Course: Services Marketing
Southwest Airlines (SWA) began services in 1971. In 1972, court order no charter flight beyond Texas in order to make up for the lost revenue they were forced to sell aircrafts and keep just the ones needed to continue business and operate scheduled services. Schedule could be kept if the turning time of a plain was low enough (10 minutes). Nevertheless, Dallas-based SWA achieved 40 consecutive years of profitability and an impressive revenue growth right in the middle of the biggest economic crisis the USA has seen. All this has been achieved thanks to its Low cost advantage and its differentiation strategy through a unique Customer Service delivered at their moments of truth by nearly 46,000 employees to more than 100 million customers annually, consistently having one of the best overall Customer Service records.
On May 2, 2011, SWA completed the acquisition of AirTran Holdings, Inc., and now operates AirTran Airways as a wholly owned subsidiary. Now SWA has become America’s most successful low fare, high frequency carrier operating more than 3,500 flights a day and, including AirTran, it operates the largest fleet of Boeing aircraft in the world to serve 97 destinations in 41 states. When looking for competitors we can find the “usual suspects” Europe's EasyJet and Ryanair are two of the best-known airlines to follow SWA’s business strategy in that continent. Other airlines with a business model based on SWA’s system include Canada's WestJet, Malaysia's AirAsia (the first and biggest Low-Cost in Asia), Qantas's Jetstar, Mexico's Volaris and Turkey's Pegasus Airlines. Although SWA has been a major inspiration to many other airlines, including Ryanair, AirAsia and Jetstar, the management strategies differ significantly from those of SWA, where its competitive strategy combines high level of employee and aircraft productivity with low unit costs by reducing aircraft turnaround time particularly at the gate with their 25 minutes turn (this reduces costs and passes them onto customers).
After seeing how SWA has become the symbol for a low-cost company and how they have achieved to lower even the smallest cost normally associated to the airline industry the question that comes to our minds is: “What are its biggest costs coming from then?” The answer to this can be found in SWA’s last Annual Report. Here we can read statements like: “Fuel costs alone have risen over 400 percent from 2002 levels. As a result, several U.S. airlines have ceased operations or reorganized through bankruptcy.” “Salaries, wages, and benefits constituted approximately 29 percent of the Company’s operating expenses during 2012. The Company’s ability to control labor costs is limited…” As we can see uncontrollable factors are affecting the low-cost structure of this company, regardless that these factors are also present all around the industry and SWA’s competitors, they admit that they have their own specific problems and that “The Company cannot guarantee it will be able to maintain or improve upon its current level of low-cost advantage. For example, the Company’s maintenance costs have increased with the aging of its fleet, which has required the Company to spend more to maintain a portion of its fleet and to implement a related fleet modernization and replacement plan.”
Before analyzing specific service processes at SW Airlines, we present an overview of all processes involved. They are mainly service processes as all of them have the final aim to provide the passenger with a pleasant flight – a service after all. The following figure shows these different and for the customer visible processes SWA faces.
Their service starts with the Pre-Booking (providing information about the airline, offered flights etc.), followed by the...