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Southwest Airlines : Case Study
by Sarang Bhutada on Aug 26, 2009
• 42,521views
A classroom presentation of the legendary Harvard Business case study on Southwest Airlines.
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Southwest Airlines : Case Study — Presentation Transcript
• 1. Just Plane Smart Harvard Business School – Case Study
Summary Abhishek Mehra Balaji P Saruabh Ranadive Sarang Bhutada
• 2. The setting It’s summer of 1993 Southwest is expecting
delivery of two uncommitted planes McGlade needs to find a way, toput these planes in operation, keeping the organizational objectives
are intact Final decision would have to preserve the Southwest culture
and spirit About Southwest Started as a intra-state operator in Texas
Budget airline philosophy, survived a severe price-war Operating out
of Dallas’s Love Field airport, hence the ticker LUV 7 th largest in the
country by April 1993 Expanded to become a national carrier, serving
major cities Short-haul, high-frequency, low-cost strategy 12 time
winner of the coveted triple crown award
• 3. The Southwest Model
• 4. Hiring - Identify attitudes rather than skills Rigorous
interviewing Peer hiring People skills of Southwest Structure Centered
on team-building Cross-training encouraged Broad latitude offered
10% of stock held by employees Advancement Recognition, an
important element Celebrations quite common Most promotions
internal Compensation Varied with position At par with industry norm
Pension through a profit-sharing plan Culture H A “Patina of
Spirituality” ugs common across office Casual dress code Field visits
Strong guidelines to everyone At par with industry norm Pension
through a profit-sharing plan
•
5. “ After lengthy deliberation at the highest executive levels,and extensive consultation with our legal department, we have arrived
at an official corporate response to Northwest Airlines Claim to be
number one in Customer Satisfaction…… … Liar Liar. Pants on Fire”
• 6. Product: Southwest’s product is travel Competition - not
just other airlines but any mode of transportation. frequent,
conveniently timed flights and low fares. point-to-point route system
as compared to hub-and-spoke direct nonstop Target Market: Market
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Segmentation cost- and value-conscious consumers. mostly male
small business executives travel short distances prefer low cost fares
frequent schedules The other half consists of value-conscious
consumers (male, female, families, and senior citizens) best value for
their dollars Senior citizens are a sub-segment that receives special
attention than a loyal customer - customer evangelist
• 7. Competitors and Competition 11 major carriers (2003):
Alaska Airlines Aloha Airline America West American Airlines
Continental Airlines Delta Airlines Northwest Airlines TWA United
Airlines U.S. Air Southwest Airlines Southwest’s brand exudes an
element of fun: Obviously Fun Love Theme, Love Potions(on-board
drinks) Love Machines( ticket writing machines) Product Positioning
only low-fare short-haul high-frequency point-to-point carrier fun to fly
Average cost of serving meals per passenger in the industry - $5 For
Southwest’s - 20 cents Seemingly weird things- Not assigning seats
Weird Color Scheme
• 8. Product Positioning Example of Southwest Airlines
nuttiness - use of the word “love” One ad titled " How Do We
Love You? " - flight schedule. Another ad titled " We're
Spreading Love " - the rapid growth of the airline. Word "
love “ - dedication to customer service Marketing Strategies
Southwest offers a travel product that is built around flights targeted
to specific demographics and ticket pricing that is simplified so that
passengers know exactly what they are getting for what they pay.
Building Brand Loyalty What is the Southwest Effect? Air fares go
down Tourist traffic increases Economic mini-boom ensues Marketing
Blitz !!!! - Smart Campaign
• 9. Pricing Strategies Charge the lowest possible fare Compete
with all other forms of transportation, including automobiles Instead of
increasing fares when market gets busier and more people are flying,
it simply increases the number of flights. Distribution and Promotion
Product Distribution Strategies SWA does not rely on travel agents
Travel bookings - direct marketing Does not interline or offer joint
fares with other airlines Southwest's Internet ticketing saves it $50
million a year, or 1% of revenue "We're not competing with
other airlines. We're competing with ground transportation"
• 10. Promotion Strategies: Marketing Mix Southwest Airlineswants to differentiate itself from other airlines as the airline that can
get passengers to their destinations when they want to get there, on
time, at the lowest possible fares – while having fun. Frequent Flyer
Awards Rapid Rewards-based on number of trips taken Way of
showing Southwest’s philosophy that every customer is equally
important as the other and making ALL passengers feel special.
Advertising “ Don’t believe the hype.” Fares offered by other
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discounters and airlines on the Web are not good buys. Southwest
attempts to do three things in their advertising: intrigue Entertain
persuade “ We’d like to match their new fares but we’d have to raise
ours!!"
• 11. Television Sports Advertising Sports television
programming Reaching the corporate set via sports and other venues
In 2000, Southwest renewed its multi-year sponsorship agreement
with the National Football League (NFL). Public Relations Aims for
“Free publicity” Triple Crown Award for the fifth time in a row Named
a plane Triple Crown One and painted 24,000 employee names on it
Internal Marketing Core Business - Customer Service business—they
just happen to provide airline transportation Southwest’s philosophy -
“Service for Smiles and Profits” Encourages employees to treat
customer service as the most important aspect of their job CEO
Kelleher, " We want people who do things well, with laughter
and grace. "
• 12. OPERATIONS Did all of its ticketing (not making seats
available through computerized systems) Did not operate in the hub-
and spoke route system Flew into uncongested airports of small cities,
less congested airports of large cities Did not transfer baggage
directly to other airlines Only drinks and snacks often peanuts served
on board Travel agents had to contact the airlines directly to book
seats SWA passengers flew non-stop origin to destination. Did not
promote connecting services Savings in reduced taxi time, fewer gate
holds and less in-air waiting time It doesn’t coordinate its services
with other airlines
• 13. OPERATIONS Usually do not share the ground handling
crew until unavoidable Other airlines flew variety of jet aircrafts, as
many as 5 distinct ones including McDonnell Douglas, Airbus and
Boeing 737’s had average life of 20 years US industry average was 55
mins. 84% unionized labor force but its labor relations were excellent
Only flew Boeing 737 - Fleet of 150 and avg of 1500 trips per day.
Average age of SWA was 7 years (lowest in the industry)
Differentiation in terms of “turnaround” time , 2 out of 3 planes were
turned-around in 15 mins.
• 14. COST CONTROL “ Airlines don’t have revenue problems,
they have cost problems”
• 15. GROWTH STRATEGY Conservative Growth Strategy :
Expansion within the current route structure was the first priority (85%
expansion was internal) External expansion was opportunity driven:
After the collapse of Midwest Airlines in 1991, Southwest moved to
Midway Airport in Chicago and anchored there. Scheduling
department decides the appropriate market: They don’t do a lot of
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market research. Choose a market, negotiate for gates and look for
controlled growth. Growth with consistency: When they enter a new
city they want to make sure that they do the business which is
consistent throughout the system.
• 16. MARKET ENTRY STRATEGY How the company prices its
new routes? They look to grow in the market when they enter the city
(quadruple and quintuple the number of passengers in a particular
route) Pricing against the ground transportation as much as against
existing air service (atleast 60% below competitive fares) Low
operating costs They think slightly differently about load factors:
Initially higher than average load factors Low price – expand market
faster than they can add equipment Demand outpaces supply
Competitors drop prices – that stimulates demand further Keep adding
more service to balance out demand and supply Eventually leads to
maturing of load factors On the Oakland-Burbank route, SWA
quadrupled the passenger market within two years and drove out
USAir and United in 3 years time.
• 17. South west North west Number of employees Revenues
per employee Revenue Vs. Employees ( DEA )
• 18. Wages as % of total expenses – 29.78% ( Industry
average = 35.17%) Lowest among Non-Chapter11 Airlines for the year
1992 . How was it possible ? Employee required per each additional
trip Number of departures from a city Ground crew staffing efficiency
Competitors runs with at least three times as much staff . E.g., South-
West effect on Burbank –Oakland market. Ground Crew Staffing Levels
based on number of departures at an Average Southwest city
Departures People Marginal emp reqd per departure 10 35 3.5 20 45
1.5 30 60 1.5 60 120 2
• 19. ASM: Average Seat Mile ; RPM : Revenue Passenger Mile
Employee productivity (1992)
• 20. South West Airlines built numbers on its culture where as
most competitors let the culture to shape up by their focus on
numbers Other large Airlines F O C U S CONCLUSION F O C U S
NUMBERS CULTURE SCHEDULING STRATEGY CULTURE SCHEDULING
STRATEGY NUMBERS
• 21. Thank You
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