Southwest Airlines Recruitment and Selection Strategy of Employees - Case Study Example

Southwest Airlines – Recruitment and Selection Strategy of Employees Executive Summary Southwest Airlines (SWA) entered the airline industry with challenges but with its dedication and commitment it managed to survive all the restrictions and challenges that came its way. The airline is financially strong and leadership at SWA is innovative. Their greatest strength is their extremely dedicated and motivated workforce. Their recruitment and selection strategy is also unique and helps to retain employees. Employee turnover at SWA is lower than competitors and they also offer stock options to the employees. They have the fastest turnaround in the industry and are known for on-schedule flights and luggage arrivals. They had been able to initiate and survive piece wars but as they did forward buying of oil, they are currently at a disadvantage against the competitors. The legacy carriers are now able to offer same fares as SWA as the oil prices have reduced. This strategy of theirs has backfired and they can sustain by further reducing costs or increasing productivity. They have also been accused and penalized for violating safety norms but they have their own clarifications and justifications. SWA continues to be the best run airline but after being market leaders and retaining profits continuously for several years, they now to revise their strategy. Table of Contents List of abbreviations iv 1. Introduction 1 2. Financial position 1 3. HR strategy 3 4. Leadership and challenges 5 5. Control system 6 6. Corporate culture 7 7. Conclusion 8 References 10 Appendix 12 List of abbreviations SWA Southwest Airlines FAA Federal Aviation Administration HR Human Resources 1. Introduction Southwest Airlines (SWA) is a benchmark in the industry for continuously maintaining fastest turnarounds, excellent service at lowest fares, on-schedule flights and luggage arrivals, a highly motivated and unionized workforce. In fact the airline achieved success not from economies of scale but because of its workforce (Bacon, 2001). The airline could boast of the lowest operating-cost structure in the domestic airline industry as it consistently offered the lowest and simplest fares. Its strategy through out has been based on exemplary levels of service. The airline encourages leadership and individuality at all levels. It was recognized by the Fortune Magazine as one of the top ten businesses to work for in the US (Achtmeyer, 2002). The Wall Street Journal ranked it first among airlines for customer service satisfaction. SWA started its operations out of Texas in 1971 with three aircrafts and was doing much better than other airlines because of fewer regulations in Texas. SWA grew to be the fourth largest airline in the US and by 2002 had a fleet of 366 Boeing 737 jets. It had 35,000 employees in 2001 and generated total operating revenues of $5.6 billion from a passenger load factor of 68.1 percent. Southwest was the United States’ only major short-haul, low-fare, high-frequency, point-to-point carrier. Situations keep changing and the external environment force businesses to change their strategy as well. 2. Financial position SWA has been able to earn profits even during the airline turmoil of 2004 because of its unique strategy. It has been able to consistently increases its market share and this purely because of its low-cost and short-haul strategy. It even kept its operating costs to the minimum and encouraged online booking. Through online booking SWA generated 46% of its passenger revenue (Achtmeyer, 2002). The Cost per booking through travel agents was $6-$8 against $1 on tickets booked online. Its five-year financial highlights are given in Annexure I. This demonstrates the difference between SWA and all other airlines. Its profit and operating margins have always been way above the other airlines in the industry. The current situation at SWA is somewhat disturbing even though they are still performing better than others in the industry. As of June 30, 2008, SWA had about $5.8 billion in cash and short-term investments (Koenig, 2008). Economic downturn and higher fares had reduced the demand for travel and this year SWA expects lower seat occupancy than last year. The airlines consistent record of sales and growth year on year despite the downturns is an incredible achievement. SWA was the only American carrier to register profit in the first quarter of 2008 when oil prices first crossed the $100 per barrel (Craver, 2008). Their operating costs are 20% below the industry average and 84% of the company is unionized. It bears testimony to the management’s vision and talent. Despite the growth, the SWA shares are underperforming other airlines (Walberg, 2007). One of the reasons is that the airline has been hedging against the rising oil prices for the past couple of years. They are locking in fuel prices under $40 per barrel. It did protect SWA from the squeeze from higher energy prices that most airlines encountered. As the hedges are ending, SWA now has to face higher energy cost even though the crude prices have fallen. In the process, the other sidelines are paying much less for fuel than they did last year. Over the next six months SWA will not benefit from lower fuel prices. Besides, competition has increased in its domain from short-haul carriers and discounters like AirTran Holdings and Jet Blue Airways, which has exerted pressure on pricing. The legacy carriers like American Airlines and Continental are enjoying lower fuel prices and higher ticket prices while SWA is stuck with higher fuel costs and no pricing power. It has already hedged fuel up to 2012 and because of forward hedging it has paid substantially low prices, below the market rates, for the past few years. This has resulted in its low operating costs and it is able to keep its fares low but this situation will not last for long. SWA is now threatened with exposure to the raw oil market every year which is not a good sign for the airline. As consolidation is taking place in the industry, with mergers and acquisitions the share prices of those airlines is going up, and SWA remains where it was. Asset utilization at SWA is its biggest strength. They are able to fly their planes 20 to 30 percent more hours than other major airlines. Since they have a point-to-point route network, they are able to minimize the domino effect of flight delays thereby maximizing asset utilization (Kearney, 2008). 3. HR strategy The SWA employees are the highest paid in the industry and the average age of the employees is 34 years (Achtmeyer, 2002). They enjoy low employee turnover compared to other airlines. Their pilots do not belong to any national union and they are the only airlines to follow this strategy. National Union rules limit the number of hours that pilots could fly but since they were independently unionized, they could fly far more hours than other airlines. The other workers at SWA were attached to national unions but flexible contract enables them to extend help wherever needed. Their HR strategy is unique but this does not provide the competitive advantage in isolation. The HR professionals at SWA are skilled in working with the union leaders and the executives and this is what enables them to engage the workforce and the union leaders in the process of serving the customers efficiently, flexibly and with high-quality, which is in any case their organizational goals (Kochan, 2004). Their faster turnaround time can be associated with efficient team work. They have been able to inculcate team work from gate agents to re-fuellers to pilots (Schneider 2003). The employees are made to feel a part of the cause and they feel empowered. They are encouraged to express opinions and their opinions count. In addition to the salary, the employees are offered compensation and recognition for the things leaders and people do a day-to-day basis (Singh, 2002). They aim to retain valued employees and ensure long-term commitment. Because of an environment of trust and compromise, the conflicts at SWA are kept to a minimum. Profits are shared with the employees depending on their earnings or the numbers of hours they fly and depending upon the company’s earnings. Such a reward system has helped to reinforce values essential to sustain the success of an organization. 4. Leadership and challenges SWA has fought challenges since its inception and it exists despite the regulated and protected markets (Pfeffer, 2005). They first challenges from the competitors and then legal restrictions to fly our of Dallas-Fort Worth International airport. Soon this low-cost airline, with no frills, no computerized system in place and with no unique technology in place, posed a challenge to other airlines in the industry. Today they owe their success to their leadership and strategy. They have fewer employees per aircraft, fly fewer passengers per employee and have more available seat miles per employee. Lower turnaround time enhances productivity in terms of equipment utilization. The leadership at SWA believed in the philosophy of employees first. They believe that if the employees are happy, satisfied, energetic and dedicated, they would naturally take good care of the customers (Achtmeyer, 2002). A happy customer not only translates into repeat customer but also brings with it new customers. The leadership also made the recruitment strategy unique. They looked not just for aptitude but attitude as well. They looked for top employee for each department and identified the strengths. These were the qualities that were sought in new employees and the pilots were asked to hire pilots and the gate agents entrusted with the responsibility to hire gate agents. The airline was the first offer profit-sharing plan in the airline industry as early as 1974 and continues to do so till date. The employees own about ten percent of the company stock. As the internal environment at SWA is strong, they are able meet challenges. It has invested in technology and consolidated its database to create a common platform to support its enterprise applications. They are now able to support different applications which includes from aircraft maintenance management systems to accounting; finance; business intelligence; data marts; and ground operations, including crew scheduling, reservations, and ticketing (Wiseth, 2004). 5. Control system SWA did not employ the hub-and-spoke approach employed by other airlines but stuck to its short-haul and point-to-point strategy. Its average flight time was 55 minutes and they do not offer assigned seats (Achtmeyer, 2002). They even pay their crew by trips and use low congested airports like Dallas to Houston and LA to Phoenix. Despite all their claims, there appear to be certain lapses in their security and maintenance. The Federal Aviation Administration (FAA) had imposed penalty on the airline for flying airplanes that needed inspection for fuselage cracks. They have been fined for $10.2 million for safety violations that include knowingly flying more than three dozen jets without mandatory inspections for structural damage (Michaels, 2008). This would be the largest fine levied against any airline. On inspection, the airline did find cracks in the bodies of six Boeing 737-300s, with the largest measuring 4 inches. The Boeing 737 jets made 59,791 flights before the airlines realized that inspections had not been carried out. This was in March 2007 but what was more disturbing was the fact that ever after realizing the lapse, another 1451 flights were made (Levin, 2008). The airline however claims that they never compromise with safety. They clarify that the penalty imposed by FAA was against a routine inspection which detected early signs of skin cracking and hence they expect that the matter would be settled amicably without having to pay the fine (Sunnucks, 2008). Even if they are able to escape the fine, this incident does show slackness on the part of the airline in security and maintenance. The critical success factors in any organization are management commitment, customer-focus and employee-involvement. As far as the airline industry is concerned, it is beset with communication problems. External pressures too are common and they keep changing in the airline industry and when this happens, old hierarchical command and control structures must give way to delayered organisations that improve communications and bring management closer to employees and customers (Applebaum & Fewster, n.d.). At SWA the unions are encouraged to find problems to the solutions and make suggestions to the management which are then reviewed and accepted if found fit. 6. Corporate culture SWA has a culture of hard work, high-energy, fun, local autonomy, and creativity (Achtmeyer, 2002). They believe in ongoing training and development and hold in-flight contests. They also recognize and honor personal initiatives. Following the September 11, 2001, most airlines went in massive layoffs but SWA did not do so. They believe that layoffs kill the corporate culture (ICMRIndia, 2003). It may be giving them short term benefits but not laying off breeds loyalty. The company believes that employees come first and the customers a respected second (Miles & Mangold, 2005). A failure is accepted as natural and pardonable at SWA (Bunz & Maes, 1998). They are equally encouraged to celebrate mistakes and triumphs and they are also encouraged to take responsibility for their acts. The organizational culture demonstrates good employee-management relations. The culture of the firm and the dedication and loyalty of the employees has seen it through several challenges (Singh, 2002). The employees are involved in the decision-making process and the recruitment procedure. Conclusion SWA continues to be the best-run airline in the industry and being the most financially sound airline. Their HR strategy has been difficult for competitors to imitate which has given them the competitive advantage. Besides, they could initiate price wars and with the right strategy they could even sustain the price war. They not only achieved breakeven but managed to retain cash. They provide the best value for money. People are interested in low cost fares and do not mind that no seat allotments are provided. Exemplary service in maintaining flight schedules and luggage arrivals, point-to-point and short-haul flights have given them the advantage over other carriers. Overall, they have been able to provide price, comfort, convenience, service and safety both for the business and the pleasure segment. They have always strived to offer better than their competitors whether in service or price. They followed an innovative strategy as the motivated employees were willing to do just any work as the situation demanded. Besides, they paid the crew per trip basis and the pilots were not part of the national union, which enabled more flying hours per pilot. They are selective in their hiring policies but they offer job security and do not believe in layoffs. There is no doubt that SWA has been the airline of choice but the penalty imposed by the FAA has made them alert to be over cautious. Its hedging of oil prices has not been the right strategy in retrospection as the oil prices have reduced while the company has engaged in forward buying. This has enabled competition to offer lower prices which currently SWA are unable to. SWA should, under the circumstances, keep their profit margins low, and just about break even with costs. Competition has intensified in the routes they fly and hence they need to survive amidst price war. They need to cut costs but they need to be careful where they do it. Since their strength lies in their human resources, they should utilize the motivated workforce for greater productivity and try to meet costs. References Achtmeyer, W. M. (2002). Southwest Airlines Corporation. Retrieved November 13, 2008, from website: http://mba.tuck.dartmouth.edu/pdf/2002-2-0012.pdf Applebaum, S. H. & Fewster, M. (n.d.). Human Resource Management Strategy in the Global Air line Industry – A Focus on Organisational Development. Retrieved November 13, 2008, from http://www.touchbriefings.com/pdf/12/avia031_p_apple.pdf Bacon, N. A. (2001). Competitive Advantage Through Human Resource Management: best practices or core competencies? Human Relations 2001; 54; 361 Bunz, U. K. & Maes, J. D. (1998). Learning excellence: Southwest Airlines’ approach. Managing Service Quality. 8/3 pp. 163-169 ICMRIndia, (2003). Shaping Southwest's Organizational Culture. Retrieved November 13, 2008, from website: http://www.icmrindia.org/casestudies/catalogue/Human%20Resource%20and%20Organization%20Behavior/Southwest%20Airlines%20Organizational%20Culture-HRM%20Case%20Studies1.htm Kearney, A. T. (2008). Are you more capable than your competitors are ruthless? Retrieved November 13, 2008, from website: http://www.atkearney.com/main.taf?p=5,1,1,118,3 [accessed 19 June 2008] Kochan, T. A. (2004). Restoring Trust in the Human Resource Management Profession. Asia Pacific Journal of Human Resources 2004; 42; 132 Koenig, D. (2008), S&P downgrades Southwest Airlines to 'BBB+'. Retrieved November 13, 2008, from website: http://biz.yahoo.com/ap/081009/southwest_airlines_downgrade.html?.v=1 Levin, A. (2008). FAA levels record $10.2M fine against Southwest. Retrieved November 13, 2008, from website: http://www.usatoday.com/travel/flights/2008- 03-06-fine_N.htm Michaels, D. (2008). Southwest Airlines faces record FAA fine. Retrieved November 13, 2008, from website: http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN- southwest_07bus.ART.State.Edition2.1d31ae1.html Miles, S. J. & Mangold. W. G. (2005). Positioning Southwest Airlines through employee branding. Business Horizons, 48, 535—545 Peffer, J. (2005). Producing sustainable competitive advantage through the effective management of people. Academy of Management Executive, 19/4 Walberg, R. (2007). Southwest: Great airline, bad investment. Retrieved November 13, 2008, from website: http://articles.moneycentral.msn.com/Investing/StreetPatrol/SouthwestMissesInve storLove.aspx Wiseth, K. (2004). Southwest's Strategy for Success: Consolidate!. Retrieved November 13, 2008, from website: http://www.oracle.com/technology/oramag/oracle/04- sep/o54swest.html Schneider, B. (2003). The Human Side of Strategy: Employee Experiences of Strategic Alignment in a Service Organization. Organizational Dynamics, 32/2 pp. 122–141 Singh, P. (2002). Strategic Reward Systems at Southwest Airlines. Compensation Benefits Review 2002; 34; 28 Sunnucks, M. (2008). Southwest Airlines denies any safety issues in wake of FAA fine. Retrieved November 13, 2008, from website: http://www.bizjournals.com/stlouis/stories/2008/03/03/daily80.html Annexure I Read More