Utility Costs
o Costs in system applications and training

Selection and Implementation of Alternatives

Southwest Airlines should consider applying reward and incentive programs in

dealing with their customers and employees. This is recommended first because the
benefits of having better customer retention and increased employee performance are
more than the cost of the time of application and other costs like, developing, training and

maintaining other system designed to deal with seating. Though also recommended,
dealing with seating, booking and reservations should be done after,