just plane smart harvard business school – case study summary
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Just Plane Smart Harvard Business School – Case Study Summary. Abhishek Mehra Balaji P. Saruabh Ranadive Sarang Bhutada. About Southwest Started as a intra-state operator in Texas Budget airline philosophy, survived a severe price-war - PowerPoint PPT PresentationTRANSCRIPT
Just Plane SmartHarvard Business School – Case Study Summary
Abhishek MehraBalaji P
Saruabh RanadiveSarang Bhutada
The setting
•It’s summer of 1993
•Southwest is expecting delivery of two uncommitted planes
•McGlade needs to find a way, to put 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
• 7th 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
The Southwest Model
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
“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”
Product:
Southwest’s product is travel
Competition - not just other airlines but any mode of transportation.
1.frequent, conveniently timed flights and low fares. 2.point-to-point route system as compared to hub-and-spoke3.direct nonstop
Target Market:
Market 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
Competitors and Competition 11 major carriers (2003): 1.Alaska Airlines2.Aloha Airline 3.America West 4.American Airlines 5.Continental Airlines6.Delta Airlines7.Northwest Airlines 8.TWA9.United Airlines10.U.S. Air11.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 Positioningonly low-fareshort-haulhigh-frequencypoint-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 seatsWeird Color Scheme
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 StrategiesSouthwest 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 LoyaltyWhat is the Southwest Effect? 1.Air fares go down 2.Tourist traffic increases 3.Economic mini-boom ensues
Marketing Blitz !!!!
- Smart Campaign
Pricing Strategies1.Charge the lowest possible fare 2.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 StrategiesSWA 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"
Promotion Strategies: Marketing Mix Southwest Airlines wants 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 AwardsRapid 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 discounters and airlines on the Web are not good buys.
Southwest attempts to do three things in their advertising: 1.intrigue 2.Entertain3.persuade
“We’d like to match their new fares but we’d have to raise ours!!"
Television Sports Advertising
1.Sports television programming 2.Reaching the corporate set via sports and other venues3.In 2000, Southwest renewed its multi-year sponsorship agreement with the National Football League (NFL).
Public Relations 1.Aims for “Free publicity” 2.Triple Crown Award for the fifth time in a row3.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."
OPERATIONS
Did all of its ticketing (not making seats available through computerized systems)
Did not operate in the hub-andspoke route system
Flew into uncongested airports of small cities, less congestedairports of large cities
Did not transfer baggage directly to other airlines
Only drinks and snacks oftenpeanuts 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
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.
COST CONTROL“Airlines don’t have revenue problems, they have cost problems”
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 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.
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.
South west
North west
Number of employees
Revenues per
employee
Revenue Vs. Employees ( DEA )
Wages as % of total expenses – 29.78% ( Industry average = 35.17%)
Lowest among Non-Chapter11 Airlines for the year 1992 . How was it possible ?
Em
ployee required per each additional trip
Number of departures from a city
Ground Crew Staffing Levels based on number of departures at an
Average Southwest city
Departures People
Marginal emp reqd per departure
10 35 3.520 45 1.530 60 1.560 120 2
Ground crew staffing efficiency
• Competitors runs with at least three times as much staff .• E.g., South-West effect on Burbank –Oakland market.
0
500
1000
1500
2000
2500
3000
3500
RPM peremployee(000)
ASM peremployee(000)
ASM+RPM
ASM: Average Seat Mile ; RPM : Revenue Passenger Mile
Employee productivity (1992)
South West Airlines built numbers on its culture where as most competitors let the culture to shape up by their focus on numbers
NUMBERS
CULTURE
SCHEDULING
STRATEGY
CULTURE
SCHEDULING
STRATEGY
NUMBERS
Other large AirlinesF
O
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U
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CONCLUSION
FOCUS
Thank You