Southwest Airlines in 2014:

Culture, Values, and Operating Practices

BS in Management - IV
MGT 190, MTh 1:00-2:30pm

The following are the right things done by Southwest Airlines:

1. Past Battles Fought. When Southwest Airlines was still new in the airlines industry,
it faced many legal, regulatory, and competitive conflicts. One of the first battles the
company fought was its refusal to transfer its flights from Dallas Love Field to the
new DFW Regional Airport. The next conflict happened when the rival airline
companies opposed Southwests application to start serving more small cities in
Texas. Another fight happened when Southwest persuaded the U.S. government to
investigate the predatory tactics by its major competitors, Braniff International and
Texas International. In these battles, the company won. These very competitive
battles have greatly contributed to the strong culture among the employees of
Southwest Airlines.
2. Organizational Culture. The past battles fought by Southwest are instrumental to
strengthening the loyalty and enthusiasm among Southwest employees. Southwest
Airlines has a strong combative, can-do culture. The things that contributed to the
strong culture of the company are: (1) selective and rigorous recruitment and
selection process, (2) systematic training and coaching of new employees, (3)
employee empowerment and acknowledgment, (4) senior management support, and
(5) ingrained values, principles, and norms. Having a strong culture is very valuable
for all Southwest employees to work together to achieve the companys goals.
3. Sustained Growth. Through the years, the sustained growth of Southwest Airlines
made it the market share leader in domestic air travel. The airlines company
consistently prospered despite the changes in leadership. There was consistent
growth in revenues, number of employees, number of planes, number of airports,
number of states and destinations served, and number of passengers transported.
Southwest also won more awards and recognitions.
4. The Employee-First Principle. Former Southwest CEO Herb Kelleher believed that
employees must be treated right first for them to also treat the customers right.
Southwest believes that superior customer service will be achieved not just only
having employees who are passionate about their jobs but also those who know and
feel that the company is concerned for them and gives them job security. The
thoughts and opinions of the employees are listened to and respected by the
management. It is the people who make Southwest Southwest. The employee-first
principle makes employees more passionate than any other motivational program or
monetary/non-monetary benefit. It shows employees that the company respects them
especially for the value and success they bring.
5. Executive Leadership. The companys investors are concerned about its leadership
succession plans but Southwest was able to orderly and properly transfer power and
responsibilities from one executive leader to another. The strong culture of the
company was not shaken up by the changes in executive leaders since the new
leaders selected were said to think much similar with the former leaders. Like the
former executive leaders, the new ones also are honest, truly know Southwests
culture, and have a good sense of humor, though there may be a few differences in
their character and experiences. Effective business leadership is paramount to
setting the goals for Southwests success.
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6. Low-Cost, Low-Price, No-Frills Strategy. Southwest Airlines charges lower fares

compared to its competitors, thus, it also has a low-cost operating structure. Despite
this, the company ensures that it still provides its customers a fun, high-quality travel
experience. The companys fare structure strategy allows its customers to easily
choose the fare they want. Despite the other airline companies starting to charge
additional fees, Southwest still stuck to its all-inclusive fares. To trim costs, the
company used only the Boeing 737 aircraft for all flights, had direct flights instead of
the usual hub-and-spoke system, and performed cost-effective value chain activities.
Southwest Airlines also implemented ticketless travel, online ticket purchase and
reservation through its website.
7. Fun and Friendly Customer Service. To build loyalty among its customers,
Southwest provides a fun travel experience specifically through its employees who
have good interpersonal skills, cheerful personality, and sense of humor. Gate
personnel entertain customers through trivia questions and contests and flight
attendants make customers smile and laugh. Kelleher and Barrett acknowledge and
congratulate these employees who are part of the companys success. The
customers travel experience is further improved by improving the facilities and
services of Southwest such as adding business and family areas and free wireless
Internet service and introducing its own mobile website and application. High-quality
customer service will not just improve customer satisfaction and loyalty but will also
lessen marketing costs, improve employee pride and satisfaction, and enhance
competitive advantage.
8. Rapid Rewards Frequent-Flyer Program. Another way done by Southwest Airlines
to strengthen loyalty from its customers is through its Rapid Rewards Frequent-Flyer
Program. Members earn points when they buy tickets and the amounts are based on
the fare and fare class chosen by the members. Members can also earn points when
they buy in Southwests Rapid Rewards Partners such as certain hotels, restaurants,
car rental agencies, and retail locations. Another good thing with this frequent flyer
program is that the points earned will not expire as long as the member has been
active for the last 2 years. Loyalty programs like this is very beneficial because they
increase revenues, make customers happy, and boost the companys reputation.
9. Witty Marketing and Advertising Strategies. The advertisements of Southwest
Airlines are really attention grabbers and this fact led me to think that their witty
advertising is one of their competitive advantages which made them successful in the
airlines industry. Their witty advertisements are aligned with their fun culture. One of
Southwests amusing advertisements is Wed like to match their new fares, but wed
have to raise ours. Southwest has also been clever in implementing their love
campaignDallas Love Field, the tagline Now theres somebody else up there who
loves you, the Love Triangle, Love Birds, Love Potions, Love Bites, Love Stamps,
Love Machines, and lastly, the stock trading symbol LUV.
10. Selective & Rigorous Recruiting, Selection, and Training Process. Southwest
Airlines prefer unskilled people with good attitudes since they firmly believe that it is
more difficult to change ones attitude. Southwest makes sure that the employees
hired are a perfect fit to the company and its culture. The employees should live the
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Southwest Way by possessing a warrior spirit, leading with a servants heart, and
having a fun-LUVing attitude. Employee training is led by the Southwest Airlines
University which offers courses to new hires, employees, and managers. The
company believes that learning is a continuous process, thus the constant need for
training.
11. Promoting from Within. The management of Southwest Airlines believe that
employees who have already experienced and lived the Southwest Way would be
more fit and appropriate for new supervisory or other high positions offered in the
company. Promoting from within is advantageous because it is less costly, inside
hires have a higher performance level than outside hires, employees work harder to
be promoted, and job security is given to employees.
12. Employee Compensation & Benefits. According to Exhibit 12 in the case,
Southwest Airlines is the most competitive airlines company when it comes to
employee compensation and benefits. The company provides the highest amount of
compensation and benefits for their employees, especially that it follows its
employee-first principle. Southwests competitive compensation and benefits would
lead to higher employee motivation and retention.
13. Wide Job Classifications. Based on the contracts of Southwest with the employee
unions, the employees are not bound by limiting work rules and narrow job
classifications. Any qualified employee could perform any action. For example, flight
attendants could clean the inside of the plane to prepare for the next flight, thus
lessening costs and saving time for the company itself. This allows Southwest
employees to become more productive.
14. The No-Layoff Policy. Since Southwests birth in 1971, it has never laid off any
employee. This policy supports the employee first principle and the organizational
culture. Since the company is very selective in its employee selection process, it is
just appropriate for it to maintain its employees. The company believes that keeping
their employees builds trust, loyalty, and security.
15. Employee Empowerment. Following its employee-first principle, Southwest Airlines
empower its employees by giving them the responsibility to lead the company.
Employee-led initiatives are done and are encouraged in the company. Rather than
buying 800 new computers for the new reservations center in Albuquerque, the
employees just bought parts and formed the PCs themselves. The employees were
also responsible for the removal of company logos on trash bags and the introduction
of e-tickets. This employee-led initiatives greatly helped Southwest in trimming its
costs.

These are the problems of Southwest Airlines:

1. Fuel Hedging. It was a good thing that Southwest was the first one to use fuel
hedging to offset price increases of crude oil and jet fuel. Fuel hedging helped the
company to lessen a great amount of costs. However, the company failed to have
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correct fuel hedging predictions as they had a huge amount of losses in late 2008
and 2009.
2. Heavy Dependence on a Single Aircraft Supplier. Southwest Airlines has been
heavily dependent on Boeing for its aircraft fleet. Although this is a good thing since
the two companies have already established a strong relationship between them, this
might also be a bad thing. If the products and services of Boeing deteriorates or if
their prices rise, Southwest would surely be affected. This could also cause
bargaining issues and if Boeing goes out of business, Southwest would surely face
big problems such as delays in looking for new suppliers.
3. Lack of Other Value-Adding Products, Services & Facilities. Passengers on
flights are only given snacks and beverages, no meals are served. Certainly there
are passengers, especially businessmen, who are busy and do not have enough time
to eat so later they would want to take meals during the flight. There are also no firstclass sections in Southwest planes and no fancy clubs where passengers could relax
at terminals. These lacking services could later become reasons why Southwest
Airlines might lose customers.
4. Integration of AirTran into Southwest. Southwest has a strong culture so clearly, it
would be difficult for AirTran employees to adapt to the Southwest Way. Integrating
the employees into the Southwest way is surely a big challenge to the company.
AirTran employees will be retrained by Southwest. It is also a challenge for the
AirTran employees to learn and live the strong corporate culture of Southwest.
5. Problematic Statistics. Based on Exhibit 13 in the case, Southwest Airlines has
problematic statistics compared to its rival companies. Southwests percentage of
scheduled flights arriving within 15 minutes of the scheduled time has declined from
78.7% in May 2000 to 76.7% in May 2013. The companys mishandled baggage
reports per 1,000 passengers increased from 3.08% in May 2012 to 3.72% in May
2013. Lastly, the complaints per 100,000 passengers boarded against Southwest
increased from 0.14% in May 2011 to 0.36 in May 2013.

The following are recommendations to address the problems and further improve the
performance of Southwest Airlines:
1. Continue the Good Things Theyre Doing. It is recommended that Southwest
Airlines shall continue with the good things theyre doing, those that were discussed
in the first part of this report, such as its strong can-do culture, low-cost strategy,
employee empowerment, and the bag free policy. The good things Southwest is
doing are the sources of its competitive advantage so the company should continue
doing or even improve them.
2. Improve Fuel Hedging Predictions. Southwest lost a great amount of money when
they were wrong in their fuel hedging predictions. To avoid great losses, the company
should further improve their fuel hedging predictions. Southwest Airlines can hire
professional risk managers that could surely help them manage their fuel risks more
efficiently and help them reach their financial and business goals. Southwest Airlines
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should also be always updated with the latest global news especially those that could
affect the prices of oil and fuel.
3. Look for Additional Reliable Aircraft Suppliers. Aside from Boeing, Southwest
Airlines could look for additional aircraft suppliers to lessen their dependence on
Boeing. Just like the recruiting and selection process of Southwest for new
employees, the company should also be selective and rigorous in its supplier
selection process. Southwest should be able to find new suppliers which are as
reliable and high-quality as Boeing, or even much better, if there is.
4. Add More Important Products, Services and Facilities. Southwest should
consider offering meals during flights for their passengers. First-class air travel could
also be introduced because it can increase the revenues of Southwest. First class
passengers are offered better food or menu options than the other passengers and
also enjoy wider seats and space. First-class air travel is suitable for tired and busy
businessmen who are part of the market served by Southwest. Offering a wider
variety of products, services, and facilities would surely improve customer service
and loyalty.
5. Prepare for the Integration of Southwest and AirTran. AirTran employees should
be given the opportunity to see and experience themselves the culture of Southwest
Airlines. They should also be trained under the Southwest University for the People
and be taught with the same courses the Southwest employees were offered to be
fair and consistent. Since AirTran has international flights, Southwest should study
international regulations especially in those locations which are served by AirTran to
avoid conflicts.
6. Improve Statistics. To improve customer service, Southwest should improve its
statistics (Exhibit 13) compared to its competitors. The company should focus on
customer complaints specifically regarding mishandled baggage reports and delayed
flights so that they would not lose customers and revenues. Since only a few
customers tend to voice out their complaints, Southwest could also survey their
customers to gather more responses about their customer service and other
important aspects. Southwest should be better at complaint handling to further gain
the trust and the loyalty of their customers.