Southwest Airlines

Culture, Value, Culture, Value, and Operating and Operating

PracticesPractices

Presented by : MBM Presented by : MBM Group 3Group 3

Company Company Overview...Overview...

major domestic airline that provides :…

♥ primarily short haul♥ high-frequency♥ point-to-point♥ low-fare service

Founded 1971

Fleet size 472

Destination 63

Headquarters

Dallas, Texas

Southwest Airlines, Inc. (NYSE: LUV), is . . .

The third-largest airline in the world by number of passengers carried and the largest in the United States by number of passengers carried domestically.

Birth of Southwest ...Birth of Southwest ...In late 1966, Rollin King and Herb Kelleher got together and decided to start a different kind of airline

Southwest was incorporated in Texas and commenced Customer Service on June 18, 1971 with three Boeing 737 aircraft serving three Texas cities - Dallas, Houston, and San Antonio.

Attract passengers by flying convenient schedules, get passenger to their destination on time, make sure they have a good experience, and charge fares competitive with travel by automobile

Business

Concept

Company History ...Company History ...1967

Company is incorporated as Air Southwest Co.

1971

Airline launches first route, connecting Dallas, Houston, and San Antonio

1973

SWA posts first profit and begins RUSH cargo service

1975

Southwest goes public on the American Stock Exchange

1976

Company is renamed Southwest Airlines Co.

1977

Shares migrate to the New York Stock Exchange

1978

Herb Kelleher becomes Southwest's outspoken new chairman

1979

SWA flies outside Texas to New Orleans

Company History ...Company History ...1981

Kelleher is named company president and CEO

1982

SWA begins flights to West Coast

1990

Revenues exceed $1 billion, making SWA a major airline

1994

Morris Air and Arizona One are acquired

1996

Online booking site is launched

2000

SWABIZ corporate booking tool is introduced

2005

SWA enters first ever code share arrangement, with ATA Airlines

VISION & mission ...VISION & mission ...Our Vision

Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit

Our Missionprovide safe and comfortable air transportation in commuter and short-haul markets, from close-in airports, at prices competitive with automobiles and buses and to involve customers and employees in the product and the process, making the airline a fun, profitable and quality experience.

Company Values ...Company Values ...

Core Core ValuesValues

LUVLUV•Code word for treating individuals, employees, customersCode word for treating individuals, employees, customers•Dignity, respect and caring loving attitude.Dignity, respect and caring loving attitude.•Appeared on banners and posters at company facilitiesAppeared on banners and posters at company facilities

FunFun•Entertaining behavior of employees in performing their jobs.Entertaining behavior of employees in performing their jobs.•The ongoing pranks and jokes.The ongoing pranks and jokes.•Frequent company-sponsored parties and celebrations.Frequent company-sponsored parties and celebrations. > charity benefit games, chili cook-offs, Halloween parties> charity benefit games, chili cook-offs, Halloween parties

Company Culture ...Company Culture ...♥ Emphasis on Value of People

Keep Employees Happy – then they will keep customers happy

"Culture is the glue that holds our organization together. It encompasses beliefs, expectations, norms, rituals, communication patterns, symbols, heroes, and reward structures. Culture is not about magic formulas and secret plans; it is a combination of a thousand things."

• -Herbert D. Kelleher, Co-Founder and Chairman, Southwest Airlines.

♥ Colorful personalitiesEmployees are friendly, creating unique love based atmosphere

♥ “Now There’s Somebody Else Up There Who Loves You”Airport: Dallas Love Field Route: Love Triangle Planes: Love Birds

Drinks: Love Potion Peanuts: Love Bites Coupon: Love Ticket

Business Description Business Description ......

Business Segment

Service in markets with of frequent, conveniently timed flights and low fares.

♥ Business travelers who more time-sensitive than price-sensitive and wanted weekday flights at times suitable for conducting business.

♥ Price-sensitive leisure travelers who wanted lower fares and had more flexibility about when to fly.

Product/Services♥ Short haul city pairs, providing single-class air transportation

which targets the business commuter as well as leisure travelers♥ Customers are able to make flight, car, hotel, cruise, and

complete vacation package reservations


Geographical SegmentationSouthwest flies to 62 cities in 32 states in America

Albany Columbus Indianapolis Midland/Odessa Philadelphia San Diego

Albuquerque Corpus Christi Long Island Nashville Phoenix San Jose

Amarillo Dallas (Love Field) Jackson New Orleans Pittsburgh Seattle/Tacoma

Austin Denver Jacksonville Norfolk Portland Spokane

Baltimore/Washington Detroit (Metro) Kansas City North Virginia (Dulles) Providence Tampa

Birmingham El Paso Las Vegas Oakland Raleigh-Durham Tucson

Boise Ft. Lauderdale/Hollywood Little Rock Oklahoma City Reno Tulsa

Buffalo Ft. Myers/Naples Los Angeles (LAX) Omaha Sacramento West Palm Beach

Burbank Harlingen/South Padre Island Louisville Ontario St. Louis

Chicago (Midway) Hartford/Springfield Lubbock Orange County Salt Lake City

Cleveland Houston (Hobby) Manchester Orlando San Antonio

In selecting cities, Southwest looked for city pairs that could generate substantial amounts of both business and leisure traffic.


Route Map

Building Building Capable Capable Organization ...Organization ...

Staffing the Organization

Core Competencies and Competitive Capabilities

Matching the Organization Structure to Strategy

Southwest’sCapability

Staffing ...Staffing ...“Employee come first and Customers come second”

♥ Hired employee for attitude and trained them for skills♥ Analyzed each job category to determine the specific behaviors,

knowledge, and motivations that job holders needed and with the desired traits

♥ A trait common to all job categories was teamwork

Recruiting, Screening, and Hiring

♥ 80 to 90% of Southwest’s supervisory positions were filled internally♥ Developing leadership and communication skills for low level

management ♥ Up and Coming Leaders received training in every departments

over sixth-month period

Putting Together a Strong Management Team

Core Competencies &Core Competencies &Competitive Competitive

Capabilities ...Capabilities ...

♥ Operate one type of aircraft.♥ Make reservations and purchase tickets at the company’s

website.♥ Tried to steer clear of congested airports, stressing instead

serving airports relatively near major metropolitan areas and in medium-sized cities.

♥ Using point-to-point scheduling of flights.♥ There is no reserved seat for each passenger.♥ No first class section, no fancy clubs at terminal and no meals.♥ No baggage transfer services to other carriers.♥ Convert from cloth to leather seats

Low Operating Cost

Developing a set of competencies and capabilities



♥ Make sure passengers had a positive, fun flying experience.♥ Presenting a happy face to passengers and displaying a fun

loving attitude.♥ Complaint letters were seen as learning opportunities for

employees and reasons to consider making adjustments

Focus on Customer & Customer Satisfaction

Developing a set of competencies and capabilities (cont.)



♥ Gradual expansion into new geographic markets.♥ Adding flights in areas where rivals were cutting

back service.♥ An attractive frequent flier program.♥ Adding longer nonstop flights to the route system.♥ Putting strong emphasis on safety, high-quality

maintenance, and reliable operations.

Updating and revising this set as external conditions and strategy change



♥ Designed and conducted by Southwest’s University for People♥ Courses for new recruits , employees, and leadership training program

for both new and experienced managers♥ Leadership course emphasized a management style based on

coaching and courage, rather than supervising or enforcing rules and regulations

♥ Courses on safety, communications, stress management, career development, performance appraisal, decision making, and employee relations

♥ Orientation program included videos on Southwest’s history, overview of the airline industry, and competitive challenges that Southwest faced, and introduction to Southwest culture and management practices

Training and retraining employees as needed to maintain skill-based competencies

Matching the Matching the Organization Organization structure...structure...

♥ There were only four layers of management between a frontline supervisor and the CEO

Designing an organization structure that facilitates good strategy execution

♥ Decentralized organization structures♥ Employee-led initiatives were common♥ Employees have substantial authority and decision-making power♥ Candid meetings of frontline employees and managers♥ Managers were expected to spend at least one-third of their time out

of the office, walking around the facilities under their supervision, observing firsthand what was going on, listening to employees and being responsive to their concerns.

Deciding how much decision making authority to push down to lower-level managers and front line employees

SWOT Analysis ...SWOT Analysis ...Strengths♥ Low price tickets ♥ Low operating costs♥ Good customer service♥ High frequency service ♥ Productive pilots & ground crews

Opportunities♥ Ability to add scheduled flights ♥ Low prices enable market share growth

Threatso Big companies emulate Southwest's low cost modelo Difficulty securing new gates at existing airports

Weaknesso Doesn’t serve international flightso One type of airplane

Five Forces Five Forces Analysis ...Analysis ...

Rivalry among Competitor

(High)

Substitute Products(train, bus)

Customers

Potential New Entrants

Suppliers(fuel, snacks,

beverages)

Low

Low

Supplier’s bargaining power LOW

Customer’s bargaining power MEDIUM

Market Share ...Market Share ...Year 2006 : Market Share

Financial Financial Performance...Performance...

Financial Summary(In millions, except EPS)

2001 2002 2003 2004 2005

Revenues 7,584 6,530 5,937 5,522 5,555

Operating Expenses 6,764 5,976 5,454 5,105 4,924

Operating Income 820 554 483 417 631

Net Income 548 313 442 241 511

EPS 0.70 0.40 0.56 0.31 0.67

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2001 2002 2003 2004 2005

Revenues Operating ExpensesOperating Income Net Income

Financial Financial Performance...Performance...

Stock Chart

9/11 Black 9/11 Black September ...September ...

♥ September 11, 2001, terrorists attacked the World Trade Center and the Pentagon, shook the whole country.

♥ 20% falloff in airline traffic in the fourth quarter of 2001♥ Unprecedented three-day shutdown of flights, the sudden

erosion of passenger traffic, and strict new security measures threw major airlines into a financial crunch of huge proportions and triggered a struggle to revamp flight schedules and respond to sharply lower passenger travel.

♥ Investor worries about almost empty flights, higher costs from added security measures, and a clouded financial future for the whole airline industry caused airline stock prices to plunge.

9/11 Impacts ...9/11 Impacts ...Airline Industry Southwest Airlines

The number of flights were cut by around 20 percent

No flights were cut

Employees laid off no employees were laid offTemporary freeze on hiring until Jan 2002

The delivery of new aircraft on order deferred or cancelled

Negotiated a revised delivery schedule for the 132 Boeing 737 jets on order

Speculation on how much to cut fares to induce passenger to fly and on low long traffic might stay depressed

Fare sales in January, March, April, July, August, October and December 2002

Many scrambled to institute a host of security measures

Many scrambled to institute a host of security measures

Conclusion ...Conclusion ...♥ To reduce their losses, the airline industry cut the

number of flights by 20% and laid off 16% of their workforces.

♥ One airline had its own unique approach to the crisis. Southwest avoided layoffs (no-layoff policy) and stuck to its mission of caring for its employees. It was felt that avoiding layoffs in the face of a dramatic decline in demand would jeopardize short-term prospects.

♥ "It's part of our culture. We've always said we'll do whatever we can to take care of our people. That's what we've tried to do.“

♥ Southwest Airlines was able to operate their business relatively undisturbed. It was only in the poor economic conditions that suddenly Southwest Airlines' method of operation became the ideal model for its competitors.

Future Future Improvements ...Improvements ...

♥ It is essential for Southwest Airlines to expand on their existing achievements.

♥ Better serve customers by improving their routing system.

♥ Offering enhanced accessibility and minimizing delays.

Key People of SWA...Key People of SWA...

By:By:Barry, Cynthia, Dedy, Barry, Cynthia, Dedy,

Fitrie, Fitrie, Indah, Made, Novita, Indah, Made, Novita,

RivalRival

Dedicated to the fallen victims of Dedicated to the fallen victims of 9/11, 5 years ago September 11, 9/11, 5 years ago September 11, 20062006