Southwest case Essay Example

Southwest case Paper HOBS cases are developed solely as the axis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright C 2002 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 021 63, or go to http://www. Hobs. Harvard. Du. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means-?electronic, mechanical, photocopying, recording, or otherwise-?without the permission of Harvard Business School. Purchased by Matthew gibbons ([emailprotected] Com) on January 23, 2013 602-156 Southwest Airlines in Baltimore Southwest Airlines adopted a number of operating strategies to reduce operating costs and offset the productivity disadvantages inherent in short- haul, point-to-point flying. First and foremost, Southwest focused on turning aircraft around quickly at the gate to minimize an airplanes time on the ground-?non-revenue producing time for an airlines most costly asset. Second, Southwest used only one operating platform, the Boeing 737. This enhanced efficiency in several ways. Crews, furnishings, and spare parts were interchangeable and maintenance tended to be more predictable. Although there were differences between the early 737 Series 200 and the later Series 700, Southwest standardized the cockpit configuration as much as possible to minimize additional training requirements for pilots. We will write a custom essay sample on Southwest case specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Southwest case specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Southwest case specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The single operating platform also routine cleanup, provisioning, and ramp operations (unloading and loading baggage and cargo), which helped speed turnarounds at the gate. Third, where available, Southwest used less-congested airports with easy access to large metropolitan areas, both to avoid disrupting flight operations ND to maximize aircraft time in the air. In large cities, Southwest often used older facilities, like Dallas Love Field or Chicago Midway Airport, that had been abandoned when new, larger airports were constructed. Fourth, Southwest offered limited services, specifically no in-flight meals-?only beverages and snacks-?and did not transfer baggage to other airlines. Finally, Southwest offered open, single class seating which created efficiencies in several ways. There was no need for computer hardware and software to sort and hold seating assignments, nor for the time and expense of printing raiding passes and verifying them as passengers boarded the aircraft. 3 Perhaps more importantly, the open seating system encouraged customers to board eagerly to lay claim to their desired seats. Quick turnarounds at the gate, however, required a high level of coordination among 12 distinct functional groups: pilots, flight attendants, gate agents, ticket agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fullers, aircraft cleaners, and caterers. These groups were stratified by status, expertise, and were even spatially separated at the terminal. In the U. S. Airline industry, these groups did not have a history of warm cooperation. Over time, a set of human resource practices evolved at the Company to facilitate coordination among these diverse groups. Southwest invested substantial amounts of time selecting employees for attitude, teamwork, and service orientation. A senior manager summarized Southwests unwritten rules: YOU have to be compassionate to internal and external customers. You have to have a positive attitude. You have to want to work and use common sense. You have to have a great sense of humor-?humor diffuses stress. And you cant be an elitist. Formal training occurred for new hires at the two campuses of Southwests People University in Dallas. New flight attendants trained for four weeks, new supervisors for three and a half days, and continuing supervisors received 80 annual hours of training. Front-line managers received a specially designed two-day course each year-5 On top of the companys pre-existing emphasis on hiring team players willing to go above and beyond their primary responsibilitie s, much of Southwests training focused on team building. Cross-training was offered and employees were encouraged to switch jobs. Broad latitude was given 3 Instead, passengers received a numbered plastic card to indicate the order of boarding at the gate. 4 James Highest, Southwest Airlines: 1 993 (A), HOBS case No. 694-023, p. 9. 5 Charles Reilly and Jeffrey proffer, Southwest Airlines: Using Human Resources for Competitive Advantage (A), Stanford University Graduate School of Business case No. HER-IA, up. 9, 10. 2 purchased by Matthew gibbons ([emailprotected] Com) on January 23, to employees to enable them to serve customers. One operating managers rule was, Do whatever you feel comfortable doing for a customer. We want people to ask for forgiveness, not for permission. Many cited the example of a manager who made a $100,000 blunder and was promoted a few months later. Southwest employed more supervisors per front-line employee than other major U. S. Airlines, asserting that supervisors were the most important leaders in the company, short of the CEO. Supervisors had the responsibility to coach and advise front-line employees, and were expected to pitch in and help out actively with any front-line task. Southwest also placed a high priority on resolving conflict between functional groups-?when employees had a lingering work-related misunderstanding, heir supervisors required them to get together to work it Out. At the same time, Southwest focused on building positive relationships with its unions while negotiating flexible work rules that would allow employees to perform the work of other functional groups. Southwest was the most heavily unionized U. S. Airline. Finally, Southwest culture centered on family, fun, and freedom. Family was more than a metaphor for company culture at Southwest: many employees reported family ties with other Southwest employees, something the company encouraged as long as those involved were not also in a reporting relationship. Employees regularly said that they liked their jobs because Its fun to work here, and I have a lot of freedom in my job, often noting that freedom meant the opportunity to offer extraordinary customer service. Southwest differentiated its service in terms of the flair with which it was delivered. An operating manager commented: Were kind of a big family here, and families have fun together. The passengers are part of the family too, so we have fun with them. Fun included playing games on board the aircraft, such as Whose sock has the biggest hole? as well as games and contests on the ground, particularly if a light was delayed. 6 Partly as a result of these practices, Southwest employee turnover was significantly lower than that of other U. S. Airlines, and Fortune magazine had named Southwest one of the 1 00 Best Companies to Work For in America three years in a row. Results Between 1972 and 2001 , Southwest stock outperformed all other U. S. Stocks. 7 This and Southwests position as the only consistently profitable U. S. Airliner validated its unconventional methods (see Exhibit 2 for financial performance and Exhibit 3 for comparison of Southwest Airlines to other U. S. Carriers). On the customer service side, Southwest won the airline industry Triple fewest delays, the fewest complaints, and the fewest mishandled bags-?not only for individual months but for entire years-?1992 through 1996. Southwest also prided itself on consistently offering the lowest fares in the industry. The US. Department of Transportation in 1 993 published a report on the so-called Southwest effect, documenting the impact on fares and passenger volumes when Southwest entered a market. According to the report, when Southwest announced service on a new route, other airlines serving that route almost immediately reduced their fares, and moieties increased their frequencies as well. The effect reduced fares by an average of 65%, and increased passenger traffic by up to 500% (Exhibit 4 shows the Southwest effect on the 6 James Highest, Southwest Airlines: 1 993 (A), HOBS case No. 94-023, p. 3. 7 Calculations performed on data supplied by CROPS. 8 Southwest was profitable in all but the first of its 30 years. 3 Baltimore-Providence market). Southwest employees liked to point out that their net impact was to offer the freedom to fly to a larger segment of the traveling public, expanding the overall market rather than just taking market hare. By January 2001 , Southwest served 58 airports in 29 s tates and was the fourth largest domestic carrier in terms of customers boarded. The company operated more than 2,650 flights a day using a fleet of 342 Boeing sass with an average age of 8. 4 years-?one of the youngest pure jet fleets in the domestic industry. Southwests success inspired competitors-?including People Express, Midway, Value Jet, Continental Elite, Delta Express, Metro and the United Shuttle-?to copy elements of its strategy, but none had generated sustainable profits from doing so. Getable was the newest airline to imitate elements of the Southwest model, and though its early performance was impressive, the jury was still out on its longer-term success. Even so, Southwest performance had slipped over time; the company had not earned a Triple Crown since 1996. The Baltimore Station In 1993, Southwest selected the BOW airport in Maryland, 30 miles from Washington, D. C. , as its first East Coast gateway and began service from BOW to Cleveland and Chicago on September 15. One year later, the airport broke ground on a $27. 6 million expansion project to extend the terminal and create six more domestic gates. Southwest signed up for all of them. Through the 1 9905, Southwest added more cities to its non-stop service from Baltimore (see Exhibit 5). After just seven years, Southwest share of BOW passengers reached 34%, displacing the perennial leader, US Airways (28. 5%). Baltimore had become one of Southwest eight mega-stations-?so called because it offered more than 100 flight departures per day. (Exhibit 6 lists all cities served by Southwest. ) Given the continued growth in number of flights projected by management, Southwests Baltimore gates would reach capacity limits later in 2001. Southwests bag sorting area had reached its capacity already. BOW was planning to renovate Concourses A and B to provide more gates for the company. Executive Vice President of Operations Jim Weinberg explained the importance of BOW to Southwest: Baltimore plays an important role in Our system, competitively, given its location in the center of the East Coast. Weve had a lot of serious discussions internally about how much more Baltimore can take given the facility constraints that we have, and the shortage of employees that we have there. Its a customer service issue because we dont want to put our customers through [an] experience in an airport where we cant deliver the type of reduce that our reputation stands on. One specific operational challenge in Baltimore was the volume of connecting passengers and their impact both on station performance and on the customers experience with Southwest. Exhibit 7 compares Bis Southwest passengers to those at other large Southwest stations. Passenger Connections as an Operational Challenge Matt Heaven described the effect of passenger connections on Baltimore operations: Over the past year, 800,000 passengers made connections here-?about 25% of our total passengers at Baltimore-?with probably an equal number of transferred bags. This makes us one of Southwesters biggest transfer stations. Right now, our reservations system generates 4 602-1 56 passenger itineraries with a minimum connecting time of 35 minutes. This means that passengers cant book connecting flights with less than 35 minutes scheduled between the arrival of the first flight and the departure of the second flight. Today, 83% of Southwests revenue is from direct one-stops or non-stop flights. The other 17% of our revenue is from connecting flights. We do not want to leave 17% of our revenue on the table, but these connecting flights have complicated our service design. We might have three people a month going from Fort Lauderdale, Florida to Spokane, Washington, yet the computer system carefully adjusts the entire system schedule to make that flight convenient. This is compounded by the fact that we have given our people at individual stations and at customer service in Dallas the authority to make decisions about holding a flight. Our employees want to serve the customer-?thats their job-?so we end up holding flights pretty often. Now we are rethinking the practice of holding the 100 passengers ready to leave Nashville for Spokane-?a hold that will ripple throughout the system-?for the nee person whose flight has not yet arrived from Fort Lauderdale. Jim Weinberg placed Bowls case within the context of the total system: Connections definitely are a challenge. Its not that the percentage of our passengers who connect has changed that much. Overall, for the system as a whole, connections have been relatively constant over the past 10 years, in the 20% range. What has changed is that we have some cities like Baltimore that have a disproportionate number of connecting passengers. So connections have become more concentrated in certain cities than they used to be in our system. For example at Baltimore, I think theyre closer to 30%. Colleen Barrett, Southwests President and Chief Operating Officer, pointed out that any workable solution would have to fit Southwests particular vision: Most airlines schedules are operationally driven. Ours is marketing driven. When we develop a new flight schedule, our first priority from a marketing standpoint is, Where do we need non-stop flights? The second priority is to create the optimum number of one-stop and two-stop direct flights from a marketing standpoint. The last priority is, What can we make from connections? Connections are a significant part of our revenue, but from a marketing standpoint, based on what the customer wants, it is our last priority. Coordinating Southwests Baltimore Operations: Flight 110 Southwests airport operations were unique in the U. S. Industry. Unlike other carriers such as American Airlines, which centralized aircraft turnaround and ground operations and managed each of its daily flights from its headquarters using an integrated computer system,l O Southwest decentralized this coordination, leaving it to employees on site at its airport stations. Coordination had two aspects: the coordination of Southwest flights not and out of a given station, and the coordination of each flight turnaround. Operations coordinators and supervisors managed the former task, and operations agents the latter, as discussed below. Like American, Southwest had managers responsible system-wide traffic flow based at Dallas headquarters. Unlike American, these 9 In which ongoing passengers to a final destination would stay onboard while an aircraft took on additional passengers at an intermediate airport. 10 See Aspen Andersen and F. Warren McFarland, American Airlines: Object Oriented Flight Dispatching Systems, HOBS case No. 195-046. Southwest supervisors on duty (SOD) did not orchestrate local changes from Dallas but worked with the operations supervisors at individual airport stations to manage overall traffic flow. Consistent with its high supervisory ratios, Southwest relied on operations supervisors to look several hours ahead of the course of the daily flight schedule in order to identify potential problems before they emerged. Constant contact with Dallas SOD kept the ops supervisors informed of systemic developments likely to affect traffic in and out of their station, 1 1 and also helped assure that the solutions they reposed did not unduly burden the system beyond their station. The ops supervisors, in coordination with the SOD, would then work to design solutions to these challenges. In practice these included holding planes or resolving delays, coordinating gate usage accordingly, changing planes, and so on. In addition to monitoring the schedule, the ops supervisors also mentored ops agents and were frequently at the gate with them helping with difficult turnarounds created by overbooking, delays, or baggage issues. Southwest staffed its ops agents at much higher levels than other airlines did. Ops agents coordinated all aspects of flight turnaround, effectively span inning the boundaries of the 12 participating groups of handlers, and were empowered to organize and coordinate all aspects of the turnaround, from beginning to end, to maximize speed, productivity, and efficiency. 12 The high staffing levels allowed Southwest to assign a single flight to each ops agent (rather than the industry norm of multiple flights per agent). That agent would begin preparing for and tracking the single aircrafts turnaround an hour prior to its arrival and be totally focused on that flight up through its aperture and the transfer of paperwork and information downstream to the ops agent at the unwounded flights destination. The ops coordinator brought all the strands of activity together from the Coordinators Room, a communications nerve center at the station, managing the execution of decisions made by the supervisory team and communicating with Dallas, ops supervisors, ops agents, and pilots in flight to ensure that all concerned were informed. The ops coordinator role was filled by ops agents on a rotating basis. The following pages recount the how the Southwest team at Baltimore managed the turnaround of Flight 110 on June 7. The Operations Coordinators Alice, the on-duty ops coordinator, and Darlene, her assistant coordinator, worked from the Coordinators Room on the tarmac level to bring in arriving flights and assign them to gates. In the room with them were the ramp coordinator and the customer service coordinator. The ops supervisors worked just outside the coordinators office, and streamed in and out constantly with updates and information. During their 3:00 p. M. To 1 1 p. M. Shift, Alice and Darlene were expecting 63 flights at Southwests 16 gates, a typical evening. Their colleagues on the morning shift had brought in 64 lights to the same 1 6 gates. Alice and Darlene could view two of the gates directly through the large window facing the tarmac, and the other 14 via television screens mounted above and to their right. At a glance they could watch aircraft being marshaled into their gates, getaways being placed into position, and aircraft being serviced by the ramp crew assigned to each gate. They 1 1 Delays caused by weather, or back-ups at particular airports, etc. 12 Jody Hoofer Getting, Coordinating Services Across Functional Boundaries: The Departure Process at Southwest Airlines, in Ron Kemp and John Wood, des. Best Practices in Customer Services: Case Studies and Strategies (Amherst: HARD press, 1999). 6 were in radio contact, through a company specific frequency, with Southwest airplanes arriving or departing Baltimore. 3 Throughout the day, Southwest employees continually updated OTIS (Operations Terminal Information System)-?an internally developed system for tracking flight information. OTIS contained anticipated passenger totals (revenue passengers as well as non-revenue passengers such as Southwest employees), in addition to all the information that each station sent down-line o the ne xt station receiving a flight. OTIS included information pertinent to Southwests operations, such as the weather, system-wide, and particular flight delays. Each delay was tagged with its location and cause-?boarding passengers, late arrival, equipment, radar, and so on. Lices OTIS screen tracked all flights bound for Baltimore. The left side of the screen listed all the incoming flights with their scheduled and expected arrival times. For every incoming flight, the right hand side of the screen listed its outgoing number and the scheduled departure time. Each flight entry had multiple status indicators, and double-clicking on them provided additional information about the flight (see Exhibit 8 for a screen view of OTIS). Flights that were expected to arrive late or early required particular attention, since either event could require changes to gate assignments, with possible repercussions for all departments preparing to turn those flights around. Darlene helped Alice coordinate maintenance responses to requests called in by inbound pilots, and by discussing with the dispatch SOD at Southwests Dallas headquarters any local changes that might affect the scheduling of flights, lanes, or crews beyond Baltimore. Darlene was also responsible for updating the Flight Information Display System (FIDS) that displayed information on gate assignments and arrival and departure times throughout the airport for Southwest employees and passengers. Alice and Darlene had already noticed that Eight 1 10 from Nashville had left 40 minutes later than expected. Regularly scheduled to arrive at 8:15 p. M. , now showed up on OTIS as expected in at 8:55 p. M. Onboard were 33 passengers due to make connections in Baltimore. Six of them were connecting to Flight 232 to Buffalo, departing at 8:40 p. M.