Southwest Airlines Act II – An Airline in Trouble ?

Presented By Swagat Sen Gupta 48-B Akshat Jain 60-B Pooja Katiyar 31-B Namit Kewat 23-B Amit Tripathi 6-B

Presented To Prof. Hitesh Manocha

Background

• In 1966, Herb Kelleher, Rollin King and John Parker formed the company.

• Initially called Air Southwest Co. but name changed to Southwest Airline Co. in 1967.

• Commenced operations in Texas connecting Houston, Dallas, San Antonio.

• Jan 1971, Lamar Muse was appointed first CEO. • 1973 was its first profitable year. • Kelleher became chairman in 1978. • Southwest started flying out of Texas to New Orleans in

1979.

Background

• After September 11 attacks, Southwest was the only airline to remain profitable while others grounded 240 planes and 70,000 workers.

• In 2001, Kelleher stepped down as CEO and was succeeded by Parker

• In 2004, Southwest had 34000 employees and flew to 58 cities.

• In 2004, Parker resigned and Kelly became CEO.

Southwest’s Success Story

• Southwest was one of the biggest success stories in America.

• Despite a no frills service, it was able to take away market share from competitors in most markets.

• It was able to achieve low fares by eliminating unnecessary costs.

• Employees experienced a great work culture at Southwest

Features of Low Cost Airlines

• Operate only one kind of aircraft. • One class carriers offering standardized treatment. • No frills services • Refreshment is limited to light snacks. • Seats not allocated to passengers on flight. • Faster turnaround of planes • Used low traffic secondary airports which are cheaper. • Fly in short haul point to point routes. • Operate planes with minimum possible employees. • Cross utilize employees. • Major portion of ticket sold over internet.

Problems at Southwest Labor Problems

– Pay received at Southwest was much lower than competitor airlines though Southwest was most profitable airline in US.

– Flight attendants demanding better terms of working.

– Remuneration for all the work they did and not just for official duties.

– Payment for 4 week training period.

– Special compensation for working on holidays.

– Competitor airlines giving more frequent raises.

Problems at Southwest

Customer Relations

– Few staff at airport made it difficult to get tickets fast and people had to stand in line for a very long time.

– Airline refused to accept e-mail inquiries.

– Southwest asked customers with a question to call airline’s customer service number.

Problems at Southwest

Rising Costs

– Rising fuel prices.

– Increasing labour costs.

– Shifted flights from non-profitable routes to profitable routes.

Problems at Southwest

Competition

– Rise of several low cost competitors.

– Main competitors are JetBlue and AirTran.

– Competitors offer more frills than Southwest.

– JetBlue was most punctual in industry, offered lowest prices, best record in baggage handling.

• Low costs

• Service innovation

• Technological expertise

• Financial Position

• No-frills service

• Image

• Safety record

• Customer Service

SWOT Strengths

• Multi-country coverage • No baggage transfer

outside southwest system

Threats

• Growth Opportunities for smaller urban airport destinations

• Societal Values in the changing economy

• Rebound opportunity as a result of 9/11 decline in market size

• Long-term industry growth

Opportunities

• Costs: Aviation fuel, labor

• Terrorist attack on an aircraft

• General economic downturn

• Number of rivals and their relative size.

• Communication technology and e-commerce

• Extent to which rivals use economy of scale

• Declining consumer confidence

• Diminishing pool of qualifies employees

Threats

PEST ANALYSIS Political

• Deregulation in 1978.

• Post 9/11 attacks, government helped major airlines get out of financial trouble.

Economic

• No layoff

• Under unfavorable economic conditions

– People looking for cheaper travel options.

– Low cost airlines are better option.

Social

• People trust southwest

• Employee trust southwest

Technological

• Use of e-tickets.

• Use internet to compare prices and find best options for trips.

• Other planes can be used with better technologies.

Porter’s 5 Forces model

Competitive Rivalry within

Industry = High

Threat of New Entrants = Low

Threat of Substitute

Products = High

Bargaining Power of

Customers = High

Bargaining Power of Suppliers

•Food & Drinks = Low

•Fuel = High

Recommendations

• Introduce continuous learning programs that will be used to retain current employees.

• Create a promotional campaign like buy one ticket and get discount on the return ticket.

• Improve turnaround times.

• Improve employee-management relations.

• Provide meals for sale on flights.

• Provide seat numbers to the passengers.

• Provide more legroom and comfortable seats to the passengers.

THANK YOU