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SOUTHWEST AIRLINES

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by

Mandy Moore

on 11 March 2014

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Transcript of SOUTHWEST AIRLINES

SOUTHWEST AIRLINES
What is Cost Leadership?
The process of producing ACCEPTABLE goods or services at the lowest cost to the customer relative to competing firms

Each step of the value chain is examined….warehousing, handling, and distribution

Prime Example:
Southwest Airlines
"If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they will have a good time doing it, people will fly your airline."
My Experience
Amanda Moore
Ashley Chanthaphuang
Deni Dukic
Jazmin Padilla
Joseline Soto
Presented by:
Cost Leadership
Low Cost Strategies
Overview
1. Flight Turnaround & Efficiency
2. Employee Training/Human Capital
3. Point to Point
4. Costs to Customers
5. High Entrance Barriers
Flight Turnaround
&
Efficiency
Boeing 737 ONLY!!!
Average flight time of 112 minutes
Average of 7 flights/13 hours per day
25 min gate turnaround
Availability creates high volume
and frequency
Efficient through simplicity
Employee Training...
Human Capital
The hardest part of the implementation of the low cost strategy is: Personnel
Costs to Customers
Internet booking
Bags fly free
Codesharing
Limited passenger service

HIGH ENTRANCE BARRIERS
Competitors - LOWER than average profit margin returns
Economies of scale - Most profit per unit
Economies of product differences - Standardized machinery
Brand equity and customer loyalty
Downfalls: Airlines providing better value
than Southwest at a similar cost

Porter's Five Forces
Threat of New Entrants
• Threat of new entrants is extremely low
• Industry start up costs are expensive
• Complicated and technical industry
• Regulations and federal policy requirements
• Capital requirements and investment costs
• Cost disadvantage relative to size
• Brand Recognition

Threat of Substitute Products or Services
Immense Competition: The airline industry is incredibly competitive, and the race to get the consumer’s business often leads to margin contraction
Jet Blue Airways and US Airways
Federal regulation
New technology?
Advances in other forms of transportation
Bargaining Power
of Customers
High concentration among GDS and aggregator websites

Websites increase price transparency

Low switching costs


Bargaining Power
of Suppliers
Increased fuel costs
Hedge on Fuel prices pays off
Was Southwest affected by the 9/11 attack?

Intensity of competitive rivalry
Employees are encouraged to think outside the box and interact with customers

How Southwest Airlines does it?
Training Focus:
learning and development
Multimillion dollar training center
for employees
AirTran & 45,000 employees
LUV Program
Employee
Turnout
Low employee turnover & good
relationship with labor union

Employee turnover rates of 4% to 5%

11 September 2001 - how Southwest
Airlines and its employees handled
the situation?
Salaries...Labor
Cost and Benefits
Southwest now has the best-paid pilots,
mechanics and flight attendants in the industry.

Unit labor cost rose 22% from 2002 to 2009.

Benefits/Programs offered:
Free flight on Southwest
Financial Security:
Retirement plan
Profit sharing plan

Human Sources &
Organizational culture
HR has a key role in recruiting, hiring, selecting, promoting, and training personnel

"Our culture is our biggest competitive strength” -COO Mr. Van de Ven

CEO: Herb Kelleher attributes high employee morale and efficiency to the implementation of a family friendly atmosphere as the company’s corporate culture.

1) More formidable rivals:
2) Newer rivals
often modeled after Southwest, are
thriving at the other end of the spectrum.

Conclusion
Point to Point
vs.
Hub and Spoke
Are You Awake???
Full transcript