Download - OB2 Group1 South West Airlines
-
8/2/2019 OB2 Group1 South West Airlines
1/19
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
-
8/2/2019 OB2 Group1 South West Airlines
2/19
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:
-
8/2/2019 OB2 Group1 South West Airlines
3/19
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
-
8/2/2019 OB2 Group1 South West Airlines
4/19
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
-
8/2/2019 OB2 Group1 South West Airlines
5/19
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
-
8/2/2019 OB2 Group1 South West Airlines
6/19
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:
-
8/2/2019 OB2 Group1 South West Airlines
7/19
SW Airlines - Strategy
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.
-
8/2/2019 OB2 Group1 South West Airlines
8/19
SW Airlines - Strategy
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.
-
8/2/2019 OB2 Group1 South West Airlines
9/19
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
-
8/2/2019 OB2 Group1 South West Airlines
10/19
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
-
8/2/2019 OB2 Group1 South West Airlines
11/19
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)
-
8/2/2019 OB2 Group1 South West Airlines
12/19
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
-
8/2/2019 OB2 Group1 South West Airlines
13/19
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
-
8/2/2019 OB2 Group1 South West Airlines
14/19
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
-
8/2/2019 OB2 Group1 South West Airlines
15/19
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
-
8/2/2019 OB2 Group1 South West Airlines
16/19
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
-
8/2/2019 OB2 Group1 South West Airlines
17/19
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
-
8/2/2019 OB2 Group1 South West Airlines
18/19
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
-
8/2/2019 OB2 Group1 South West Airlines
19/19
Thanks
Any Questions please.
11-Oct-2011