7/28/2019 finalppt-090729220542-phpapp02

1/26

Service Operation Managementat

7/28/2019 finalppt-090729220542-phpapp02

2/26

7/28/2019 finalppt-090729220542-phpapp02

3/26

Fun facts (www.southwest.com)

Southwest reviewed 284,827 resumes and hired 3,363 new employees in 2006(11.8%).

Southwest carried 96.3 million passengers in 2006.

Southwest served 93.8 million bags of peanuts in 2006.

Southwest moved 265 million pounds of cargo in 2006.

Southwest used about 1.6 billion gallons of jet fuel in 2006.

The shortest daily Southwest flight is between Ft. Myers and Orlando (133miles). The longest daily Southwest flight is between Philadelphia and Oakland(2,508 miles).

Southwest has approximately 1,133 married couples. In other words,approximately 2,266 Southwest Employees have spouses who also work for theCompany.

7/28/2019 finalppt-090729220542-phpapp02

4/26

Southwests Business Model

Providing safe

Reliable

Short duration air service

Lowest possible fair Quality service

Point to Point

7/28/2019 finalppt-090729220542-phpapp02

5/26

Integrated Low Cost/DifferentiationStrategy

Use a single aircraft model(Boeing 737)

Use secondary airports

Fly short routes

15 minute turnaroundtime

No meals

No reserved seats

No travel agentreservations

Low Cost

Focus on customer

satisfaction

New flight services forbusiness travelers(phones and faxes)S.W.A.s Culture, Values,

Philosophies & Principles

High level ofemployee dedication

Differentiation

7/28/2019 finalppt-090729220542-phpapp02

6/26

The Right People or the Right Organization? What are our basic Principles, Philosophies

and Core Values? What do we believe in?

What policies and practices are consistent

with these Values and Philosophies?

What can we do for the customer better

than our competitors?

Given our capabilities, how can we deliver

value (EVA) to customers in a way our

competitors cannot easily imitate?

Senior management manages the values

and culture of the firm.

A Values-Based Organization View of Strategy

Fundamental Values or Beliefs

Design Management Practices

That Reflect and Embody

These Values

Use These to Build Core

Capabilities

Invent a Strategy That is Consistent

with the Values and Uses the

Talents & Capabilities of People/

Organization to Compete in

New and Unusual Ways

Senior Managements Role

7/28/2019 finalppt-090729220542-phpapp02

7/26

SW:Anatomy of a 15-minute Turnaround

7:55 Groundcrew chat

around gateposition

8:08 Boardingcall ,baggage

loading,refuelingcomplete

8:03:30 Groundcrew move totheir vehicles

8:07Passengeroff plane

8:04 crewmoves towards

gate

8:06:30Baggage

unloaded,refueling

8:15 Jet wayretracts

8:10 Boardingcomplete.

ground crewleaves

8:15:30Pushback

from backs

8:18 Pushbackdisengages plane

leaves forrunway

7/28/2019 finalppt-090729220542-phpapp02

8/26

How SW strategy is Implemented

Passengerrelated

departure

Very

lowticketprices

No site

assignments

Nobaggagetransfers

Noconnection

with otherairlines

Nomeals

Shorthual,point

to pointtravel

LimitedPassenger

service

Highaircraft

utilization

7/28/2019 finalppt-090729220542-phpapp02

9/26

Key operation parameters of sw

Passenger Load factor-

is the percentage of

a plane filled with paying

passengers. Revenue passenger

miles-

One paying passenger

flownone line

62

64

66

68

70

72

1998 1999 2000 2001 2002

Passenger Load Factor

%

0

20000

40000

60000

1998 1999 2000 2001 2002

Revenue passenger miles

million

Source:www.southwest.co

m

7/28/2019 finalppt-090729220542-phpapp02

10/26

Cont

Aircraft Utilization-inhours and minutes ina day a plane

is used0

1,000

2,000

3,000

Average Daily Passengers

passengers

11:02

11:09

11:16

11:24

1998 1999 2000 2001 2002

Aircraft Utilizatin

hr:min

7/28/2019 finalppt-090729220542-phpapp02

11/26

7/28/2019 finalppt-090729220542-phpapp02

12/26

Third-Degree Price Discrimination

The firm identifies different consumer groups, inthe market, each with a different demand curve.

Southwest Airlines recognizes that any given flights hasdifferent types of travelers

business travelers vs. vacation travelers

To maximize profit, the firm sets a price for eachgroup by equating marginal revenue and marginal

cost. Equivalently, by using the inverse elasticity pricing rule

(IEPR)

7/28/2019 finalppt-090729220542-phpapp02

13/26

Conditions for price discrimination

A firm must have some market power to pricediscriminate The demand curve the firm faces must be downward

sloping Southwest knows that it can attract more customers at lower

fare price The firm must have some information about the different

amounts people will pay for its product. Southwest must know how reservation prices or

elasticities of demand differ across consumers

A firm must be able to prevent resale, or arbitrage. Customers need to present an identity card before

boarding

7/28/2019 finalppt-090729220542-phpapp02

14/26

7/28/2019 finalppt-090729220542-phpapp02

15/26

Looking Ahead

Increase more non stop flights

Enrich operation system

Include daily non stop flights in busy air traffic

route.

7/28/2019 finalppt-090729220542-phpapp02

16/26

Conclusion

Southwest Airlines uses third-degree pricediscrimination to fill the plane with travelers in themost profitable way

Depending on the price of elasticity of demand fortickets Charge a higher price for business travelers who have relatively

inelastic demands

Charge a lower price for vacation travelers who have relativelyelastic demands

7/28/2019 finalppt-090729220542-phpapp02

17/26

ThaTs IT

7/28/2019 finalppt-090729220542-phpapp02

18/26

7/28/2019 finalppt-090729220542-phpapp02

19/26

7/28/2019 finalppt-090729220542-phpapp02

20/26

7/28/2019 finalppt-090729220542-phpapp02

21/26

7/28/2019 finalppt-090729220542-phpapp02

22/26

7/28/2019 finalppt-090729220542-phpapp02

23/26

7/28/2019 finalppt-090729220542-phpapp02

24/26

7/28/2019 finalppt-090729220542-phpapp02

25/26

7/28/2019 finalppt-090729220542-phpapp02

26/26