“We consider the operations function an integrated system that obtains the necessary inputs, transforms them to make them desirable for the customer, (‘adds value to them’)…”(Dilworth, p. 3) An outstanding example of how operations integrates the functions that forecast and meet demand and help the company earn a profit, is Southwest Airlines, arguably the most profitable U.S. airline, even though, for the most part it flies only short-haul distances.
Flying on Southwest Airlines is not the most comfortable way to go. Usually, the planes are jammed full of vacationers and families including children, as well as business travelers. Seats are crammed together. There is no advance seat reservation system. The crowds at the departure gates are usually enormous. Yet, somehow, through it all, Southwest is tremendously successful. In TIME Magazine’s issue of May 1, 2000, Southwest continues to be rated No. 1 in on-time arrivals and departures and in overall quality ratings. How does it do better than the large, established airlines? Is it luck, merely low fares, or careful planning to meet a certain demand? “Economic history shows that an airline based solely on lower airfares does not work…Customer service is the only strategic marketing tool a carrier can use to pull passengers from an established airline.” (Donnelly, p. 53) Thus, calling Southwest merely a low-cost carrier would be doing its careful planning and its successful marketing strategy a disservice.
The airline industry, constantly in flux, consists of regional carriers, short-haul and large-scale airlines. Southwest is the most profitable airline in the U.S. for reasons
That were founded by its long-time President, founder, CEO, and frequent traveler, Herb Kelleher. Southwest Airlines was formed in 1966 as a short-haul airline servicing the “triangle” of Houston, Dallas, and San Antonio, with low pricing made possible since it was an intra-state carrier, avoiding certain Federal Regulations. Its customer base, which has continued to the present day, consisted of time-oriented business travelers and price-sensitive leisure travelers.
The initial goal of Southwest has not changed: to become the major short-haul carrier (under 600 miles) and to offer fares below those imposed by the “brand-name” carriers. Despite its low fares, “last year alone its profits totaled $179.3 million, a 16 percent jump (from the year before.” (Enbysk, p. 1)
The first quarter of 2000 shows even further growth: “Total operating income for the first quarter 2000 increased 15.5 percent to $1.24 billion, compared to $1.08 billion for the first quarter in 1999. Revenue passenger miles increased 17.5 percent…resulting in a load factor of 66.8 percent….Herbert D. Kelleher…stated: ‘We are extremely satisfied with our strong first quarter…Despite significantly higher jet fuel prices, which were more than double year ago levels…our first quarter 2000…exceeded estimate.” (SW, p. 1)
In a slightly less formal statement, Kelleher talked about his airline’s operations success: “We like mavericks…people who have a sense of humor. We have always done things differently. You know, we don’t assign seats… the reason is you can turn the airplanes quicker at the gate. And if you can turn an airplane quicker, you can have it fly more routes each day. That generates more revenue, so you can offer lower fares.” (Kelleher, p. 1) Southwest’s planning included not merely the technology of modern jet planes, but researching consumer demand. Operations management relies on a simple strategy:
By relying on a single type of plane- the Boeing 737, maintenance costs are significantly lowered, and the durability of this 737 allows Southwest to use its planes an average of 11.5 hours a day, compared with the industry’s average, of 8.6 hours. Southwest’s cost per available seat mile is the lowest in the industry. It also has one of the youngest fleets of any airline: 7.9 years on the average.
By not relying on hubs, like most major airlines, point to point service meant greater convenience for passengers on direct flights, less waiting time for planes on the ground, and a far faster turn-around time: 15 minutes, compared with the industry average of 45 minutes. Part of the faster turn-around is operations management’s decision to utilize less-crowded airports, i.e. Houston’s Hobby, Chicago’s Midway, Raleigh, NC, Albany, NY, and Long Island’s MacArthur Field. Operations devised this by realizing that dependability will create demand. “The best service in the business” (Dilworth, p. 67) is not merely a puffed-up advertising slogan. As Dilworth (p. 69) points out, operations management helps companies succeed by “becoming excellent at the right things.”
Kelleher mentioned the time saved by not assigning seats, and saving money which reflects lower pricing in other ways, as well: “Amenities are frills. If you want your baggage on time, fly Southwest, if you want a mint, fly someone else.” (Enbhysk, p. 2) Southwest has not overreached itself, in terms of destinations, and length of trip legs. The average leg now is 394 miles, with flights of 600 miles making up barely 2.5% of the total schedule. (www.southwest.com, p. 3)
Careful selection of new markets has provided success for Southwest as it opened Florida, Baltimore, and now Long Island, and an expected shuttle service between Long Island and Boston. In other words, Southwest arrives where customers already are, rather than spending time and effort to build traffic. Southwest has also shown a profit for 23 straight years.
Another innovation, which all major airlines now offer, was
Southwest’s “ticket-less travel”- including fare specials available only on the Internet. “Based on published accounts, in terms of revenue, Southwest ranks as one of the largest e-commerce sites…More than 25% of Southwest’s first quarter revenues came through www.southwest,com, and we are well on the way to exceed $1 billion in e-commerce revenues for the year 2000,” (SW Public relations, www.southwest.com ) According to press releases, the first quarter’s e-commerce revenues exceeded $300 million, more than a 100% increase over 1999. Electronic ticketing not only reduces overhead at regular ticket counters, it also provides help in planning flight schedules, seeing demand increase on certain routes, certain destinations, and even times of the day and days of the week. It is this combination of planning, smooth operations procedures and understanding and meeting customer demand that, for the fifth year in a row, “Southwest has won the ‘triple crown’ of having the best on-time performance, best baggage handling, and fewest customer complaints.”(Enbysk, p. 1)
With all the dollar and other revenue and mileage and destination statistics out of the way, just what is it about Southwest’s marketing strategy that brings people on board, even when they could fly competing airlines that have been forced to meet the lower prices. For one thing, it is the sheer number of short-haul departures. Southwest can make money on them, by not having to plan schedules to feed passengers into some sort of hub long-range arrivals or departures.
Operations excellence goes well beyond the supply chain. There is the loyalty of employees. “Southwest has one of the lowest turn-over rates in the industry, approximately 4.5% a year. Southwest is considered by many to be one of the best companies to work for in the country…in the top ten in The 100 Best Companies to Work for in America.” (Freiberg, p. 7) When you don’t have to spend money and time re-training new hires, that money goes for customer service and operations.
Kelleher, earlier, referred to turn-around time as making money. It was suggested when the airline began, and because nobody had tried a 10 or 15-mkinute turn-around, there was nobody to say it couldn’t be done. It was, and still is, being done. As Kelleher, who likes to be the company’s spokesman as often as possible, says: “Our turnaround time isn’t the result of tricks, but the result of our dedicated employees, who have the willpower and pride to do whatever it takes.” (Freiberg, p. 57)
Freiberg points out a minute-by-minute example of an operation at Los Angeles’ International Airport: “Here is what this ground crew of four accomplished in fifteen minutes. There was a complete change of flight crew; 137 customers came off the plane and another 137 boarded; the ramp agents unloaded 97 bags, 1,000 pieces of mail and 25 pieces of freight weighing nearly 500 pounds. The ramp agents then loaded another 123 bags and 600 pounds of mail (no freight), while the fueler pumped 4,500 pounds of jet fuel into the wing tanks of the aircraft. It’s an impressive spectacle. People come out of nowhere and the whole area around the plane is abuzz. Then, in a matter of minutes, their job complete, the swarm of people disappears and the plane pulls away.” (Freiberg, p. 59)
Southwest passes on its strategies of success to its suppliers. All of them are told, in no uncertain terms: do what you’re good at. By using only a single type of aircraft, the total number of suppliers is vastly decreased. By not serving food, again, there is no need for expensive mean planners, caterers, catering trucks, or the installation of expensive in-flight kitchens. A single type of aircraft also reduces the need for training mechanics, and operating maintenance facilities on more than a single type of jet plane. It is a sort of reduced bureaucracy and levels of management at the company, since there are so few exceptions to specific needs: whether handling suppliers, payment of invoices, bank credits, insurance, etc. It is also a boon for operations management, in keeping an eye on the dollar expenditures, that landing fees at the less-frequented airport locations help lower overhead costs. By not attempting to be everything to everybody, by holding down management levels between employee and decision maker, by reducing the number of suppliers, Southwest has always resisted the temptation to be something it’s not. “Perhaps this is because the people at Southwest know that arrogance is the quicksand of success…Kelleher has said…”A company is never more vulnerable to complacency than when it’s at the height of success….He began (a) letter to employees by outlining the major threat to Southwest Airlines: ‘The biggest threat is us!” (Freiberg, p. 60)
The marketing philosophy is also evident in the guidelines it has for hiring employees. Southwest looks for “real” people, not pretentious ones. “Southwest feels that people who are trying to be something they are not will feel too much stress in their lives and that stress will spill over to the passengers.” (Freiberg, p. 72) There is also a Kelleher “secret” behind his employees’ loyalty. To Kelleher, “customers come second,. Employees come first.” But, one might ask, “Aren’t customers always right?” “‘No, they’re not,’ snaps Kelleher, ‘And I think that’s one of the biggest betrayals of employees a boss can possibly commit.. the customer is sometimes wrong. We don’t carry those sorts of customers. We write them and say, ‘Fly somebody else. Don’t abuse our employees.'” (Steinberg. P. 268) His idea is to treat employees right, and with care and concern, and that will then transmit itself to the passengers.
It is sometimes simplistic to follow that old cliché, “If it ain’t broke, don’t fix it”. Southwest created its own new rules: If it hasn’t been tried before, who’s to say it won’t work!” There are always more personal ways to create a marketing plan that encompasses goals of profitability, employee satisfaction, and customer service. The airline, although it is still growing in terms of planes, destinations, and passenger-miles, still remembers what got it to this point: make it more convenient and less expensive, for people to travel- whether they have to or want to.
It would be difficult to provide a means of improving the current operations management and planning at Southwest. It is a good example, as was stated at the outset, of integrating operations functions to improve the excellence of the finished service- in this case, on0time arrivals and departures. However, with Herb Kelleher now ailing with cancer, and having stepped down last month as CEO, it will be interesting to see how his hand-picked successor, performs. If there is one critical path for planning of operations for the future it is the see-saw of jet fuel prices. Earlier, Southwest’s agreement with fuel suppliers was able to hold down costs. This sort of forward planning is surely on the agenda now. It needs resolution ASAP
Annual Reports for Southwest Airlines, Inc. accessed via www.southwest.com
Dilworth, James B.: Operations Management (1996) New York: McGraw-Hill Publishers
Donnelly, Sally B. “Flying Sybaritic Skies” TIME Magazine, May 1, 2000
Enbysk, Morrie: “Southwest Airlines Succeeds By Sticking to Basics”, Washington CEO Magazine, 1995
Freiberg, Kevin and Jackie Freiberg: Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success (1996) Austin TX: Bard Press
Kelleher, Herb: “I’m a Maverick” www.southwest.com
Southwest Public Relations Office: “Southwest Airlines on Pace To Exceed $1 Billion in Internet Revenue for 2000” www.southwest.com
Southwest Public Relations Office: “Southwest Reports Record 1st Quarter, 2000” April `18, 2000, www.southwest.com