Southwest Airlines Case Study

Case Discussion Questions

1. Southwest Airlines (Southwest) has managed to transform itself into a market share leader in domestic air travel in the United States since the company's inception just over forty years ago. It has managed to do this by offering the cheapest airfares in the industry along with award-winning customer service. The company has managed to maintain healthy margins by keeping their operating expenses low, all the while constantly expanding the company over the years by both, offering more flights and initiating flights at new airports. Despite the several legal and regulatory hurdles that Southwest has had to face since the company started its operations, all these challenges have managed to only strengthen the company's resolve to face these hardships head-on, and fight to continue and improve their operations by planning for any possible contingent threats. The tight-knit and empowering corporate culture ensures that all the employees always perform efficiently and take an active role in enabling the company to operate profitably.

2. Southwest's management does a good job in crafting the company's strategy. When crafting their strategy, Southwest's management follows the 12 steps to designing a successful strategy. The 12 steps and Southwest's strategy crafting are listed in APPENDIX A. Southwest has a winning strategy. Every time they operate in a new city, they double the number of air travellers. They have become one of the best US airlines and are known for their low prices and outstanding customer service. Their strategy has also enabled them to become the only major US carrier to have been consistently profitable.

3. Southwest has made a lot of efforts to implement and execute its low cost strategy. Their key policies are low operating costs, low fares, and highest level of customer service. Southwest's key procedures include procedures which will help to make the airline run effectively and efficiently, ensure flight safety, enhance performance and the life of the aircrafts, improve on-time arrivals and departures, and maintain high employee productivity. Southwest's operating practices include operating only one type of aircraft to minimize parts inventory and maintenance costs, operating only in medium sized cities and less congested airports, point-to-point flight scheduling instead of hub-and-spoke used by other airlines, and using employees to do any jobs that they were qualified and trained to do. Southwest's core values include fun and LUV. Southwest puts their employees first and believe that happy employees make happy customers. They recruit and train employees to fit in the company culture to live the Southwest way. In turn, Southwest has the lowest employee turnover rate in the industry.

4. The key element to Southwest's culture is the "combative can-do spirit" of their executives, management, and employees. Throughout the years, they have developed strong resilience from beating rivals since its inception. The strongest asset of the company is the employees who are valued first and foremost. Southwest's principle is "employees come first and customers come second." This philosophy is Southwest's acknowledgement to their dedicated employees that the company ensures their job security and is concerned for their well-being. This will in turn produce passionate employees who deliver quality customer service to passengers. In seeking out new recruits to maintain the corporate culture, potential employees must be able to assimilate into the Southwest way: "Warrior Spirit, Servant's Heart, and Fun-Loving Attitude."

Kelleher has been the spirit and soul of Southwest. His departure had instilled some investor concerns about Southwest's leadership succession. Parker was Kelleher's immediate successor. He possessed similar company visions as Kelleher, but did not have as a "colourful and flamboyant" personality as him, which could affect the corporate atmosphere. However, Parker announced that there would be no change and that the company would stay true to their business model. Parker's leadership ended abruptly due to his retirement for personal reasons. Governance issues arose when Kelly was appointed as chairman of the board, CEO, and president. Southwest's culture continued to prosper as their employees were cohesive in carrying out the Southwest brand. They were given full ownership of their actions with authority and decision making power.

Strategic Profile

The strategic profile of Southwest involves the company's strong asset in their human resources with a "combative can-do spirit" to beat rivalries in a competitive airline industry with their strategy of being a low cost provider. The purpose of the case is to identify the critical issue of maintaining the corporate culture through the process of acquisition for the intent of business growth and expansion. Through case analysis, a recommendation and implementation plan will be provided to address the critical issue.

Strategic Intent

Southwest Airline's ideal state would be to become the first and only airline that passengers want to travel with by providing the lowest price possible and the highest level of customer service. The purpose of Southwest Airline's operations is to operate efficiently in order to produce the lowest operating costs possible as well as to train all employees to provide the best customer service possible. In terms of its market, the purpose and scope is to increase its presence in as many states as possible while providing convenient schedules and times for its passengers.

Situational Analysis

General Environmental Analysis (GDPEST)

Industry Analysis (Porter's)

Bargaining Power of Suppliers - Low

Southwest uses only Boeing aircraft and was the launch customer for Boeing's 737 300, 500, and 700 series aircraft. Southwest has been a long time customer of Boeing and such, Boeing agreed to supply Southwest's first three aircraft at a discounted price of $4 million each (regular price $5 million). Boeing also financed 90% of the $12 million deal. Southwest currently operates 547 Boeing aircraft and will operate 685 after the acquisition of AirTran.

Bargaining Power of Buyers - Very Low

Southwest's customers have no ability to negotiate their ticket price. The best that customers can do is to book their flights during seat sales or choose to purchase their tickets from another