Southwest Airlines Case Study

Southwest Airlines has been a leading low-cost carrier for four decades. However, the recent external and internal changes in the environment have led to the loss of its position. The company still earns the high revenue, but its competitors can offer lower prices for customers. The discussion on the strategic activities of Southwest Airline would help to produce strong recommendations for the company’s future.

The company designed a coherent strategy on the activities and tasks required to achieve success. Particularly, it focused on providing excellent customer service, safety, reliability, and efficiency of operations at a reasonable price (Southwest Airlines, 2015). These are the most contributing factors. However, a new management that was changed in 2001 reduced the quality of customer service and operations. A widening gap between the managers and employees was a major reason. Earlier, the supervisors used to listen to employees’ ideas and encourage them to work as a team. Moreover, they knew what was happing in the personal life of their subordinates. That approach to the management of the labor forces helped to boost motivation and productivity of staff members. Unfortunately, the current policy promotes distant relationships. Moreover, the rise in fuel prices caused a growth of operational costs. However, the greatest issue Southwest Airline should tackle is its outdated equipment and products. In fact, other carriers offer lower prices and more attractive packages for their customers.

Southwest Airline’s core competence is domestic point-to-point flights. The company’s strategy is to maximize profitability. As a result, it does not offer ready meals, only snacks and drinks are available. It has no means of entertainment on the planes. However, the company forces flight attendants to clean the plane and speak with customers enthusiastically. The company also prefers using only one model of the plane to minimize extra expenses. It may give an advantage in reducing operational costs. Despite this fact, the operational costs are still high, and the company’s prices are not the lowest in the market. Thus, Southwest Airline cannot remain competitive. Today, the company does not have a winning strategy, and the loss of leadership among low-cost carriers proves this claim.

Brief Overview of the Case

Having reduced the number of services during a flight, having chosen one model of aircraft, and having hired devoted staff, the company introduced new profit-boosting practices to follow its low-cost strategy. For example, it was decided to reduce the legroom in order to put more seats. It modified frequent flyer program and changed early boarding. Besides, the company has special offers for business travelers now. At the same time, the company permits to take bags without additional fees. It helped to attract more passengers because other airlines charge for this option. Though, the company cannot solve all the problems, especially after Herb Kelleher’s resignation. Unfortunately, the new leaders disregarded the values and culture introduced by the previous leader. The former system created friendly relationships between employees and managers making everyone motivated to work more effectively. While Kelleher was an inspiration to his team, Gary Kelly cannot have such a positive influence on staff. Consequently, people start protesting against the new human resources policies.

Southwest Airlines is still a “strong culture-oriented” organization. It is the result of long-term efforts of the management striving to make a work environment with shared values. For example, the managers emphasized that the main priority of the company was workers. Besides, the company’s managers encouraged staff to work together on projects and to cooperate with the other departments if necessary. The leaders also informed employees about the organization’s financial performance, which made people more responsible and initiative. Employees understood the importance of every operation. 

In fact, friendly relationships inside the company were essential because they allowed Southwest Airline to achieve positive results. Thus, employees worked closer with the customers in order to meet their needs quickly. The fact that staff members could express their opinions freely enabled the leaders to react to the market demands faster. However, the changes in the leadership have discouraged employees. Southwest Airline mainly focuses on the market and revenue. Therefore, the management has started to neglect employees’ needs.

Nowadays, the key problems of Southwest Airline are an absence of innovative products and uneasy relationships with employees. These factors and the rise of fuel prices have negatively influenced the status of the cheapest airline in the U.S. AirTran’s acquisition did not improve the situation because the company should resolve additional problems based on different culture and core values of AirTran. In addition, AirTran has international flights and a significant amount of personnel. As a result, Southwest Airline needs to search new strategic activities. However, the acquisition made Southwest Airline the largest domestic airline (Great Speculations, 2014). Therefore, the company is expected to increase the number of passengers in the U.S. and overseas.

All in all, Southwest Airline needs to create a new innovative product. They should either reduce the prices or find other ways of attracting customers. Thus, the company could add some entertainment options and meals. Besides, the carrier should change attitude to its employees to raise their motivation and productivity. Staff members should be encouraged to work as a team and develop innovative ideas.  The company should provide them job security because only happy staff members can deliver an excellent customer service.

Discussion

Key Competence

Taking into consideration the core competence of Southwest Airlines (SWA), the short-haul domestic flights are the most important. A friendly personnel of SWA has been providing relatively cheap, convenient, and well-integrated services for more than forty years in the American market (Morden, 2007). In fact, the company has remained a leader in the local market without saturating it (Morden, 2007). Southwest Airlines offers cheap domestic flights in the U.S. and Caribbean areas. It helps to have a constant flow of customers. Moreover, the organization has various discount programs and sales for their loyal customers thereby maintaining strong customer retention. It is clear that such approach is especially effective when operational cost is not the most substantial strategic asset.

Key Success Factors

Nevertheless, implementation and initial design of core competence are impossible without an excellent customer service, safety, reliability, and efficiency of operations. The company relies on its organizational culture and strong transformational leadership while addressing its objectives. It is not a surprise that Southwest Airline resort to its traditions as a paramount executive policy and a general operational framework (Morden, 2007). The company values informal communication and open relationships (Morden, 2007). That enables the chief executive board to make workforce its major strategic asset. As a consequence, friendly, supportive, and hierarchy-free relationships are the main pillars of the management. Thus, it is obvious that a strong flexible leadership creates special spirit within the entire team. Exchange of expertise, support beyond professional terms, enthusiasm, and commitment of the organization’s leaders make the competence more effective.

Strategy

Taking into consideration the strategy of Southwest Airlines, its flexible attachment to lowest operational margin is vital. The company does not correspond to financial assets as a central driving force of its business. Thus, customer-driven performance suggests that the company builds its strategy on the commitment and democratic governance. However, the firm clearly realizes the fact that non-material strategic excellence is insufficient for addressing competition and regular market sustainability (Shimizu, 2012). Therefore, the company does a profound market research in order to forecast customer behaviors and strategic orientations of other domestic airlines. High predictability of target audience’s behaviors enables SWA to approach its customers with the minimal costs and the most satisfactory package offerings (Shimizu, 2012). Consequently, Southwest Airlines maintains flexibility within the largest context of business performance.

Specific Issues

An informal approach to the management is evidently a strong aspect of the company’s strategy, but it is necessary to point that SWA was extremely dependent on a personal leadership of Herb Kelleher. As a consequence, his retirement caused a drastic change in the management. The present leader does not share the same philosophy and organizational values. Thus, the company faces a dramatic decline. Organizational governance has become unstable. It even exploits the staff, as long as the numerous cases of workforce resentment happen often (Shimizu, 2012). Furthermore, these events ruin the performance of SWA because its strong brand leadership was the most remarkable component of its success (Shimizu, 2012). Currently, the company does not fulfill its initial strategy because of considerable differences between the organizational management and strategic alignment. Moreover, the main reason for that is a strong lack of favorable working conditions occurred due to the changed organization governance. The new managerial team does not take into consideration complaints of the personnel. Thus, the working environment is going to worsen in a forthcoming future. Informal relationships and working enthusiasm are substituted for a severe pressure that demotivates many workers.

Policies, Procedures, and Values

If the airline values its customers, it is reasonable to note that it focuses not only on the customer-friendly service but also on the cost-effective flight fairs. A standard a la carte flight package includes all the services in a ticket price and makes low-cost airlines more profitable as the customers can simply pay for quality services. They do not have to pay additionally for baggage, food, drinks, and blankets. As a result, the company’s financial turnover is always large thereby containing favorable working capital liquidity, even though operational costs might not be substantial (Elsbach, 2013). Therefore, the company should implement only those strategies that appeal to the customers. By the same token, human resource management plays a significant role in achieving the goals. Though, the present management team of the company has almost neglected the culture of the organization. Growing tension in relationships with the personnel with unreasonable and authoritative decision-making policies ruins the corporate culture of SWA.

Problems

Unfortunately, a current policy and organizational layout do not meet so-called strategic fit. First of all, SWA follows an authoritative leadership plan making the employees feel uncomfortable in the working environment. The company has become extremely bureaucratic. Personnel suffers from a constant strain on the side of the company (Elsbach, 2013). Unbalanced corporate growth resulted in a decrease of employees’ value and, therefore, their wages. A new chief executive board outlined a common layoff of flight crews forcing many employees to perform under a stress of losing their job after their contracts’ expiration (Elsbach, 2013). Additionally, an absence of reasonable organizational and human resource management eliminated the culture of the company that was a central driving force of SWA’s business excellence. Those issues created a dramatic difference between the original strategic fit of the company and the present one.

Executive Approaches

In the past, the flexible management of the company empowered the personnel. Support and understanding were the main objectives of internal policies. However,  Southwest Airlines changed its executive approaches. The bureaucratic structure of the organization and unreasonable scheduling system created poor working conditions. The employees were extremely unsatisfied (Sharpley, 2012). Without a shadow of a doubt, these factors worsened operational performance, as the personnel works with an extremely low job commitment. The former executive approach of a flexible leadership was pivotal for effective work. Unfortunately, the situation has changed dramatically (Sharpley, 2012). Current chief executives realize external problems and competitive pressure of other airlines, but they cannot link them to internal rearrangement of organization and elimination of its culture. Thus, the management should launch company’s transformations from the inside.

Ineffective Management

The problem of ineffective management appeared due to badly-organized approaches, even though Southwest Airlines  always recognized communication and relationship as the essential parts of performance. Unfortunately, the company neglected its internal managerial regulations making operational workflows, flat organizational communication, and even public relations stagnate (Sharpley, 2012). The personnel do not enjoy internal competition for winning prioritized schedule planning and other rewards. Moreover, corporate support of workers is not available any longer. Thus, any private issues, such as illness or family circumstances, can be a reason for a contract termination, especially during a seasonal increase of flights. The board of executives does not recognize the fact that downsizing of personnel does resolve financial challenges, but increase an evident lack of workforce required to meet a growing seasonal demand on flights.

Weaknesses

Overall, the organization has become extremely weak in relation to its leadership, governance, organizational management, and strategic excellence. The company does not address its profitable strategic fit as it lacks effective leadership and appropriate organizational governance, especially those that were before the retirement of Herb Kelleher (Sharpley, 2012). One may argue that the same strategy used for numerous decades can be an evidently risky and outdated approach. However, it is fair to note that the strategy initially implemented by Southwest Airlines was flexible and adjustable. The core value of that strategy was a constant update of its core competence and success factors according to detailed marketing research and lowest margin leverage of operational costs (Sharpley, 2012). Nowadays, the organization lacks such strategic mechanics.

AirTran Acquisition

In spite of all speculations about the recent acquisition of AirTran by Southwest Airlines, this purchase is an evident benefit for the company. First of all, it obtained a better working capital and an active liquidity of its financial assets. Even though the firm used to rely on the lowest margin of operational expenses, a backup for a drastic competitive reaction is an advantage, especially in the light of contemporary challenges of the organization (Miller, 2008). At the same time, the company widens its horizontal service line, because cargo, as well as other non-travel services, become available. They can potentially contribute to the strategic patterns that were used for sustaining market leadership. The chief executive board, however, may not recognize such an evident potential. They may take this opportunity from the airline (Miller, 2008). For this reason, it is highly important to pursue more reasonable managerial approach.

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Value of AirTran Purchase

As it has been already mentioned, the organization is provided with expanded marketing opportunities. AirTran offers air cargo and other non-travel airline services. Southwest Airlines may engage its customers in a general retention program and attract them to other services of SWA. Thus, the purchase of AirTran renders a sufficient marketing value to SWA. However, the company should understand the importance of this purchase to the overall strategy (Miller, 2008). It can benefit from it to its fullest extent if the chief executive board makes its primary strategic management more reasonable according to the aspects discussed previously (Miller, 2008). Otherwise, the firm may face additional challenges, which will not narrow the gap between the original strategic fit of SWA, but create the financial burden and exposure to the larger risks.

Recommendations

Taking all points into account, Southwest Airlines are recommended to amend its leadership towards more informal and employee-friendly style. In the same vein, organizational governance should take a bottom-up approach and revive the original organizational culture of SWA, since it is an important component of its organizational management, leadership, and strategic alignment (Elsbach, 2013). Human resource is the most valuable strategic asset of the company. Thus, the chief executive board is supposed to provide favorable conditions for their performance. According to the history, Southwest Airlines are advised to return to its original culture and flat organizational management. Moreover, the company should take more advantage of AirTran’s acquisition. Henceforth, the company needs to design a cost-effective approach for decreasing its operational cost to the previous level.

 At the same time, the company should consider moderate downsizing of its fleet in order to provide better operational density and reduce redundancy of working capital. It will not decrease market value much since a presence of recognizable and strong brand will leverage customer inflow and retention (Elsbach, 2013). Hence, SWA may create a new concept for its brand. It is recommended to make certain updates towards modern digitally-driven target audiences (Elsbach, 2013). By and large, the company should take a drastic action in order to restore its market leadership, but respectively considerable changes towards original strategic fit are much expected from a new team of leaders.

Conclusion

This paper discusses the Southwest Airlines case study. For many years, Southwest Airlines had been one of the most popular domestic airlines in the USA and the Caribbean area. However, the company has encountered unexpected issues regarding the effectiveness of its management policies. The main problems and issues consist of the strategic orientation, organizational management, and cultural leadership. In fact, the case is rather complicated because the company was once more successful. The paper identifies numerous reasons of companies decline; especially it focuses on a concept of strategic fit of Southwest Airline. The company had a successful strategy in relation to its business performance, financial management, organizational governance, and marketing. However, recent changes in the leadership and organizational governance placed an adverse impact on the overall performance of SWA. Authoritative decision-making, an absence of workforce commitment, and unreasonable financial management contributed to the stagnation of the market leader in domestic flights. While analyzing the case, the past events of public recognition and recent factors of employee hatred helped to form a perfect strategy.

Southwest Airlines was once famous for informal organizational culture, transformational leadership, and low-margin operational cost. It was the company that valued both its customers and employees. Thus, it provided its services with the help of customer-friendly policies that were its core competence. Implementation of core competence was mainly based on the success factors of customer service, safety, reliability, and efficiency. It means that the company was an example of a sustainable business plan where the customers felt comfortable with the offers and changes introduced to them. Unfortunately, the retirement of the main spiritual leader, Herb Kelleher, is associated with a drastic decline of the company. SWA lost its strategic fit due to the changed organizational structuring and upper margin financial planning. As a consequence, the airlines experience numerous unresolved issues regarding the effectiveness of its working capital and human resource management. Still, Southwest Airlines has a chance to restore its top market positions of it succeed in the reasonable management of AirTran subsidiary. Additionally, the company should update its branding and maintain traditional organizational leadership. Otherwise, an absence of democratic and transformational leadership, as well as the flat organizational structure, will aggravate the present situation.