Southwest Airlines Company


The objective of this capstone project is to evaluate the standing of Southwest Airlines comparing its performance of the airline. The paper also attempts to present an in-depth analysis of the strategic alternatives available to the airline and make a suitable recommendation for improving the operational performance of the company. The study about Southwest Airlines becomes interesting in view of the fact that the airline has been profitable for a continuous period of 36 years which is an unsurpassed record in an industry which is characterized by high turbulence and inconsistent performance. During the same period most of the competing airline companies have struggled to consistently make profits even for a period of three to four years (McCarthy, 2001). This project aims to study the relative contribution made by these distinct factors that made this remarkable transformation possible for Southwest.  

Organizational Culture and Employee Orientation

The success of Southwest Airlines (will hereinafter be referred as ‘SWA’ in this paper) is its emphasis on value of its employees. The Company strives to keep the employees happier than it keeps the customers. SWA believes in increasing the productivity and morale of its people by creating a friendly atmosphere in the organization and the organizational culture forms the basis for its continued success. The capabilities of the organization can be exhibited in the following figure.

The organizational performance has been drastically improved with the policy of filling the Supervisory positions of the company internally to the extent of 80 to 90% of the vacancies arising. The Company focuses on developing leadership and communication skills for the low level management staff and this enhances their capabilities to perform better. The Company hires the employees for their attitudes and trains them for acquiring new skills and knowledge. A complete analysis of each job category is undertaken to determine the specific behaviors, knowledge and motivations that the job holders require to perform effectively.

Organizational Structure

Southwest is organized in a typical hierarchical structure, with employees reporting through a line of supervisors to Kelly himself. While most people will not interact with the CEO on a daily basis, technology enhancements allow all employees to keep abreast of Kelly’s activities.

 As shown in Southwest's organizational chart, only the Executive Vice Presidents, or top managers, actually report directly to the CEO. These individuals are responsible for making strategic decisions about the future of the organization. They make higher-level, general decisions about the directions Southwest will take in the future and the kinds of policies and procedures that should govern employees' conduct.

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The specialty of the organizational structure of Southwest Airlines is that there were only four layers of management between a frontline supervisor and the CEO. The organization was able to function efficiently due to the formation of decentralized organization structures with a common feature of employee-led initiatives. Employees of Southwest are given substantial authority and decision-making power and organizational issues are sorted out by frequent formal and informal meetings between the frontline employees and managers (Greco, 2001). Managers are expected to spend at least some part of their working time out of their offices, supervising the facilities under their control and listening to the problems of the subordinates.

Efficient Marketing Strategy and Long-term Overall Strategy

It is the competition in the industry that forces individual firms in the industry to decide its course of action and arrive at the decision to do and not to certain things in order to achieve growth and sustain the growth level. The strategy of SWA in this direction is the creation of a tailored set of best-fit activities. The Company started functioning as a low-cost no frill airline 38 years ago and has grown to be one of the major airlines; but still the company maintains its cost structure.

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Demand for Reliable Low-fare Air Travel

SWA utilized the increasing demand for low-fare air travel and the Company was able to sustain its growth by its capabilities to meet this growing demand. The Company was able to deliver this product to the utmost satisfaction of the customers which assured the airline its success. Offering reliable low-cost travel has been one of the key objectives of the airline and this objective met with the expectations of the customers to a great extent. Despite severe competition from other airline operators like Continental and United by imitating the business model of SWA, the Company was able to maintain its low-cost and reliability by the efficiency in the operation of its aircrafts.

Key Success Factors

Low-cost airlines with its generic manifestation can be differentiated from a full-service airlines business model based on three management dimensions. These are: (i) adopting a viable strategic position, (ii) leveraging organizational capabilities, and (iii) re-conceiving the value equations. When these management dimensions are combined with other features of low-cost airline operations like pricing structure, fleet composition, route structure, choice of airports, distribution and productivity enable low-cost airline companies outperform their full-service airline rival companies (Gittell, 2005). The force underlying the spectacular performance of SWA is the distinctive organizational competency found in the ability of the airline to build and sustain relationships characterized by shared goals, shared knowledge and mutual respect. Building such an effective competency required the adoption of specialized organizational practices which are not quite simple. The remarkable success of the airline is supplemented by four key factors. They are: (i) extraordinary leadership capabilities found within the organization, (ii) unique organizational culture, (iii) quick turnaround strategy and (iv) high levels of coordination.

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Financial Summary

The financial performance of Southwest Airline can be summarized as below:

In US $ Millions

          2004          2005             2006         2007          2008
Revenues 5,522 5,555 9,086 9,861 11,023
Operating Expenses 5,105 4,924 8,152 9,070 10,574
Operating Income    417    631    934   791       449
Net Income    241    511    499   645       178
EPS   0.31  0.67   0.61 0.84     0.24

Source: (GoogleFinance, 2009)

The above table indicates a consistent growth in the revenues of the airline over the period and this growth is irrespective of the volatility in the US airline industry during the intervening periods. For instance for the year 2008 the US airline industry has reported a net loss of around $ 9.4 billion and during this year SWA has reported a net income of $ 178 million. This shows the success of the business model of the airline and the efficiency of the Company in conducting its business.

In conclusion, some of the initiatives that Southwest Airline may take to retain its market reputation include taking efforts to expand on their existing achievements. The Company must commit itself to better serve its customers by improving its routing system offering enhanced accessibility. Minimizing delays is another area where the airline can focus to enhance customer satisfaction. The Company may maintain its stance of operating one model fleet, as it proves to be more cost effective. The Company may also look into the opportunities of undertaking operations to neighboring countries like Canada, Mexico and Caribbean if proved to be profitable. SWA must take cognizance of the inflation factor while working on its costs as this may affect the profitability of the Company in certain situations.




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