Just Plane Smart
Harvard Business School Case Study Summary
Abhishek Mehra Saruabh Ranadive
Balaji P Sarang Bhutada
The setting About Southwest
Its summer of 1993
Started as a intra-state operator in
Southwest is expecting delivery of two Texas
uncommitted planes
Budget airline philosophy, survived
McGlade needs to find a way, to put a severe price-war
these planes in operation, keeping the
organizational objectives are intact Operating out of Dallass Love Field
airport, hence the ticker LUV
Final decision would have to preserve
the Southwest culture and spirit 7th largest in the country by April
1993
12 time winner
of the coveted Expanded to become a national
triple crown carrier, serving major cities
award
Short-haul, high-frequency, low-
cost strategy
The Southwest Model
People skills of Southwest
Compensation
Hiring
-Varied with position
- Identify attitudes rather than skills - At par with industry norm
- Rigorous interviewing - Pension through a profit-sharing
- Peer hiring 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
Structure Advancement
-Centered on team-building -Recognition, an important element
- Cross-training encouraged - Celebrations quite common
- Broad latitude offered - Most promotions internal
- 10% of stock held by employees
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: Target Market:
Southwests product is travel Market Segmentation
cost- and value-conscious consumers.
Competition - not just other airlines mostly male
but any mode of transportation. small business executives
travel short distances
frequent, conveniently timed flights prefer low cost fares
and low fares. frequent schedules
point-to-point route system as
compared to hub-and-spoke The other half consists of
direct nonstop 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 Product Positioning
only low-fare
11 major carriers (2003): short-haul
4.Alaska Airlines high-frequency
5.Aloha Airline point-to-point carrier
6.America West fun to fly
7.American Airlines
8.Continental Airlines
9.Delta Airlines Average cost of serving meals per
10.Northwest Airlines passenger in the industry - $5
11.TWA For Southwests -20 cents
12.United Airlines Seemingly weird things-
13.U.S. Air Not assigning seats
14.Southwest Airlines Weird Color Scheme
Southwests brand exudes an element
of fun: Obviously Fun
Love Theme,
Love Potions(on-board drinks)
Love Machines( ticket writing
machines)
Product Positioning Marketing Strategies
Southwest offers a travel product that is
Example of Southwest Airlines built around flights targeted to specific
nuttiness - demographics and ticket pricing that is
use of the word love simplified so that passengers know
exactly what they are getting for what
One ad titled "How Do We Love they pay.
You?" - flight schedule.
Building Brand Loyalty
Another ad titled "We're What is the Southwest Effect?
Spreading Love" - the rapid 6.Air fares go down
growth of the airline. 7.Tourist traffic increases
8.Economic mini-boom ensues
Word "love - dedication to
customer service
Marketing Blitz !!!!
- Smart Campaign
Pricing Strategies Distribution and Promotion
3.Charge the lowest possible fare
4.Compete with all other forms of Product Distribution Strategies
transportation, including SWA does not rely on travel agents
automobiles Travel bookings - direct marketing
Does not interline or offer joint fares
with other airlines
Instead of increasing fares when
market gets busier and more people
are flying, it simply increases the
number of flights. 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 Advertising
Southwest Airlines wants to Dont believe the hype.
differentiate itself from other airlines
as the airline that can get passengers to Fares offered by other discounters
their destinations when they want to and airlines on the Web are not good
get there, on time, at the lowest buys.
possible fares while having fun.
Southwest attempts to do three
Frequent Flyer Awards things in their advertising:
Rapid Rewards-based on number of 8.intrigue
trips taken 9.Entertain
10.persuade
Way of showing Southwests
philosophy that every customer is
equally important as the other and Wed like to match their new fares
making ALL passengers feel special. but wed have to raise ours!!"
Television Sports Advertising
Internal Marketing
4.Sports television programming
5.Reaching the corporate set via sports
and other venues Core Business - Customer Service
6.In 2000, Southwest renewed its businessthey just happen to provide
multi-year sponsorship agreement airline transportation
with the National Football League
(NFL). Southwests philosophy - Service for
Smiles and Profits
Encourages employees to treat
Public Relations customer service as the most
important aspect of their job
11.Aims for Free publicity
12.Triple Crown Award for the fifth
time in a row CEO Kelleher, "We want people who
13.Named a plane Triple Crown One do things well, with laughter and
and painted 24,000 employee names grace."
on it
OPERATIONS
Did all of its ticketing (not making Travel agents had to contact the airlines
seats available through directly to book seats
computerized systems)
Did not operate in the hub-and SWA passengers flew non-stop origin to
spoke route system destination. Did not promote
connecting services
Flew into uncongested airports of Savings in reduced taxi time, fewer gate
small cities, less congested holds and less in-air waiting time
airports of large cities
It doesnt coordinate its services with
Did not transfer baggage directly other airlines
to other airlines
Only drinks and snacks often
peanuts served on board
OPERATIONS
84% unionized labor force but its Usually do not share the ground
labor relations were excellent handling crew until unavoidable
Only flew Boeing 737 - Fleet of Other airlines flew variety of jet
150 and avg of 1500 trips per aircrafts, as many as 5 distinct ones
day. including McDonnell Douglas, Airbus
and Boeing
737s had average life of 20 years
Average age of SWA was 7
years(lowest in the industry)
US industry average was 55 mins.
Differentiation in terms of
turnaround time , 2 out of 3
planes were turned-around in 15
mins.
COST CONTROL
Airlines dont 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 dont 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.
Revenues per employee
Revenue Vs. Employees ( DEA )
North west
South west
Number of employees
Ground crew staffing efficiency
Wages as % of total expenses 29.78% ( Industry average = 35.17%)
Lowest among Non-Chapter11 Airlines for the year 1992 . How was it possible ?
Ground Crew Staffing Levels based
on number of departures at an
each additional trip
Employee required per
Average Southwest city
Marginal emp
reqd per
Departures People departure
10 35 3.5
20 45 1.5
30 60 1.5
60 120 2
Number of departures from a city
Competitors runs with at least three times as much staff .
E.g., South-West effect on Burbank Oakland market.
Employee productivity (1992)
3500
3000
2500
2000
RPM per
1500 employee(000)
1000 ASM per
employee(000)
500
ASM+RPM
0
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ASM: Average Seat Mile ; RPM : Revenue Passenger Mile
CONCLUSION
South West Airlines built numbers on its culture where as most
competitors let the culture to shape up by their focus on numbers
NUMBERS
Other large Airlines
F
CULTURE
O CULTURE
SCHEDULING
SCHEDULING C F
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STRATEGY
U C
STRATEGY
U
S NUMBERS
S
Thank You
