Analysis of Southwest Airlines Essays

Analysis of Southwest Airlines Essays Analysis of Southwest Airlines Paper Analysis of Southwest Airlines Paper Analysis of Southwest Airlines Module: Business Management Vanessa Eelma Alyssa Julianna Farkas Thomas Schillinger Peter Lukacs Attila Radvanszki Adam Radvanszki 29th November, 2010 Word Count : XXXX Contents 1. Introduction3 2. Literature Review4 2. 1General Introduction of Theories Used4 2. 2SWOT Analysis4 2. 3External Factors4 2. 4Organizational Structures4 2. 5Hofstede’s Theory5 2. 6Cultural Elements5 2. 7Motivation5 3Analysis of Southwest Airlines5 3. 1Industry5 3. 2Company’s Overview6 3. 3SWOT Analysis7 . 4External Analysis8 3. 5Organizational Structure8 3. 6Hofstede’s Theory9 3. 7Organizational Culture9 3. 8Motivation10 4. Conclusion and Recommendations11 5. References11 6. Appendices13 1. Introduction The chosen company for the analysis is called Southwest Airlines. It’s operating in the tourism industry, providing air travel. The company’s main differentiating attribute from its competitors is the main reason for our choice. The business is known for its cabin crew and outstanding customer service. This is proven by numerous prizes and awards that the company has won in the last three decades. In 2008, TIME. com ranked the company as the #1 Friendliest Airlines. According to their website their aim is: â€Å"To get the passengers to their destination safely and comfortably with a laugh or two along the way†. It is their attitude that caught our attention and encouraged us to analyze it in a deeper matter. The organization allows their employees to be innovative and individual with their daily tasks and duties. This ensures a pleasant work environment for the employees who then provide a good service to the customers. One of the qualities of Southwest airlines is „to do things differently†- meaning for example the explaining of safety regulations is made more entertaining by the cabin crew’s rapping while the customers are clapping along with the beat. A clip on Youtube of the described scenario got over 300  000 views and put the Southwest Airlines in the media light. This shows how outstanding organizational thinking and great human relations in treating the employees as individuals and letting them contribute with innovation can create an authentically friendly image and trough that, differentiate from the competitors on the market and achieve success. We believe that Southwest Airlines is a very successful company in its industry, and will continue being it if the organization’s management sticks to this spirit and open minded way of thinking. 2. Literature Review 2. 1 General Introduction of Theories Used To strategically analyse an organization, there are certain analytical techniques that come in handy. Firstly, we have chosen the SWOT analysis to evaluate the internal and external components. More closely, we look into the details of the external factors to see how the business is affected by them. Secondly, we decided to get insights into the company’s structure and decision making process. Thirdly, we decided to analyse the cultural effects and factors through Hofstede’s theory. We also go into more details to comprehend the company’s national culture. Last but not least, we decided to see what kind of motivation systems are used in this company. 2. 2 SWOT Analysis According to Tatum (2010), the SWOT Analysis is a strategic planning tool that includes external and internal factors and is utilized by businesses and other organizations to ensure that there is a clear objective defined for the project or venture, and that all factors related to the effort positive and negative are identified and addressed. The process of SWOT involves four areas of consideration: strengths, weaknesses, opportunities, and threats. 2. External Factors External factors of a business organisation can be divided into two parts: Macro-environment and Micro-environment. Macro-environment factors are the SLEPT factors: Social, Legal, Economic, Political and Technological. These factors affect the decisions of the managers. Micro-environment factors are much less controllable. Certain industries are also affected by Porter’s â€Å"Five Forces† model (especially the air travel industry). 2. 4 Organizational Structures This refers to the way an organization arranges its employees and jobs in order to meet their goals. If the group is very small and there is active communication, a formal structure is often not necessary. However, if we are dealing with a larger organization, it is often harder to make decisions and therefore, there must be established procedure for tasks and responsibilities’ allocation. 2. 5 Hofstede’s Theory Hofstedes research gives us insights into other cultures so that we can be more effective when interacting with people in other countries. It includes areas, such as Power Distance, Masculinity, Individualism, Uncertainty Awareness, and Long-Term Orientation. . 6 Cultural Elements According to Bauer and Erdogan (2009), culture may not be immediately observable, identifying a set of values that might be used to describe an organization’s culture helps us identify, measure, and manage culture more effectively. The organization culture profile described by Bauer and Erdogan includes 7 main dimensions – innovative, aggressive, outcome-oriented, stable , people-oriented, team-oriented, and detail oriented ( (Please see the Appendix 1 for visual information). 2. 7 Motivation Motivation consists of internal and external factors that stimulate the desire and energy in people to be interested and committed to a job. They put persistent effort into their jobs in order to reach the goals. 2 Analysis of Southwest Airlines 3. 8 Industry The recent economical and financial downturn severely impacted the airline industry in 2009 and brought only small increases in 2010. The recession negatively influenced the discretional income of travellers. More precisely, the leisure travellers’ and business travellers’ budget changes resulted with a sudden decrease in their demand. Therefore, corporate policies tightened and generally the demand for travelling decreased. On the other hand, demand for substitute products, such as video conferences and surface travel, has increased. As a result, many airlines, including Southwest Airlines, responded with capacity cuts and fare discounting. On the other hand, Southwest used the opportunity also to further expand and because of its low-fare services, it could enter new markets as well. 3. 9 Company’s Overview Southwest Airlines is described on the NASDAQ profile as â€Å"a major passenger airline that provides scheduled air transportation in the US†. The company primarily serves short-haul routes, but over the recent years they have expanded their services to medium and long-haul routes as well. Their unique feature is that it only operates with Boeing 737 as it is a domestic low cost carrier company and it was necessary to have aircrafts that are easy to maintain and repair. If a company only uses one type of aircraft, the technical issues are easy to minimize. It is important to mention that according to its annual report (2009), its low fare system and point-to-point service, despite the overall decline in the aviation industry in the 2009 recession; Southwest expanded by opening four new routes ( New York, Minneapolis, Boston and Milwaukee). Based on the most recent data available from the U. S. Department of Transportation, it was the largest air carrier in the United States (measured by the number of originating passengers boarded). Today, the company’s headquarter is in Dallas, Texas and employs 34,726 people. Based on the company’s NASDAQ profile and according to the annual report of Datamonitor, Southwest recorded revenues of $10,350 million during the financial year ending in December 2009, a decrease of 6. 1% compared to 2008. The operating profit of the company was $262 million during 2009, a decrease of 41. 6% compared to 2008. The net profit was $99 million in 2009, a decrease of 44. 4% compared to FY2008. Their New York Stock Exchange ticket is LUV, which is cleverly used also in their internal and external marketing as well, connecting it as an easy going way of saying LOVE. 3. 10 SWOT Analysis Strengths Applying Herb Kellehers unorthodox leadership style, which executes a different hierarchical framework to solve the customer problems more efficiently. Employees can ask for advice more flexibly because if necessary they can go around the direct superiors. * Unique features: â€Å"Bags fly free †promotion,â€Å" Ding desktop gadget for tickets and an â€Å"Online T ravel Guide Community† feature. * Providing point-to-point, and low cost service. Which results in the optimizing the key assets (aircraft, gates, and employees). * Specialâ€Å"In-Flight Entertainment† as product differentiation. * Saving maintenance expenses by using the same air carrier. Using SWABIZ a free online reservation tool specifically designed for business travellers. * Executing a remarkable fuel hedge strategy that saves the airline vast number of costs every year. Weaknesses * Not using the usual â€Å"Reserved Seating† and seat scaling of different classes. * Being dependent on a single manufacturer (Boeing) * Onlyon domestic market. Opportunities * Room for expansion still exists (national and international markets). * Rapid growth of Hispanic population could serve as the basis of a new marketing campaign targeting the Hispanic youth as their future target segment. Offering private flights designed for business travellers, Southwest could reach out to a very profitable segment. * Investing in technology could increase the company’s profitability by reducing costs or by offering more unique services. Threats * Satisfying the passengers’ demand of different classes without scattering the image. * Since the pilots’ average fly ing hours were above the industry’s hours and the flight attendants are cleaning the planes, employee dissatisfaction could increase and result in lower customer service. Constant updates on competitors’ online ticket reservation systems. * The economic phenomenon of fuel price fluctuation. * The security issues after 9/11. * The appearance of legal regulations that might impact the use of Boeing 737 (noise reduction policies etc. ) To correctly interpret the above data, it is important to realise that Southwest has much less weaknesses than strengths, both external and internal. In addition, if we carefully observe those weaknesses, they are actually the characteristic features of low cost carriers. Therefore, they are not considered as real weaknesses that could ultimately be solved in the future. Moreover, the unique fuel hedge strategy they have protects them from most external threats. The organizational culture they have developed protects them from most internal threats. 3. 11 External Analysis In case of the Airline industry, this is the most important force nowadays, since the market is completely oversupplied. However, Southwest has performed extremely well in recent years but the new low-cost entrants remain as potential threats. 3. 2 Organizational Structure The organizational structure of Southwest is a typical hierarchical structure – centralized and formal. According to Rivera et al. (2003), only the Executive Vice Presidents and top managers have the task of reporting directly to the CEO and they are also the ones who are responsible for making strategic decisions that are significant for the future of the organization. It seems that the CEO and top managem ent team trust the middle managers. Moreover, the top managers make themselves available to employees on the front line. Southwest has a „Loose tight design† (Buller 2006). Employees are encouraged to try new things because they have an informal job description. In addition, they are also given the freedom to innovate as long as they keep the necessary safety standards. They do what is necessary in order to satisfy the customer needs. Besides the customer awareness system the company provides â€Å"room to grow†. The top management team develops leadership and communication skills for lower level management, and 90% of supervisory positions are filled internally. Therefore, it follows both a mechanistic model and an organic model. The first model is used on the upper level (corporate office and cabin crew) and the organic model is used where safety and time is not of high priority. 3. 13 Hofstede’s Theory * Power distance: Employees have informal job descriptions and are encouraged to be innovative. We can say the less powerful members of the organisation accept that power is distributed unequally because they are satisfied how they are treated. * Uncertainty avoidance: It’s quite low because employees are not afraid of ambiguous situations. Roles are less written down than among other competitors. Employees use their image and knowledge. * Individualism: Team work is an essential requirement at Southwest. However, the evaluation of employees is based on individual performances (e. g. collecting compliment cards from passengers can result in promotions). * Masculinity: Southwest Airlines is a feminine company. Cooperation plays significant role; the atmosphere is friendly and the stress level is low. * Long-Term Oriented: They have a way of thinking and acting that it is better to move at a slow pace and do it well. The proof of that is the fact how many restrictions they had in the beginning yet made it to the level they are at today. 3. 14 Organizational Culture Southwest Airlines has a very team-oriented culture. They cross-train their employees so that when there is any need, they can help each other. Furthermore, the company emphasizes on the importance of intact work team. They have daily meetings twice a day („Morning overview meeting† and „Daily afternoon discussion†). In those meetings, they try to understand the problems and potential solutions as a team. Moreover, when the company hires people, one of the key characteristics that they look for is being a team player. If the candidate doesn’t fit those criteria, he/she is not hired. This is a great culture, as the interpersonal relationships in the company are much less tense and less competitive, which eventually creates a positive work atmosphere and employee loyalty to the company. Not only is there a good attitude among the employees, but also among the workers and their managers. Even though Service is not included in those dimensions, Southwest Airlines is very strong in that area too. This means that the employees are taught to serve the customers well (â€Å"The customer is the king†). Employees have the power to decide to solve issues with the customers – they decide on the right course of action as they have direct contact with the customers (Please see Appendix 2 for more details). 3. 15 Motivation Southwest Airlines is a perfect example of how the employees are motivated to such high degree that they „Luv† their job. The employees can come to work dressed in shorts, sneakers, and polo shirts. They’re encouraged to be positive and joke around (hence the name „Fun-in-the-sky airline†). The CEO, Herb Keller, believes that a company is stronger if it is bound by love, rather than fear. Southwest Airlines has become one of the most loved companies in the world and even their mission explains why – „Employees are our first customers†. It makes sense – if you treat the employees well, they treat the customers well. They send cards to all of their employees on their birthdays, anniversary of employment, Thanksgiving, and Christmas. Furthermore, they have fun competitions held regularly (e. g. Halloween costume contest, Thanksgiving poem contest, an Annual Chilli Cook-off). They have also received awards for being the best for on-time performance and baggage handling and the least complaint receiving, which also motivates the employees. The employees are also rewarded and recognized if they have performed outstandingly. 4. Conclusion and Recommendations Alyssa 5. References 1. Southwest Airlines (Internet) Available from:†¹ southwest. com/about_swa/why_fly_southwest. html †º [Accessed on November 24. 2010] 1. Youtube (Internet) Available from: †¹ youtube. com/watch? v=tnOxvbGOTbM †º [Accessed on November 24. 010] 2. Naylor, J. (2004), Management, Prentice Hall Financial Times, the United Kingdom 3. Bauer, T. amp; Erdogan, B. (2009) â€Å"Organizational Behaviour† Available from : †¹ flatworldknowledge. com/node/28971#web-28971†º [Accessed on November 24. 2010] 4. Nelson, B. (2002) â€Å"Motivation Matters : Southwest Employees LUV their job† Available from : †¹http://meetingsnet. com/corporatemeetingsincentives/meetings_motivation_matters_southwest/†º [Accessed on November 24. 2010] 5. Tatum, M. (2010) â€Å"What is SWOT Analysis? † Available from: lt; isegeek. com/what-is-swot-analysis. htmgt; [Accessed on November 23. 2010] 6. ‘May 2009 Airline Traffic Data: System Traf fic Down from May 2008’ Available from: lt; bts. gov/press_releases/2009/bts039_09/pdf/bts039_09. pdfgt; [Accessed on November 23. 2010] 7. Southwest Airlines (2010) Available from: lt; southwest. comgt; [Accessed on November 23. 2010] 8. (2010) Southwest NASDAQ profile Available from: lt;http://quotes. nasdaq. com/asp/SummaryQuote. asp? symbol=LUVamp;selected=LUVgt; [Accessed on November 23. 010] 9. Southwest Annual Profile (2010) Available form: †¹ datamonitor. com/store/Product/southwest_airlines_co? productid=DEFBDE99-9B78-4A63-BE9C-7EA7568D476E†º [Accessed on November 23. 2010] 10. Heynold, Y. and Rosander, J. (2006) â€Å"A new organizational model for airlines† Available from: †¹https://www. mckinseyquarterly. com/A_new_organizational_model_for_airlines_1700†º [Accessed on November 23. 2010] 11. Unknown Author, â€Å"The Airline Industry And Porter Five Model Forces† (2010) Available from: †¹ oppapers. om/essays/Airline-Industry-P orter-Five-Model-Forces/122555†º [Accessed on November 23. 2010] 12. â€Å"Organizational Culture and Management at Southwest Airlines† (2009) Available from: †¹ docstoc. com/docs/9480710/Organizational-Culture-and-Management-at-Southwest-Airlines†º [Accessed on November 23. 2010] 13. Brews, P. J. amp; Tucci, C. L. (2004), â€Å"Organizational Structure† Available from: †¹ oppapers. com/essays/Airline-Industry-Porter-Five-Model-Forces/122555†º [Accessed on November 23. 2010] 6. Appendices Appendix 1: The Organization Culture Profile Appendix 2: