OB2 Group1 South West Airlines

8/2/2019 OB2 Group1 South West Airlines

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Topic: South West Airlines:

Can Luv Rule the World?

PT PGPM (Apr-11 Batch- Term IV) Group 1

Roll No. Name

11PT1 - 008 Anirban Ghosh

11PT1 - 009 Anjana Shaberwal

11PTI 018 Ashutosh Kalra

11PT1 - 023 CR Suresh

11PT1 - 034 Harish Chand Gupta

11PT1 - 043 Kirti sharmaDate: 17 Jan 2012

OB-2 Case Discussion


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SW Airlines - Case Introduction 1968: Feb 20 License for Texas states (Herb Kelleher)

(Braniff, Continental, Trans Texas competitors)

1971-78: Proud Texan Period 1978: US Market De-regulation (Competition Start)

1978 - 86: Inter-state Expansion

1987- 97: National Achievement

Financials of 1996: Op. Margin: 15% / Net Margin: 7 ~ 8%

ROE: 15%, Debt / Equity Ration:


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Aviation Industry1. Value Adding Activities (Airline procurement, Aircraft

maintenance, reservation system, Schedule & route

planning, In-flight services, after-flight services like hotel,

Taxi etc.,

2. Customers (Travel agents, Corporate travel managers,

Individual travelers - Leisure/Business)

3. Geographical Coverage (Short haul Point to Point, Longhaul Hub and Spoke / Different Pricing structure)

4. Passenger Service (meals, advance seat bookings, frequent

flier program, full service (Business/first class), Sparton/

Coach Service (No frills)

Competitive Environment:1. High Cost Structures

2. High Labour cost

3. High Infra Structure cost

4. High Inefficient Planes

5. Profitable Routes


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Structural Characteristics (Aviation) Porters 5 Forces:

1. Suppliers: High Bargaining power, Boeing 737

2. Customers: Surface Transport

3. New Entrants: Low Cost, Outsourcing, Trg., Maintenance

4. Competitors

5. Barrier to Entry: Leasing (Aircrafts and Gates)

High Debt and Lower Profitability [= (Yield x Load Factor) Cost]

Cost Reduction + Cyclical expansion of air travel

1995: 10% federal ticket tax abolished

1996: US Domestic Market Maturity (value jet air-crashed) 1997: Tax rate 7.5% abolished and user fee ($1/pass/tkt)

Capacity: Growth in Low cost, short haul travel

Outlook: Org. Re-structuring &Technology Diffusion

US West Low cost carriers, US East High cost carriers


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SW Airlines - Strategy

Cost Leadership (Low cost structure due to secondary airports,

less landing charges, lower gate costs, cheap schedule cost due

to Point to point, focus on good weather) Route Structure ( Specialized in short haul flights, price

sensitivity, Threats from ground transportation, no frills, less cost,

extended snack, Ex. Lousiville-Chicago increase from 8000 to

26000 passenger load, Huge saving in one-way/non-stop citypairs / round trips

Low Turn Around Time (Huge saving15-20min, Inds avg 55 min)

increases more trips/plane and assets turnover.

Category : Low fares / No frills airline

Cheapest / efficient operator in domestic circuit

High motivation level of employees


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SW Airlines - Strategy Fleet Composition: Boeing 737, fuel efficient, single source, good

relation with supplier for price advantage, youngest fleet,

standardized cockpit, flexibility of pilots, routes, maintenance,training, service etc.

Disadvantages: Delay in delivery of planes. (21 planes in 1997-

98), affected expansion planes in 1998. (only 1 route added).

Travel agency exposures:


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POS: Positively Outrageous Service, Compete ground transportation

Labour: 4 Unions (IAM-customer service & reservation

employees, TWU-flight attendants, SWAPA-Pilots, IBT-cleaners,

trainers, flight instructors), Good relations, Profit sharing andparticipation, stock options, 5/10 year bonus eligibility for pilots.

Ex.1994 10 yr agreement with SWAPA, 5 yrs same package,

1.4Mn shares / year option

Customer service: POS, Excellent service due to good labourrelationship, Emphasis on flight frequency and on-time

performance.

Culture: Major strategic weapon and unique due to good employee

relations, Marketing: Strategic pricing, convenience & Service. Good

marketing mix, Competing with ground transportation- Expand

market, Cost advantage in price competition.


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Core Competencies PTP, Low cost, No frills, Safety, Quality service,

Customer satisfaction

Growth: Go-Slow Philosaphy, favourable market, labour

availability, prohibits monetary subsidies offered by

cities/airports. Highly skilled in market selection, Select under served markets,

abandoned segments/city, poor performance in service, high cost

structures, start up carrier, other markets neglected by

competitors. PTP < 500 miles avg, low AT congestion, new airports, gates

availability, quick turn around time.

Strategy to dominate high population market. Ex. In 1996, SWA

controlled 40% marekt share in top 61 cities of top 100 USdomestic market.


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SW Airlines - OrganizationStructure:

High Degree of Formalization and Standardization in operations

High Level of Customer and Employee Satisfaction.

Informal Job Description.

Size:

Small Company, less ASMs, lesser ground crew (own staff).

Outsourced only major Overhauls & Repairs.

Adaptability / Flexibility:

Quick to adopt abandoned Gates.

Acquire more planes & Capture Mkt. Share (eg; California, Chicago)HRM:

Great Attitude, Culture and Fit.

Great emphasis on Socialization & Training.

Fundamental Concept : Loose-Tight design, People Management


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SW Airlines - OrganizationCulture and Control:

Informed employees are better equipped to make decisions.

Have fun at work., high level of coordination Cooperative relationship among employee groups.

Management:

Centralized with a very strong, if not dominating CEO.

Most powerful dept. is the Customer Department.

Technology:

1st company to offer Ticket Less Travel.

Supports activities like; Scheduling to Reservation to generalOperations support.

50% travel agencies direct access to its own reservation system.

Mission Statement: Recognizing that our people are the competitive

advantage, we deliver the resources and services to prepare our people

to be winners, to support the growth and profitability of the company


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SW Airlines SWOT Analysis

Strengths: High capacity usage

Low cost structure

Young & Standardized

Fleet Short Haul/PTP

No frills,

Safety & Reliability

Quality service,Customer satisfaction

Good Labor Relations

Weakness:

No Expertise in Long Haul,

offering other associatedairlines and services

No international flights

No segmented seating

Dependent on a singlesupplier (Boeing-737)

Lack of Technological

upgradation of fleet, CRS

Highly Unionized &Deteriorating Labour Relation

Effect of Fuel Price (been

domestic Carrier)


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SW Airlines SWOT Analysis

Opportunities: New Segment in Domestic

Operating Long Haul thro

Hub & Spoke system

Explore international Mkts

Technology upgradation of

fleet & system for

operation in bad weather

Online Services & E-Mktg

Growth of business and

leisure travel /High

capacity usage

Threats:

Major & New SmallCompetitors in Short Haul

New government

regulations/ amendments

Fuel price fluctuations. Terrorist attacks.

Annual airline security

costs have increased.

No Leader for SuccessionPlan for Kelleher


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SW Airlines - Performance 24 years of profitability (incl. 1991-92 when majors lost Money)

Safe & Reliable operations

Top Ranking in quality service, CSI (only airline to top all 3 category-Best on time record, Best baggage handling & low cust. complaints)

South West Effect due to low cost-$60 difference 243 Boeing-737

aircrafts, 52 airports, 25 states & >50Mn customer, market leader in

top 100 cities, >60% passenger share) Peaceful & cooperative Labour relation, High Employee satisfaction

, Lower Labour cost, Profit sharing & 10% stock option

Single agent for staff gates ( others 2-3 ), Ground Crew


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SW Airlines - Challenges

Competition:1.New Cost Competitive

Smaller Players in short haul(PTP)

2.Major Players matching in

short haul

3.Deteriorating Labour Relation

4.Wright amendment5.Increasing Turnaround

Time/Cost

6.Greater Coordination

7.Succession Plan for Kelleher

Limitation:1.Poor weather condition

2.Direct competition majors

3.Volume increase

(investment, inventory,integration, yield,

inadequate existing

systems)

4.North South Hub

5.Longer Flights, National

marketing, Frequent flier

program, Food service,

Inter airline agreement &

New geographic location

Growth Opportunity:1. Long haul market

2. Selection of Market

Short haul market saturation


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SW Airlines To overcome Challenges

11-Oct-2011

Existing Strategy :

Low Cost No Frills

On Time

Quality Service (POS)

PTP & Short Haul

Good Weather

Less Congested

Airport

Rapid Turnaround

time Required

No Sponsorships

New Strategy :

Cost Control

Food Service

Inter-airline Agreement

with International

Airlines

Hub & Spoke and Long

Haul

Fleet upgradation to

manage Bad Weather

Selection of New

Cities/Markets

NFC Sponsorship

Nation Adv, Branded

Credit Cards


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SW Airlines Proposed strategy in a

changing environment

11-Oct-2011

Ability to obtain scarce

resources

Value- creation cycle

Organizational strategy

Core CompetenciesCompetitive advantage

create

develop

create

increases


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SW AirlinesValue creation thro

global expansion

11-Oct-2011

Transfer of core

competencies abroad

Establishment of

global network

Gaining access to

global skills & resorces

Use of global learning

to enhance corecompetencies


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SW Airlines 4 levels of strategy

11-Oct-2011

Functional level strategy

Business level strategy

Corporate level strategy

Global expansion strategy

Strengthen

organizations resources

& coordination abilitiesto create core

competences

Core competences to

gain competitiveadvantage

Developing core

competences and

expansion into newdomains

To obtain scarce

resources & develop

core competences


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Thanks

Any Questions please.

11-Oct-2011

Documents

OB2 Group1 South West Airlines