For 32 years, Southwest Airlines has used the same formula to maintain its position as the most profitable airline in the U.S. It offers low fares, high-frequency fights, and good service; it files only Boeing 737 s; it doesn’t offer connecting flights, reserve seating; or free meals; it often relies on less expensive, secondary airports; and it prides itself on having the hardest-working and most productive employees in the industry. The company believes its true competitive advantage is its workforce.
Most of the major airlines ‘cost per seat-mile is nearly 100 per cent higher than Southwest. The company gets this cost advantage by paying its pilots and flight attendants considerably less than the competition and having them fly more hours. It has made up for the lower pay with generous profit sharing and stock option plans. In addition, because of Southwest’s rapid growth, it has provided its employees with something rare in the airline industry; job security. Because a large portion of a Southwest employee’s compensation comes in the form of stock options, they have worked harder and more flexibly than their peers at other airlines. For instance, pilots will often help ground crew move luggage and work extra hard to turn plane around fast. Of course, many Southwest employees originally joined the company and have stayed because of its spirit of fun. The company has always encouraged employees to work hard but to also have a good time. A sense of humor, for instance, has long been a basic criterion in the selection of new employees.
In the last couple of years, the environment has been changing for Southwest. First, it faces a number of new, upstart airlines in many of its markets. JetBlue, Frontier, Air Trans, Song and Ted are matching Southwest’s low prices but offering benefits like reserved seating and free live-satellite T.V. They’re able to do this because they have newer, more fuel-efficient planes and have young, lower paid...
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