The Southwest’s operations strategy had some componets that helps to implement the effective operation strategy. Basically Southwest clearly has a distinct advantage compared to other airlines in the industry by executing an effective and efficient operations strategy that forms an important pillar of its overall corporate strategy. Given below are some components of Southwest’s operation strategy.
Opreational costs and effiicency
Customer service
Employee/ Labor relations
Technology
Operational costa and efficiency
Labor costs The labor costs feor Southwest typically accounts for about 37% of its operating costs. Perhaps the most critical element of the successful low fare airline business model is achieving significantly higher labor productivity. According to a recent HBS case study, southwest airlines is the most hevily unionized US airlines and its salary rates are considered to be at aor above average compared to the US airline industry. The low-fare carrier laboradvantage is in much more flexible work rules that allow cross-utilization of virtually all employees(except where disallowed by licensing and safety standards). Such cross utilization and a long standing culture of cooperation among labor groups translate into lower unit labor costs. At Southwest in 4th quater 2000 totla labor expanse per availabel seat mile (ASM) was more than 25% below that of United and American and 58% less than US Airways.
Carriers like Southwest have a tremendous cost advantage over network airlines simply because their workforce generates more output per employee. In a study in 2001 the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially linger flight lengths and larger average aircat size of the network carriers. Therefore by its rlentless pursuit for lowest labor costs, Southwest is able top;ostively impact its bottom line revenues.
Fuel Costs Fuel costs is the second largest expense for airlines afer labor and accounts for about 18% of the carriers operating costs. Airlines that want to prevent huge swings in operating expenses and bottom line profitability choose to hedge fuel prices. If airlines can control the cost of fuel, they can more accurately estimate budgets and forecast earnings. With growing competition and air travel becoming a commodity business, being competitive on price was key to any airlines survival and success. It became hard gto pass higher fuel costs on to passengers by raising ticket prices due to the highly competitive nature of the industry.
Southwest has been able to successfully implement its fuel hedging strategy to save on fuel expenses in a big way and has the largest hedging position among other carriers. In the second quater of 2005, Southwest’s unit costs fell by 3.5% despite a 25% increase in jet fuel costs.
Point to point services Southwest operates its flight point to point service to maximize its operational efficiency and stay cost effective. Most of its flights are short hauls averaging about 590 miles. It uses the strategy to keep its flights in the air more ofen and therefore achieve better capacity utilization.
Secondary airports Southwest files to secondary/smaller airports in an effort to reduce travel delays and therefore provide excellent service to its custmers. It has led the industry in on time performance. Southwest has also been able to trim down its airport opreations costs relatively better than its rival airlines.
Consistnet aircraft At the heart of Southwest’s success is its single aricraft strategy. Its fleet consists execlusively of Boeing 737 jets. Having common fleet significantly simplifes schedulling, operations and flight maintenance. The training costs for pilots, ground crew and mechanics are lower, because there’s only a single aircraft to learn. Purchansing, provisioning and other operations are also vastly simplified, thereby lowering costs. Consistent airctafts also enables Southwest to utilze its pilot crew more efficiently.
E-Ticketing The idea of ticketless travel was a major advantage to Southwest because it could lower its distribution costs. Southwest became electronic or ticketless back in the mid 1990s, and today they are about 90-95% ticketless. Customers who use cedit cards are eligible for online transactions, and today Southwest.com bookings account for about of total revenus.
Employee and Labor relations
Southwest has been highly regarded for tis innovative management style.It maintains a relentless focus on high performance relationships and its prople management practices have been the key to its unparalleled success in the airline industry.
Mission Statement The Southwest mission statement shows that the company has a strong commitment to its employees. The company affords the same respect to its employees that is provided to its customers. The Southwest mission statement is unique in that it recongnizes the importance of its employees within the broader business strategy, which emphasixxes superb custome service and operational efficiency. The employees reciprocate the respect, loyalty and trust that Southwest demonstrates. Southwest emp;oyees are known for their loyalty, dedication, attitude and innovation. The employees are the distinguishing factor between Southwest and the rest of the airline industry.
Customer Service The mission of southwest airlines is dedicaton to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and company spirit.
Technology Southwest utilizes technology in many ways to fulfill its business objectives and maintain tis efficient operations. According toits CEO, technology equals productivity. Launched in 1996, ticketless travel was first introduced by Southwest. On May 1st 2000, Southwest Airlines indroduces “SWABIZ” a portal that assists company travel managers in booking and tracking trips made through its website. There are many new technology initiatives being undertaken currently and some are in the pipeline.
These are the important components in Southwest’s operation strategy and this strategy helps to work more efficiently and effectively.
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