Southwest Airlines - Where the LUV Is

Introduction Southwest Airlines has built a company where great people come to work every day for the betterment of the organization. Southwest staunchly believes on the premise that well-treated employees will provide outstanding customer services. As a result, Southwest hires for attitude rather than for specific skills. In the history of the airline, there have been no people layoffs. In addition, Southwests average compensation is the highest in the industry. The company has evolved into a leader in the airline industry with unsurpassed employee loyalty. Southwest's unique and relaxed corporate culture has created a highly successful airline business that has shown a profit for over 30 consecutive years.

People Management Strategy

Why has Southwest Airlines profited every year since its creation in the 1960s? How a company manages its people strongly impacts the bottom line. As Araoz advocates great people decisions are essential not only for personal success, but also for sustained organizational success (2007). The organization of Southwest Airlines is best described as an upside-down pyramid an organization very much in line with the way they want to do business. The upper management is at the bottom and supports the front line employees (>35000), who are the experts. Front line employees play a major role in the yearly business planning and operational budgeting which for a great part is done bottom-up rather than top-down. This philosophy was born out of cofounder Herb Kelleher's unorthodox leadership style, in which management decisions are made by everyone in the organization, not just the head executives. The company does not put much emphasis on structure; instead, employees are encouraged to think freely without constraints such as titles or official mandates.3

One of the most critical aspects of its people management philosophy is how it handled its relationship with its unions. Southwest has the most highly unionized workforce in the U.S airline industry. The difference is that Southwest treats its unions as partners rather than adversaries. It uses three approaches in dealing with unions. First, southwest accepts the unions as legitimate representatives of employees and as valued partners in the organization. Second, Southwest expects the unions to have an intense loyalty to the company and a feeling of ownership. Third, Southwest treats the unions as full partners, not like some albatross hanging around their organization's neck. As a result, Southwest has exceptional labor relations. As Jack told us in Winning, one of the best practices of great people management is to face straight into
2

charges relationships with candor and action...the most important thing to remember about unions is that they are made up of your own people...that is why all you have with unions is your integrity-your word (2005).

Rewards and Motivation

Southwest uses profit sharing as a compensation tool that is tied to business strategy. They implemented the program so that employees would feel and act that they are part of the company. Southwest encourages creativity, and has adopted many employees ideas over the years. If an idea will save money and increase profit, and employees are allowed to share in that profit, then the employees will be more than likely to play a more active role in their own development.

The company also sends cards to all 34,000 employees on their birthday, the anniversary of their employment, Thanksgiving, and Christmas. Contents are regularly run just for the fun of it, such as a Halloween costume contest, a Thanksgiving poem contest, and an annual chili cookoff. In 1996, when, for the fifth year in a row, Southwest had the best record among major airlines for on time performance and for baggage handling and fewest complaints for the number of customers carries, the company dedicated an airline to its employees, putting each ones name on the outside of the overhead bins.1

You need to lead by example and sacrifice for your employees if you want them to sacrifice for you. During negotiations with the pilots unions, Herb Kelleher, the former
3

chairmen of Southwest asked the pilot's union to agree to a five year pay freeze, he offered to apply the same pay freeze to his own salary. His actions showed his employees that he was willing to make sacrifices for the good of the company and the continued prosperity of his employees.2 His actions built trust and were a motivation for employees to strive for performance excellence.

Southwest's reward system is reflective of the work demands placed upon them. Southwest offers competitive compensation, including free travel for employees and immediate family. In addition, Southwest provides considerable profit sharing, bonuses, and retirement savings programs. Many employees receive stock options, and collectively the employees own 11% of the company. To further motivate employees, the company holds many celebrations, both business-related and social. Occasions marking business-related achievements are well orchestrated, visible, and memorable. Often, employees are given merchandise, travel, and spontaneous praise to promote continued actions in line with the company's beliefs.

With so much of employees' personal holdings and compensation tied to the company's performance, peer pressure to keep costs down is intense. Workers still routinely challenge each other on questionable sick calls, overuse of office supplies and requests for overtime pay for "stupid things," says Dan Kennedy, an operations agent in Spokane, Wash. Employees recycle everything possible, saving paper clips and making scribble pads out of old mail. In 1994, Rhonda Holley, a flight attendant, suggested using plain trash bags on airplanes, instead of printing ones with the airline's logo. The switch saved $300,000 a year. Flight attendants pitch in
4

to hurriedly clean planes to get them back in the air within 25minutes; some even help when they're traveling off-duty. Pilots have helped ramp agents load bags to keep flights on time, and they log more flight hours per day on average than their peers at other airlines. Three years ago, when Mr. Kelleher challenged each employee to save $5 a day, Debra Benton, who heads the airline's frequent-flier program, started using the stairs instead of the elevator to save electricity. "Part of our working environment means working our butts off," says Colleen Barrett, Southwest's president.5

Company Culture

Southwest's culture has long been admired and has earned Southwest much recognition, including a yearly spot on Fortunes Worlds Most Admired Companies list. According to its annual report, the mission of Southwest Airlines is "dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Southwest mission for employees is to provide them with a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, employees will be provided with the same concerns, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer. Southwest takes the approach that
5

employees, not customers come first. They believe that happy employees will lead to happy customers. Employees have a strong sense that the company is looking out for them. As stated in its Annual report:

At Southwest Airlines, people are our most important asset. Our people know that because that's the way we treat them. Our people in turn provide the best customer service in the industry. We start by hiring only the best people, and we know how to find them. People want to work for a winner, and because of our success and the genuine concern and respect we have for each of our employees we have earned an excellent reputation as a great place to work. As a result, we attract and hire the very best applicants. Once hired, we train, develop, nurture, and most important of all, support our people. In other words, we empower our employees to effectively make decisions and to perform their jobs in this very challenging industry.7

Southwest's culture is a strong competitive advantage. Workers believe management tries hard to ensure that personnel are treated properly. This culture provides much of the basis for its labor relations, customer service, and organizational flexibility. The work environment at Southwest is an informal culture with motivated and energized employees. On board, the flight attendants often joke with the passengers, and are allowed to ad-lib their own announcements. They have even been found hiding in luggage compartments to surprise passengers.

CEO Gary Kelly ask three things of the 46,000 Southwest Airlines and AirTran Airways Employees every day: Work hard, have fun, and treat everyone with respect. This is calledLiving
6

the Southwest Way, and it comprises three characteristics that we look for in job candidates and require of our Employees: a Warrior Spirit, a Servants Heart, and a Fun-LUVing Attitude.6 The work environment outside of the aircraft is equally informal and positive as the inside. According to the CEO, Gary Kelly, the goal is fun and informality. The atmosphere is friendly and everyone is on a first name basis. At the corporate office in Dallas, one will find it more common to receive a hug than a handshake.

A concern relating to its culture is the issue of low employee productivity. The corporate culture at Southwest is based on fun, loyalty, and employee appreciation. This often leads to less time focused on business operations and more time spent cultivating the corporate environment. Celebrations for birthdays, graduations, marriages, and holidays often take place during company time to show appreciation and foster bonding among the employees. This loss of company time to non-business related activities could decrease profits. While its culture motivates it employees to work hard for the company, the casual approach to work could turn into a productivity issue.

Ability to Retain and Attract Employees

Southwest spares no effort to find the right employees. The airline looks for people who have a combination of energy, humor, team spirit, and self-confidence. Southwest attracts employees who like people, who have strong work ethics, who do not take themselves too seriously, and know how to have fun. The first step of the employment process is to invite a group of applicants into a room and observe their people skills. Candidates may be asked to tell of a time when their sense of humor helped them or what their personal motto is. The delivery
7

and style of the answer is most important. Successful applicants are invited back to interview with a recruiter and a person who is currently employed in the same job that the applicant is seeking. Southwest employees must be willing to have fun, be a team player, and be adaptable to retain employment. In exchange, the airline provides stable employment and has never had a layoff.

Due to the nature of how it conducts business, Southwest Airlines enjoys many competitive strengths. The airline has enjoyed unprecedented growth since 1971 driven by a simple fare structure, low costs, and impeccable customer service. The company also maintains a fleet of one aircraft type, which saves on parts inventories and maintenance training costs as well as provides them with incentives such as volume discounts and flexible financing options. Strong, simple loyalty programs help to build lasting relationships with repeat customers. Southwests desirable corporate culture also makes it able to be highly selective during its interview process for new hires, making sure the company hires only the best of the best applicants.

Some competitive disadvantages are that it is a national company which will limit its growth potential. Workers who scrimp and sweat to boost earnings are seeing less return from profit sharing and a pummeled stock. And some longtime employees say that after years of pushing themselves to increase productivity, they simply can't give any more."We have been there for them," says Karen Amos, a 26-year Southwest veteran who took part in theflightattendant protest. "There comes a time when it becomes too much."5 Many veterans of the
8

airline have complained that they have worked increasingly hard to boost productivity and profits, but without matching pay raises. Unions have increasingly sought "big airline" pay to match the airline's growing success, as opposed to the old days, when they'd settle for other incentives to help their underdog airline fly higher. In 1994, for example, in exchange for a stock-option award in their contract, pilots agreed to a five-year wage freeze that would help the company keep costs in check. Unions are showing more frustration during negotiations, unlike the old days, when deals would generally be made more quickly and amicably. In the summer of 2001, ramp workers picketed near company headquarters with signs reading, "Record Profits Empty Pockets." They complained that staff shortages, combined with Southwest's record passenger loads and a drive to improve on-time performance, meant they had to lift more bags and do so more quickly. And that, they argued, put them at greater risk of injury.

Many of the company's top motivational techniques aren't working as well as they used to. Consider stock options and profit sharing, which have lost a lot of their allure during the airline slump. Southwest's net income fell 53% to $241 million last year from $511 million a year earlier. Its stock hit a low of $10.90 last year. Shares have inched back up to about $18, well below the five-year, split -adjusted high of nearly $24. The slump has hit morale in other ways. Southwest's growth -- as measured in the seating capacity of its fleet -- has slowed to 4% to 5% annually from its traditional 8% to 10%. The airline typically launches service in at least two cities a year. It hasn't done so in 21 months. That restricts advancement opportunities for pilots, station managers and many others, and employees lose the excitement of conquering new territory.
9

Performance Management Philosophy

Southwest uses Brian Becker's A Positions model in assessing employees. As Becker states, job value is determined by the specific strategic capabilities needed to execute strategy. Companies need to invest disproportionately in the most strategic positions ensuring that "A" players are in "A" positions for "A" customers (2009). Jobs are strategic when they have a disproportionate impact on a firm's ability to execute business strategy through its strategic capabilities.

At Southwest, one of its strategic goals is to turnaround its planes in 23 minutes. In order to accomplish this it must clean the planes, refuel, unload luggage in this short amount of time. It takes the collaboration of its ground operations, flight attendants, and customer service agents to accomplish its turnaround time goals. Southwest invests heavily in these positions especially with training understanding the critical role they play in maintaining their on time flight performance.

Another strategic goal is to maintain one of the lowest complaint ratios in the airline industry. In order to achieve low complaints, Southwest puts a lot of emphasis on training its tickets agents and customer service agents. These customer service representatives are the face of the company when you check in at the airport and also at the gate before boarding the plane. There extensive training focuses on understanding how the customer is always right and also how to diffuse a negative situation.

10

Ways to Strengthen Southwest's Workforce Strategy

Total compensation at Southwest includes pay, recognition, promotion and development opportunities, and non-monetary benefits. The companys strategy must incorporate a compensation strategy that rewards performance. This should include individual merit increases, spelling out what performance objectives must be met to receive them. Southwest rewards employees, but individual rewards are limited to recognitions'. Total compensation must be individualized and should provide a wide array of potential benefits, such as bonuses, recognition, promotions, training, and more.

I would encourage "workout" events numerous time during the year allowing people at all levels of the organization to speak out and talk about ways of eliminating bureaucracy and roadblocks that were hindering the organization. As Jack said in Winning, I'm not saying that everyone's opinions should be put into practice or every single complaint needs to be satisfied. That's what management judgment is all about...but everyone should be heard and respected (2005). This will be a great way for Southwest to continue finding ways to operate as a low cost airline carrier in a competitive industry.

Conclusion

Southwest has built a great company based on the way it has managed its workforce. Leadership at Southwest has determined that its people are its single greatest strength and most enduring long term competitive advantage. Employees work harder every day to make the
11

company better. Southwest employees look forward to going to work and strive to do their best with a warrior spirit, a servant's heart, and fun loving attitude. With a workforce like this, Southwest will continue to be a low cost leader in the airline industry for years to come.

References

Araoz, C. (2007). Great People Decisions. NJ: Wiley. Becker, Huselid, and Beatty. (2009). Identify Strategic Positions. MA: Harvard Business Press, pgs. 1-37. Welch, J. (2005). Winning. NY: Collins.
1

http://meetingsnet.com/corporate-meetings/motivation-matters-southwest-employees-luv-theirjobs
2

http://www.awardco.com/4 reasons-employees-love-southwest-airlines

http://www.advancebusinessconsulting.com/advance!/strategic-alignment/strategic-alignmentbusiness-cases/the-rise-of-southwest-airlines.aspx
4

http://www.nytimes.com/2010/11/21/business/21south.html?pagewanted=all&_r=0
12

http://emilyblock.files.wordpress.com/2008/12/southwest-culture-shows-strain.pdf http://www.spiritmag.com/gary_kelly/ http://southwest.investorroom.com/company-reports

13