Just Plane Smart

Harvard Business School Case Study Summary

Abhishek Mehra
Balaji P

Saruabh Ranadive
Sarang Bhutada

The setting

About Southwest

Its summer of 1993

Southwest is expecting delivery
of two uncommitted planes
McGlade needs to find a way, to
put these planes in operation,
keeping the organizational
objectives are intact
Final decision would have to
preserve the Southwest culture
12 time
and spirit
winner of
the coveted
triple crown
award

Started as a intra-state
operator in Texas
Budget airline philosophy,
survived a severe price-war
Operating out of Dallass
Love Field airport, hence the
ticker LUV
7th largest in the country by
April 1993
Expanded to become a
national carrier, serving major
cities
Short-haul, high-frequency,
low-cost strategy

The Southwest Model

People skills of Southwest

Hiring
- Identify attitudes rather
than skills
- Rigorous interviewing
- Peer hiring
Culture

Compensation
-Varied with position
- At par with industry norm
- Pension through a profitsharing
plan

-H A Patina of Spirituality
-ugs common across office
- Casual dress code
- Field visits
- Strong guidelines to everyone
- At par with industry norm
- Pension through a profit-sharing
plan

Structure

Advancement

-Centered on team-building
- Cross-training encouraged
- Broad latitude offered
- 10% of stock held by
employees

-Recognition, an important
element
- Celebrations quite common
- Most promotions internal

After lengthy deliberation at the highest executive

levels, and extensive consultation with our legal
department, we have arrived at an official corporate
response to Northwest Airlines Claim to be number one in
Customer Satisfaction

Liar Liar. Pants on Fire

Product:

Target Market:

Southwests product is travel

Market Segmentation
cost- and value-conscious
consumers. mostly male
small business executives
travel short distances
prefer low cost fares
frequent schedules

Competition - not just other

airlines but any mode of
transportation.
1.frequent, conveniently
timed flights and low fares.
2.point-to-point route system
as compared to hub-andspoke
3.direct nonstop

The other half consists of

value-conscious consumers
(male, female, families, and
senior citizens)
best value for their dollars
Senior citizens are a subsegment that receives special
attention
than a loyal customer customer evangelist

Competitors and
Competition

11 major carriers (2003):

1.Alaska Airlines
2.Aloha Airline
3.America West
4.American Airlines
5.Continental Airlines
6.Delta Airlines
7.Northwest Airlines
8.TWA
9.United Airlines
10.U.S. Air
11.Southwest Airlines
Southwests brand exudes an
element of fun: Obviously Fun
Love Theme,
Love Potions(on-board
drinks)
Love Machines( ticket

Product Positioning
only low-fare
short-haul
high-frequency
point-to-point carrier
fun to fly
Average cost of serving
meals per passenger in the
industry - $5
For Southwests -20 cents
Seemingly weird thingsNot assigning seats
Weird Color Scheme

Product Positioning
Example of Southwest
Airlines nuttiness use of the word love
One ad titled "How Do We
Love You?" - flight
schedule.
Another ad titled "We're
Spreading Love" - the
rapid growth of the airline.
Word "love - dedication to
customer service

Marketing Strategies
Southwest offers a travel
product that is built around
flights targeted to specific
demographics and ticket
pricing that is simplified so that
passengers know exactly what
they are getting for what
they pay.
Building Brand Loyalty
What is the Southwest Effect?
1.Air fares go down
2.Tourist traffic increases
3.Economic mini-boom ensues

Marketing Blitz !!!!

- Smart Campaign

Pricing Strategies
1.Charge the lowest possible
fare
2.Compete with all other
forms of transportation,
including automobiles
Instead of increasing fares
when market gets busier and
more people are flying, it
simply increases the number
of flights.

Distribution and Promotion

Product Distribution
Strategies
SWA does not rely on travel
agents
Travel bookings - direct
marketing
Does not interline or offer joint
fares with other airlines

Southwest's Internet ticketing

saves it $50 million a year, or 1%
of revenue
"We're not competing with other airlines. We're
competing with ground transportation"

Promotion Strategies:
Marketing Mix

Southwest Airlines wants to

differentiate itself from other
airlines as the airline that can
get passengers to their
destinations when they want to
get there, on time, at the
lowest possible fares while
having fun.
Frequent Flyer Awards
Rapid Rewards-based on
number of trips taken
Way of showing Southwests
philosophy that every
customer is equally
important as the other and
making ALL passengers feel

Advertising
Dont believe the hype.
Fares offered by other
discounters and airlines on the
Web are not good buys.
Southwest attempts to do
three things in their
advertising:
1.intrigue
2.Entertain
3.persuade

Wed like to match their

new fares but wed have to
raise ours!!"

Television Sports
Advertising
1.Sports television
programming
2.Reaching the corporate set
via sports and other venues
3.In 2000, Southwest renewed
its multi-year sponsorship
agreement with the National
Football League (NFL).
Public Relations

1.Aims for Free publicity

2.Triple Crown Award for the
fifth time in a row
3.Named a plane Triple Crown
One and painted 24,000
employee names on it

Internal Marketing

Core Business - Customer

Service businessthey just
happen to provide airline
transportation
Southwests philosophy Service for Smiles and
Profits
Encourages employees to treat
customer service as the most
important aspect of their job
CEO Kelleher, "We want
people who do things well,
with laughter and grace."

OPERATI
ONS
Did all of its ticketing (not
making
seats
available
through
computerized
systems)
Did not operate in the huband
spoke route system
Flew
into
uncongested
airports of small cities, less
congested
airports of large cities
Did not transfer baggage
directly to other airlines
Only

drinks

and

snacks

Travel agents had to contact the

airlines directly to book seats
SWA passengers flew non-stop
origin to destination. Did not
promote connecting services
Savings in reduced taxi time,
fewer gate holds and less in-air
waiting time
It doesnt coordinate its services
with other airlines

OPERATI
ONS

84% unionized labor force

but its labor relations were
excellent

Only flew Boeing 737 Fleet of

150 and
avg of 1500 trips per day.

Usually do not share the ground

handling crew until unavoidable
Other airlines flew variety of jet
aircrafts, as many as 5 distinct
ones
including
McDonnell
Douglas, Airbus and Boeing
737s had average life of 20
years

Average age of SWA was 7

years(lowest
in
the
industry)

Differentiation in terms of
turnaround time , 2 out of
3 planes were turnedaround in 15 mins.

US industry average was 55

mins.

COST
CONTROL

Airlines dont have revenue problems, they have cost problems

GROWTH
STRATEGY
Conservative Growth Strategy : Expansion within the current
route structure was the first priority (85% expansion was internal)
External expansion was opportunity driven: After the collapse
of Midwest Airlines in 1991, Southwest moved to Midway Airport in
Chicago and anchored there.
Scheduling department decides the appropriate market: They
dont do a lot of market research. Choose a market, negotiate for
gates and look for controlled growth.
Growth with consistency: When they enter a new city they want
to make sure that they do the business which is consistent
throughout the system.

MARKET ENTRY
STRATEGY
How the company prices its new routes?
They look to grow in the market when they enter the city
(quadruple and quintuple the number of passengers in a particular
route)
Pricing against the ground transportation as much as against
existing air service (atleast 60% below competitive fares)
Low operating costs
They think slightly differently about load factors:
Initially higher than average load factors
Low price expand market faster than they can add
equipment
Demand outpaces supply
Competitors drop prices that stimulates demand further
Keep adding more service to balance out demand and
supply
Eventually leads to maturing of load factors
On the Oakland-Burbank route, SWA quadrupled the passenger

Revenue Vs. Employees ( DEA )

Revenues per employee

North west

South west

Number of employees

Ground crew staffing efficiency

Wages as % of total expenses 29.78% ( Industry average = 35.17%)
Lowest among Non-Chapter11 Airlines for the year 1992 . How was it possible ?

Employee required per

each additional trip

Ground Crew Staffing

Levels based on number of
departures at an Average
Southwest city
Marginal
emp reqd
Departur
per
es
People departure
10
35
3.5
20
45
1.5
30
60
1.5
60
120
2

Number of departures from a city

Competitors runs with at least three times as much

staff .
E.g., South-West effect on Burbank Oakland market.

Employee productivity (1992)

ASM: Average Seat Mile ; RPM : Revenue Passenger Mile

CONCLUSION
South West Airlines built numbers on its culture where as most
competitors let the culture to shape up by their focus on numbers

NUMBERS
CULTURE

Other large Airlines

F
O

SCHEDULING

C
U

STRATEGY

CULTURE

F
O
C
U

SCHEDULING

NUMBERS

STRATEGY

Thank You