South West Airlines II

8/7/2019 South West Airlines II

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This case mainly discusses the changes that occurred in Southwestsculture in early 2000

and to what extent these changes were related to leadership issues

It also talks about the problems faced by Southwest ,some of which

were cultural and others external

James Parker the CEO and vice chairman of southwest airlines co.announced his resignation from the airline in July 2004

South west announced that Gary Kelly the airlines chief financial officerand executive vice president would be taking over as CEO immediately


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Southwest airlines was lauded for its work culture which was based

on mutual respect and trust among all employees and an informal and funloving atmosphere.

Herb Kelleher ,the airlines long standing CEO had a tremendousinfluence on its culture.

Kelleher retired in 2001 and was succeeded by James Parker

Under Parker the culture at Southwest underwent a transformation

HERB KELLER 1982-2001

JAMES PARKER 2001-2004

SouthWest Airlines Culture


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In 1966 ll r nd Rollin , n Ant onio entr epreneur o owned as all ommut er air servi e concep t ualized a low cost air line t at wouldprovide t e be st s ervice

In Janua r 1971 ,t e sout west managemen t appoint ed Lamar Muse ast e air lines 1st

out west ad its 1st prof itable yea r in 1973. In 1977 t e airlines st ockst art ed tr ading on t e New York st ock exchange

Kellehe r became the cha irman of southwest , and by 1979 , sout hwesthad st art ed f lying out of Texa s t o New Orleans

In 198 , Kellehe r t ook over as O and presiden t of sout hwest .


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Southwest was one of the biggest success stories in America. Upto 200 , the airline had 1 years of profits in a row.

Southwest achieved this by offering fares that were considerablylower than those of its competitors and emphasi ing customerservice

Southwest was able to achieve its low fares by eliminatingunnecessary cost . For instance , it never served mails on itsflights.

The Airlines utili es its employees in the most productive waypossible

This reduces the per unit labor cost and southwest needed only 0workers to fly and support each aircraft, as against 115 or more ata traditional full service airline .


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FEATURES OF SOUTH WEST AIRLINES

South west airlines is known as the pioneer of low cost airlines. Theyseek competitive advantage by keeping costs at the lowest possiblelevel

Some of their most efficient low cost features are

They are one class carriers

They do not offer additional features

They do not serve meals or drinks during the flight

Try to minimi e costs and increase revenue

inimum employees recruited

ajor part of their tickets sold over internet to cut labor costs


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In 2001, Kelleher stepped down as the CEO and president ofSouthwest.

He was succeeded by Parker

In the year following the /11 terrorist attacks on the US , southwest airlines was the only major airline that remained profitable , when

the other major airlines grounded more than 240 planes and laid off0,000 workers

Southwest reported a net income of $241 million and $442 million forthe years 2002 and 200 respectively


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TROUBLE BREWING:-

Things began to change at southwest in the early 2000s . The changeby a not apparent but analysts felt that that company was undergoing asubtle transformation.External factors like increased competition and rising fuel prices alsocontributed to the airlines troubles.

Labor Problems

Southwest had a reputation for being one of the best companiesto work for.

People loved working for southwest, because the company valuedits employees and gave them a lot of flexibility.

southwest motto was employees come first, customers comesecond. Kelleher believed that if employees were happy, it wouldbe reflected in their opinions and suggestions.


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The pilots at Southwest even signed a ten year long contract, whichshows the level of trust with the organi ation.

In 2002, the flight attendants union protested the pay and workingconditions of flight attendants at southwest.

The flight attendance also wanted better terms of working, whichincludes their not having to clean cabins between flights

The new terms for flight attendants were expected to increase theairlines already soaring labor cost considerably.


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Customer RelationsW ith a change in external factors, Southwests relations with

customers also began to change.

South did not assign seats on its flights and customers were seatedon a first come first serve basis.

Southwests lightly staffed airport systems made it difficult to gettickets fast and people had to stand in line for a long time

The airlines refusal to accept e-mail inquires also lowered its

popularity with customers


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RISING COSTS :-

It started rising costs in the early 2000s . Its second quarterprofits fallen by 54%.

This was attributed to rising fuel price and an early retirement plan

that more than 1000 of the airlines employees accepted .IN 2004, southwest labor cost as a proportion of operating cost

where almost on a par with the full service carries and merge higherthan that of other low cost airlines


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Airline Cost of Labor(%)

Delta 43.4

American 42.3

US Airways 42.3

United 41.8

Southwest 39Northwest 38.2

Alaska 34

Continental 32.3

JetBlue 30.9AirTran 28.5

America West 27.3

L abor Cost as a Percentage of Operational cost in Q2 2004


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LOOMING COMPETITION :-

The competitors for southwest airlines were JetBlue and AirTranThese airlines set up with southwest as the model some of them had

departed from the no frills approach and were emphasi ing slick andstylish service.

JetBlue offers more legroom comfortable leather seats set backtelevision sets and free internet at some of its lounges

In early 2004, an annual airline quality survey rated JetBlue andSouthwest first and third, respectively, in quality

The competition had become significant in low cost airlines market inlate 1 0s and early 2000s,Considering the number of players who hadentered the market


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AirlineAssignedSeats

Ticket-ChangeFees food In-Flight Entertainment

southwest No No Snacks Only Wisecracking flight attendants

AirTran Yes $50 Snacks Only Nothing right now

JetBlue Yes $25 Snacks Only DirecTV at each seat

Song Yes $25Meals forSale

Satellite TV at each seat;pay-per-view movies; video games

Ted Yes $ 00Meals forSale Nothing special

Comparison of Services of low Cost Airlines


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DID SOUTHWEST CHANGE

Southwest had always been associated with Kelleher, who has acharismatic leader on influence a great deal of culture of at theairline.

He was also a hands on leader and involved himself in all

activities of the airline.Southwest employees worked much harder then their

counterparts at other airlines did.

They have a cross utili ation of labor which leads to save laborcost and achieved faster turnarounds

The problems that southwest began in early 2000s southwestemployees had begun to disassociate themselves with the company

Parker was reserved where kelleher was unconventional soem lo ees found the chan es too drastic


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CONC L USION

Succession planning is thought to be one of the functions of topmanagement. It assumes even greater important at companiesthat have long been associated with a dynamic and charismaticleader.

Kelleher stepped down as CEO of southwest in 2001 and parkertook over

Parker was the CEO of southwest for the three years from2001-2004

He managed to keep the company profitable in his three years.


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He was st aid and reserved , where Kellehe r was out going and unconventional,and employee s found t he change t oo drasti c.

Af t er arkers r esignation, Kelly t ook over as O of sout hwest. Kellysbiggest cha llenge would be t o ree st ablish t he employee orient ed culture.

The best way fo r sout hwest t o ret ain its s uccess , s aid analysts would be t o sti ck t o its original business model of providing t he best s ervices at t he lowest fa res.

I t is t o be seen whet he r t he new O ary Kelly would be able t o change t he culture fo r t he be tt er and replace Kellehe r at t he he lm


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South West Airlines II

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