Southwest Airlines: Using Human Resources for Competitive Advantage
Southwest was founded in 1971 with a fleet of three Boeing 737 aircraft. Headquartered at Love Field in Dallas, the airline followed a strategy of low fares, few frills, and excellent customer service. Early on, the airline faced many political and regulatory challenges including the Wright Amendment, which prohibited the carrier from offering direct service into Love Field from any state other than Texas and its four neighboring states. Under the leadership of co-founder and CEO Herb Kelleher, Southwest used these challenges to galvanize their employees, ultimately building a highly successful business with a uniquely committed workforce.
By 1994, the airline’s success had spawned many smaller imitators such as Kiwi and Reno Air. Big carriers like United, USAir, and Continental also sought to duplicate Southwest’s model with an airline-within-an-airline that, like Southwest, offered low fares, few frills, and frequent service. The new competitive threat had driven down the stock price and analysts were asking whether the airline’s advantage was sustainable. On September 17, 1994, Ann Rhoades, a former marketing executive and VP of People for Southwest, was asked to review the company’s current position in light of the new competition and evaluate whether Southwest’s wildly successful human resources practices could be imitated.
Southwest Airlines' successful and profitable business model has been driven by several strategies including high aircraft utilization, a standardized fleet, charismatic leadership, low fares, excellent customer service, an attractive frequent flier program, innovative marketing, a performance-focused organizational culture, strategic human resources management, and lean operations. The Southwest fleet is composed exclusively of fuel-efficient Boeing 737 airplanes. By using a single type aircraft, the company can take advantage of a smaller parts inventory while saving on maintenance and training costs, which has contributed to the company's immaculate safety record. These planes spend an average 11 hours in the air daily compared to an industry average of 8 hours. Similarly, they run an average of 10.5 flights per gate versus the industry average 4.5. Southwest's strategy of short-haul, point-to-point flights using less congested airports has contributed greatly to the airline's efficiency. A significant cost saving factor is the productive and motivated workforce. In 1991, Southwest was notably more efficient than the industry standard as evidenced by fewer employees per aircraft (79 versus 131), more passengers per employee (2,318 versus 848), and more available seat miles per employee (1,891,082 versus 1,339,995). Incorporated and developed under the charismatic and motivational leadership of Kelleher, the airline's distinctive corporate culture and human resource management practices are an essential part of the business foundation. There are several reasons for the workforce productivity, which include a rigorous selection process, an average compensation package with significant non-monetary awards such as stock options, ongoing training, and an employee development program. The human resources practices have created shareholder value by means of low turnover, high productivity, and excellent job satisfaction. Southwest has designed cross-functional work coordination such that, once the airline reaches a destination, every member of the flight and ground crew contributes to getting the next flight out on time. Remarkably, 70% of their flights spent an average of fifteen minutes on the ground in 1991. Faster turnaround time reduces labor costs and offers a significant productivity advantage in terms of equipment utilization; fewer delays make flying with Southwest more attractive to the travelers. Southwest has an organizational culture emphasizing "LUV" and "FUN"...
Please join StudyMode to read the full document