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Southwest Airlines Th Airlines Industry is a service industry but because of all th quint and facilities include in transportation, it is asy to los control of that fact. Airlines perform a service for the customers-transporting thm and the belongings (or the products, in th cas of cargo customers) from on givn point to another for an and price. Th objective is to provid a service at a price that popl ar willing to pay and to kp costs blow that price so that a profit can b mad. In 1977, the last full year of government regulation of the airline industry, U. S.
airlines had a capacity of 240 million passengers. By 1993 they were carrying nearly 490 million. A Gallup survey that same year revealed that 77 % of the U. S. adult population had flown at least once, more than 30 % of them in the past 12 months. Industry - Geographic Location of the Industry Airports used by the scheduled air carriers are virtually all public facilities run by an agency of a state or local government for example, a state department of transportation, or a commission or port authority established by the state legislature and run by a board of directors appointed by elected officials.
Back in year 1966 Herb Kelleher was a very bright and successful lawyer in San Antonio, Texas. One of his clients at the time was a San Antonio entrepreneur, Rollin King, the owner of a small commuter air service. Rollin King approached Herb with a colossal idea. In a bar, over drinks, with doodles scratched on a cocktail napkin, Rollin King proposed his concept: starting a new airline using larger planes to serve the three major cities in Texas.
The plan was to fly between Dallas, San Antonio, and Houston. Herbs response to the offer: Rollin, youre crazy. Lets do it! With $ 10, 000 of his own money to get it started Southwest Airlines was born. No one, not even Herb Kelleher himself, was sure it would work. From the beginning, their competitors were determined to make certain it did not work.
As soon as the Texas Aeronautics Commission authorized them to fly, the other carriers immediately went to court to stop them. It was constant litigation from then on. Southwest was fighting, just to exist for its first 3? years. In 1970 the initial capital was gone, the operation had no employees, no airplanes, just $ 142 in the bank and overdue bills of over $ 80, 000. Still in battle with competitors in the courts, Southwest got a break.
The Texas Supreme Court ruled in their favor and they were given the go ahead only to have the matter appealed to the U. S. Supreme Court to try and stop them again. The U. S.
Supreme Court rejected the competitors petition, and they set the date to start service: June 18, 1971. Just two days before their first scheduled flight, competitors got an Austin trail judge to enjoin them again from commencing business. This time Herb was angry, very angry. The constant proceedings had gradually come to enrage me. There was no merit to our competitors legal assertions. They were simply trying to use their superior economic power to squeeze us dry so we would collapse before we ever got into business.
I was bound and determined to show that Southwest Airlines was going to survive, and was going into operation. If it didnt, then something was very wrong about our whole system, about our whole society. So I headed back to the Texas Supreme Court in Austin to get the injunction lifted. Before I left Dallas, I told Lamar-Muse, who was CEO of Southwest Airlines at the time, to go ahead with our scheduled flight no matter what. Lamar said Gee, Herb, what do I do Suppose the sheriff shows up and tries to prevent the flight So I said, Leave tire tracks on his shirt.
Were going, come hell or high water. And we did. We went into service the next day as scheduled. Thats how the first Southwest airplane got off the ground. Now it is easy to see why Herb Kelleher is a long time heavy smoker and avowed fan of Wild Turkey whiskey. Kelleher has not hidden his habits and why should he Herb Kelleher became chairman in 1978 and then CEO in 1982.
At that point the airline had just 27 planes, $ 270 million in revenues, and 2, 100 employees, and flew to just 14 cities. Since then Kelleher has built the company into a $ 5. 7 billion business. Based in Dallas, Southwest now has more than 30, 000 employees and flies to 57 Cities. At $ 14 billion, Southwests market capitalization is larger than Americans, United's and Continentals combined.
And still they offer some of the cheapest fares in the industry. But what is stunning of all about Southwest is that since 1973, when it first turned a profit, the company has never lost a penny. In an industry that is riddled with fare wars, recessions, oil crises, and other disasters, this is an amazing feat. No other airline comes close to it. For example, with the recent September 11 th terrorists attacks in New York and Washington crippling the airlines, some airlines had asked employees to donate portions of their pay to the company. Most thought this is when years of nasty labor relations would come back and bite the airlines.
Not with Southwest, the employees organized the give back on their own, starting immediately after Sept. 11 th. In doing so the employees enabled Southwest Airlines to be the only U. S. airline to report a profit in the third quarter of 2001. And by the way, its the most unionized airline in America. This can be attributed back to the Culture that is Southwest Airlines.
The culture at Southwest places a very high value on people. Whether it is the customer sitting in their seat flying to their destination or the flight attendant who is making that customers flight an enjoyable one. Herb Kelleher summarizes: You have to treat your employees like your customers. If you treat employees right, they will treat your customers right. That is a powerful competitive weapon for us. You have got to take time and listen to peoples ideas.
If you just tell somebody no, thats an act of power and, in my opinion an abuse of power. You cant constrain people in their thinking. Southwest uses a number of systems to allow employee participation. The fundamental concept is the notion of a loose-tight design. Within the context of tight rules and procedures, employees are encouraged to take a wide margin of leeway. The company maintains rather informal job descriptions and decentralizes decision-making, regarding customer service.
So while there are very high standardizations regarding operations, they are low with regard to customer service. Employees are empowered to do what is necessary to satisfy customers. For example, flight attendants are allowed to improvise cabin instructions and employees are allowed to play practical jokes on each other and customers. 9 Management at Southwest operates on an informal open door policy that allows employees to go around formal hierarchy. Employees are encouraged to try different things, knowing they will not be punished. Kelleher once told the story of how a Southwest vice president complained several years ago that customers, gate agents, pilots and baggage handlers had more access to Kelleher than he had as vice president.
Kelleher's response was, Let me explain this: theyre more important than you are. 8 For an organization to excel, Kelleher points out that it is necessary to build a culture of Mental Ownership. Hiring, communication, and other HR practices support the culture at Southwest. Included in this is the demeanor of company leaders and a no furlough policy. Not furloughing people breeds a sense of loyalty. It also breeds a sense of security and trust, so in bad times Southwest is taking care of there employees and in good times employees are thinking um Ive never lost my job.
Thats a good reason to stick around. 5 As a benefit to sticking around Southwest offers profit sharing to all its employees, and has done so for the last 24 years. It also offers a top-notch benefits package. In return for these benefits, Southwest wants its employees to be productive. They achieve productivity through peoples enthusiasm and dedication for the job. For example other carriers take 45 minutes to get arriving planes back in the air. Southwests frenzied fuel, baggage and refreshment crews, with flight attendants and sometimes pilots cleaning up, only takes 20 minutes, allowing a fleet of 250 planes to do the work of 300.
That is dedication. Quick turnarounds are one reason the Department of Transportation calls Southwest Airlines the prime force pushing fares down. Another part of the Southwests culture is the use of humor. Kelleher's penchant for laughter and fun is a big part of the culture. Prospective employees are asked how humor helped them out of a difficult situation. Prospective pilots are sometimes asked to don Southwest shorts; the ones who see the request as fun and a joke pass the interview.
Kelleher once settled a legal dispute with another company over a trademarked slogan by publicly arm-wrestling the other companys CEO. Kelleher won. Kelleher is always ready to play the fool, whether its dressing up as Elvis for Halloween or driving a Harley to a company picnic. Employees believe that Kelleher, in his leadership role, protects their sources of motivation and draws upon them to invigorate and revitalize them when they temporarily lose hope.
Keller's philosophy is that "When work becomes a cause, our lives take on meaning and significance. We are moved to higher levels of motivation because work no longer seen as a vocation becomes an avocation" (p. 313). Gary Barron says, "Southwest Airlines is so much fun that it almost makes you feel guilty to call it work. " The leadership at Southwest is committed to the cause and to the relationships they have established in pursuing the cause. It is commitment that creates meaning in their work. This meaningful work is what motivates them to be the most productive work force in the U. S.
airline industry. Southwest's leadership believes in building employees' involvement in the business. Stock ownership is a tremendous incentive for employees, but it is not a guarantee that they will act like owners. Herb Kelleher's approach is to motivate employees to believing that they can make a difference and then acting on that belief in all that they do. With ownership comes responsibility and accountability. Kelleher says that he has thought about his successor very seriously for a long while.
His biggest concern was that he wanted someone who would be respectful of Southwests culture and someone that would be altruistic in nature. Herb Kelleher stepped down as CEO and President of Southwest Airlines in June of 2001. He will remain Chairman of the Board of Directors. Jim Parker Southwests former CFO and Colleen Barrett former Executive Vice President are currently CEO and Executive President respectfully. Jim Parker was recently asked How are you going to handle succeeding Herb And he said, Well, Colleens going to handle the smoking, and Im going to handle the drinking. Herb Kelleher responds, At least they have that divided up.
Kelleher's advice to entrepreneurs: Ask your employees whats important to them. Ask your customers what is important to them. Then do it. It should be that simple. That initial $ 10, 000 capital Herb Kelleher invested in that smoke filled bar in San Antonio is now worth an estimated $ 200 million. 4 Not bad for a lawyer who loved to tell jokes and listen to people.
Bibliography: web [ 2 ] Stock Quotes web [ 3 ] Southwest Airlines Home Page web [ 4 ] Encarta, Information on the Airline Industry web [ 5 ] Air-Transport, Information on the Airline Industry web [ 6 ] Airline Industry, Information web [ 7 ] Industry/Southwest stock market quotes web [ 8 ] Market Guide Financial Information web [ 9 ] World Air Transport Statistics web [ 10 ] Market Guide Ration Comparisons - Industry web [ 11 ] Special Report 255 Entry and Competition in the U. S. Airline Industry: Issues and Opportunities web (1) Kelly Kathy, Southwest Airlines: Flying High with Uncle Herb, Business Week (July 1989): 53. (2) Charles A. Jaffe, Moving Fast By Standing Still, Nations Business (October 1991): 58 (3) Wendy Zellner, Striking Gold in the California Skies, Business Week (March 30, 1992): 48. (4) Scott McCartney, Scrappy Southwest Reaches Coast in One Stop, The Wall Street Journal (April 22, 1997) Miller Alex, Strategic Management/Alex Miller/ 3 rd ed. , (1998): C 169 -C 190
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