Embry-Riddle Aeronautical UniversityASCI 4048.5 Research Paper Submission Southwest Airlines

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Southwest Airlines XXXX XXXXXX Embry-Riddle Aeronautical UniversitySOUTHWEST AIRLINES 2 Southwest Airlines started in Dallas Texas in 1971 by Rollin King and Herb Kelleher. At the time, there were... only three routes and those were between Dallas, Houston, and San Antonio. The company mantra is, “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 have a good time doing it, people will fly your airline” (Srinivasan, 2017). Southwest has grown since its inception. They now employ 54,000 and deliver 100 million passengers annually, connecting to 101 destinations within the United States and eight countries. According to the Department of Transportation, “Southwest Airlines is the nation’s largest carrier of originating domestic passengers boarded” (Southwest Airlines Newsroom, 2017). Southwest Airlines flies the Boeing 737 aircraft exclusively and has a fleet consisting of 727 of these aircraft. This focus has greatly reduced the cost of increased worker training and dedicates all efforts on efficiency in the repair of one type of craft. Southwest Airlines has distinguished itself from the rest by delivering highly affordable air travel at lower fares which has increased passenger traffic. The results of their business model and culture have resulted in 44 consecutive years of profitability. (Investors.southwest.com, 2017) The airline is a publically traded company with a Common Stock “LUV” on the New York Stock Exchange. In the first quarter of 2017, net income was $351 million, total operating revenues of $4.9 billion, and carried 29.5 million passengers. (Southwest Airlines Newsroom, 2017). This success is due to some key factors through well documented competitive strategies. Southwest has developed its strategy with two common ideas, low operating costs and high operational efficiency. Many often wonder, “How does Southwest stay consistently profitableSOUTHWEST AIRLINES 3 when the airline industry has taken a huge hit in the past decade?” “Southwest Airlines has the lowest costs and strongest balance sheet in the industry, according to its chairman Kelleher” (Srinivasan, 2017). When understanding Southwest’s approach to low operating costs, we can look at the example their two biggest costs; labor and fuel. The industry average for labor costs is approximately 40% followed by fuel at approximately 18%. “Some other ways Southwest is able to keep their operational costs low is – flying point-to-point routes, choosing secondary (smaller) airports, carrying consistent aircrafts, maintaining high aircraft utilization, and encouraging e-ticketing” (Srinivasan, 2017). How does Southwest Airlines differ from other airlines? They are heavily unionized. This appears counter intuitive because one typically thinks that unions prevent costs savings as the unions combat the company which can increase costs. “Southwest Airlines is the most heavily unionized US Airline (about 81% of its employees belong to a union) and its salary rates are considered to be at or above average compared to the US airline industry” (Srinivasan, 2017). This better standard can be attributed to higher employee productivity. Southwest has fostered a working environment in which employees have much more flexibility to cross typically unconventional lines. This allows for a much more versatile worker. The only time at which this could not be accomplished is when safety or licenses are involved. The unions associated with Southwest airlines have a long history of cooperation and Southwest has capitalized on this cooperative environment. These versatile workers and union cooperation have resulted in lower labor union costs. Southwest labor union costs are “25% below that of United and American, and 58% less than US Airways” (Srinivasan, 2017). This cross-training culture has distinguished itself over the competition. “The productivity of Southwest employees was over 45% higher than that of American and United” (Srinivasan, 2017) [Show More]

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