Southwest Airlines Presentation

Southwest Airlines A review of the operational and cultural aspects of Southwest Airlines Introduction † Southwest Airlines was established in 1971 in Texas with 3 planes and routes between Dallas, Houston and San Antonio. † Business model was simply: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” † Today Southwest Airlines is the 4th largest airline in the United States servicing 58 cities with a fleet of 366 planes and is on its 29th straight year of profitability. Business Model Customers – who are they? † ‰ ‰ Short haul business travelers who want to get there when they want. In other words offer several flight time choices between cities in close proximity. Families who decided to take a short flight rather than driving their car the same distance. Low Cost ‰ ‰ ‰ Average one-way fare is $83 and it supplies 90% of all discount fares Concerned with keeping cost low to increase profitability rather than increase market share. Understand specific market niche. Fly Short Distances ‰ ‰ ‰ Southwest does not use a hub-and-spoke system, but rather flies point to point. Average flight last just over an hour. Have Fun!! ‰ ‰ Typical flight attendant spiel: "Please pay attention to the flight attendant at the front of the cabin. She's either going to be Miss America 2000 or a very bitter runner up." Employee Culture Recruiting † „ „ „ Hire for attitude and train for skills Humor taken seriously Hired 6,406 new employees in 2001 Employees † „ „ „ Encourage to assume ownership Hire for life Trust there decisions Communication † „ „ „ Give employees immediate access to critical information. They have the power to make adjustments to fix significant problems quickly. On-time arrivals, baggage handling, and customer complaints are communicated on a weekly basis. Everyone is focused on customer service and making Southwest a success which allows them to expand outside of “assigned” responsibilities. Bottom Line On average 6 seats per flight accounted for profit in 2001. Market Comparison † JetBlue is modeled after Southwest „ „ Airbus planes with leather seats and satellite TVs Founder also started Morris Air, which Southwest bought in 1993 † American Airlines announces layoffs and restructuring † US Air declares bankruptcy August 11 † United Airlines expected to declare bankruptcy later this year 2001 Selected Financials Southwest Airlines Continental Airlines American Airlines 5379 91 8457 512 15780 662 1856 771 192 311 398 318 103 511 3021 1229 903 581 568 467 347 364 -95 8032 2888 829 1197 1165 1404 778 835 -1762 2280 71 71 7534 899 1132 404 272 6153 1494 120 1414 822 14980 2079 all numbers in $, millions Revenue Passenger Cargo Operational Expense Wage Fuel Aircraft Rentals Landing Fees Maintenance and Repairs Depreciation & Amortization Passenger Servicing Commissions Net Income Balance Sheet Cash A/R Spare Parts Flight Equipment Ground Property and Equipment Queuing Theory Applied to Check-in † Customer Arrivals „ Other airlines have wider distribution † † „ Southwest encourages early arrival † † † Centered around 0.5 hr. before departure Longer tail Check-in begins one hour before Distribution much tighter, short tail on end No Seat Assignments „ „ Service Time Quicker seating Southwest Boarding Pass SOUTHWEST AIRLINES Passenger Name Flight 1234 March 2004 BOARDING PASS C SOUTHWEST AIRLINES OPEN SEATING Passenger Name C Typical 737 Seating Chart † Continental Airplane (737) Check-in Airport Terminal Board Gate Area Find Seat Jetway Southwest 737 Layout † † 13 – 18 seats more than typical layout 3 seats to choose from Point-to-Point vs. Hub and Spoke † Hub and Spoke = Batch Process Point-to-Point vs. Hub and Spoke † Point to Point = Line Flow Process 737 Fleet of Airplanes † Enables point to point route structure „ „ „ † Short – medium haul airplanes Small passenger carrying capabilities. Reduced takeoff and landing runway length requirements Costs „ Operating costs 4% lower than other airplanes in its class. † Low weight „ „ „ Lower engine thrust ->less fuel ->lower engine maint. costs Lower landing fees Lowest maintenance costs in their class. 35% lower than the A320 as reported by the US Department of Transportation. 737 Fleet of Airplanes † Maintenance „ Simple design and low stance easy to maintain and load † † „ „ † Ground Crews familiar with airplane Common ground equipment, tools, and manuals for all airplanes Flexibility „ „ † Engines can be serviced from the ground Bags can be loaded from the ground In case of “mechanical irregularities” a one model fleet allows easy substitution with one airplane for another. Simplified fleet management Pilots „ „ „ Ease of cross training Any pilot for any airplane Boeing 737-700 design inputs 737 Fleet of Airplanes Reduced number of airplanes means inventory levels can be kept lower Rapid Turnaround Times † 20 minute turnaround times „ „ † 25 minute average 45 minutes – 1 hour industry average Everybody does everything „ Do what it takes to get the airplane out the door † † † † Pilots help check in Flight Attendants help clean HIGH OCTAINE!!! High airplane utilization. „ 2 additional hours of flying time per day. Critical Path Method for Turnaround Landing Taxi In Check In Gate Arrival Unboard Passengers Service Airplane Unload Bags Troubleshoot Clean Cabin Board Passengers Load Bags Check-in & Boarding Policy Taxi Out Point to Point to and from small airports No baggage transfer Tower Clearance Toilet Food Water Fuel Checks BOEING 737 Fleet of Airplanes Takeoff Employee Attitude – everyone pitches in! NUTS! Necessity is the Mother of… † † † Customer Service = More Customers Leveraging System = Competitive Advantage High Utilization = Low Cost