The US Airline Industry - Case Study Example

Running Head: US AIRLINE INDUSTY US Airline Industry of the of the US Airline Industry Introduction Southwest Airlines belongs to Dallas, Texas, USA. It is a low-fare airline, serves individuals of more than 50 different cities of 28 states. These US airlines presently render more than 2400 flights in a day, and still expanding itself more towards east. Southwest Airlines of US possesses a significant strategy, which has brought profits from past 26 years. Short-haul journeys make almost 80% of total load of flights on the company. Nevertheless, it is rendering more number of long-haul flights and expanding its range in order to stand with bigger domestic carriers. Southwest first expanded to the East Coast in 1993, with service to Baltimore-Washington International Airport. In 1994, the company acquired Morris Air, a Salt Lake City, Utah based airline. That same year, Southwest launched several programs to cut costs. A ticket less system reduced travel agents commissions, and Southwest began to use an in-house reservation system. By 1997, Southwest Airlines served cities in all parts of the continental United States. This same year, Southwest formed an alliance with Icelandair. This agreement enabled Southwest passengers to connect from several United States cities to Europe through Icelandairs Baltimore hub. The company completed its first non-stop transcontinental flight in 1998, thus establishing Southwest as a formidable domestic competitor. In this paper potential areas of improvement, and how Southwest Airlines can gain its own advantage in the industry will be discussed. Functional and Dysfunctional Control System Southwest ranked number one in on-time performance for several years according to [The Department of Transportations Air Travel Consumer Report]" (Goh, 2007, 103). This punctuality can be attributed the companys ticket less system and no-frills approach to air travel. The ticket less system reduces costs for both consumers and Southwest. Travel agents and ticket brokers are eliminated from the ticketing process. This also minimizes the lengthy check-in processes by eliminating physical transactions between customer service representatives and the consumer. All that is required is a reservation number and a form of identification to receive a reusable boarding pass, which enables the customer to board quickly. Southwests no-frill approach reduces preparation time by eliminating the time required for three optional services. The first service to be bypassed is the meal distribution by flight attendants. Southwest does not serve meals on any flight regardless of duration. This severely reduces the time required of planes while sitting at the terminal. Second, Southwest does not offer reserve seating on any of its flights. Passengers are asked to select the first available seat. This reduces boarding time by allowing all customers to board in an orderly fashion, but not mandating a seat. The last technique used by Southwest to enhance on-time departure is a single class, seating array. Associated with the last service, this does not give any passenger special boarding privileges, delaying the departure. Criteria for Developing and Evaluating Control Systems Southwest Airlines has increased its profitability through a strategic alliance with Icelandair. This agreement has expanded Southwests service to Europe. This new international capability of the airline has allowed the company to enter a new market. Although they are not yet fully competitive in the international market, their steady growth will likely produce an increase in market share in the years to come. This is a huge step considering the youth of the company. Southwest has consistently offered airfares that are substantially cheaper than its competitors are. Larger competitors are unable to meet the prices of Southwest without incurring substantial losses. For instance, during the beginning of 1991, airlines cost for operation per accessible seat mile used to be 15% lower than America Wests costs, 29% less than Deltas, 32% less than Uniteds, and 39% lesser than USAirs. (Bhatt, 2008, 215). Many aspects of Southwests strategy have contributed to lower costs. Southwest uses only type of aircraft, Boeing 737s. Using a single type of carrier reduces training, maintenance, and inventory costs. Pilots and ground crew need only be skilled in operations and maintenance of a single type of plane. Therefore, training can be tailored specifically to reduce duration of training and the variety of skills taught. Inventory and storage costs can be reduced due to the Southwests need to carry supplies for only one type of aircraft. Southwest has the fastest turnaround time on the ground, which results in higher revenues, due to the companys ability to offer more flights daily. While competitors take more than an hour to load an unload passengers, and to clean and service the planes, about seventy percent of Southwests flights have a turnaround time of fifteen minutes, and ten percent have even pared a turnaround time to ten minutes. (Whalen, 2004, 45) As previously mentioned, the no-frills approach offered by Southwest Airlines, also greatly reduces costs. Southwest was ranked as the number four company to work for in America. Southwest topped the list in 2003. (Goh, 2007, 110) Southwest is eighty-five percent unionized yet has world-best management-employee relations. Unlike the adversarial relationships experienced by other airlines, Southwest is able to maintain a healthy and productive working arrangement. Southwest has flexible work rules. These work rules empower employees, resulting in higher levels of employee productivity and commitment. High employee productivity has allowed the company to carry minimal staff. Southwest maintains the same staffing level, regardless of revenues. This practice has contributed to employee feelings of job security and loyalty. Southwest Airlines is named a charter associate of the International Airline Passenger Associations Honor Roll of Airlines along with the Worlds most Secure Airlines. (Bhatt, 2008, 112) The company has achieved this status by employing the most highly skilled pilots in the world. Southwest has state-of-the-art training facilities across the United States. Southwest opened its new ten million dollars flight operations training center during 1990s. (Olin, 2005, 111) This facility is the key to Southwests flight training for more than twenty-six hundred pilots. It is well equipped to handle the flight training needs of this airline, well into the twenty-first century. Pilots must spend at least one thousand hours training for Southwest during their careers. Their focus and dedication to safety is supported by this training, and has earned them distinction among their competitors. Essentials of Quality Management Rather than invest all revenues into exploring new markets, Herb Kelleher preferred an approach, which expanded the company only when enough resources could be committed to do so. As leader, his company would only reach new markets when enough flights would be able to fly into a city ten to twelve times a day. Kellehers strategy was to establish as a major competitor in one location before disbursing his resources to a larger region. This philosophy of conservative growth has reduced losses due to rash investment choices. Southwest Airlines has always had smallest number of customer complaints in the airline industry. Southwest is on top of the list amongst fewest customer complaints for the past 8 years. Several factors contribute to this high customer satisfaction. Southwest offers the lowest airline fares in the industry, due to cost containment factors previously discussed. Second, the companys baggage handling practices have been recognized as world-best. It earned the "Triple Crown Award" five consecutive years for on-time performance, baggage handling, and customer complaints. This obviously leads to a very satisfied customer. Third, Southwest Airlines boasts the best on-time statistics among its domestic competitors. This is due to the factors mentioned earlier. Finally, Southwest does not disappoint its customers. Many large airlines disappoint customers when they do not provide the services promised. High prices and advertising promoting high quality, luxury accommodations, and dependable service heighten customers expectations. When large airlines cannot provide these services, customer satisfaction dramatically decreases. However, Southwest does not advertise these services. Therefore, customers are not disappointed because their expectations are not as high. World-Best Practices Southwest Airlines are seen as the leaders in the respective markets due to the innovation and use of world-best practices. Those include methods in the areas of employee relations, strategic alliances, on-time performance, and customer service. Southwest has have some of the most productive employees in the world. It has achieved these results through slightly different employee relations techniques. Southwest Airlines, is highly concerned with employee commitment and loyalty. Southwest has instilled feelings of job security, through practicing sound human resource and management techniques. Southwest Airlines have formed strategic alliances with foreign competitors in order to operate more effectively in an international capacity. Southwest, has recently entered the international market through its alliance with Icelandair. Punctuality is a critical success factor for the airline company. Southwest is highly recognized for their commitment to on-time flight departures and arrivals. Southwest prides themselves on their quick turnaround. All companies must acquire customer service in order to remain competitive in the global marketplace. Through different world-best practices, Southwest Airlines have has achieved extraordinary levels of customer satisfaction. Southwest achieves this satisfaction through a no-frills, cheap airfare approach. These high levels of customer contentment have resulted in two profitable, market leaders. Each of the above mentioned characteristics are "the world-best" practices that eventually take an organization towards high customer satisfaction. In a customer service oriented industry, such as the airline industry, such initiatives have set Southwest Airlines apart from the rest. The ability to maintain customer satisfaction leads to customer loyalty, and continuous profitability. Southwest Airlines strives to meet and exceed industry standards to measure up to its new mission, To be the undoubted leader in the world of travel. Practices Southwest Airlines May Benchmark Southwest Airlines is a United States domestic carrier seeking to expand into the global market. This strategy necessitates a benchmarking process. Southwest must look to establish global airline industry leaders such as British Airways, for effective techniques. Fuel efficiency and international experience are two areas in which Southwest may benchmark. Fuel efficiency is a key to cost reduction in a global marketplace. Global carriers often travel much longer distances, and, therefore, must minimize fuel costs. With Southwests competitive advantage being its low price fares, the company cannot afford to increase prices due to inefficient fuel management. Southwest should also set targets to maintain their fuel costs. By exploring how British Airways maintains their fuel costs, Southwest Airlines can learn a lot and continues to remain competitive. International experience is also critical to competing in a global marketplace. As Southwest Airlines attempts to expand beyond the borders of the United States, it can learn a lot from its various counterparts. Operating on a global level is very different than operating in a domestic market. Southwest should take from British Airways international experience, and learn from the best. Southwest Airlines is the worldwide leader in airline cost minimization. Cost containment is essential for maintaining reasonable airfares and yielding high profits. Southwest Airlines reduces costs by maintaining reusable boarding passes as well as minimizing turnaround time. These two practices are highly effective to an airline in any market. Reduced costs result in cheaper tickets, more customers, and higher profits. With the expansion of markets, it becomes compulsory for companies to expand themselves accordingly. On the other hand, extreme expansion may lead an organization to lose profits and sometimes may lose its capital. Hence, it should be the liability of management to make sensible investment decisions, in order to diminish danger of loss. Southwest has employed a conventional strategy of growth so that it can continually develop and uphold considerable profits. On the other hand, various airlines, for instance, British Airways, have invested assertively, that has caused considerable losses. Conclusion Benchmarking partnerships can be very beneficial for companies looking to succeed. Southwest Airlines lead the respective market due to slightly different world-best practices. However, it can still adapt the others world-best practices in order to fit their organization. By doing so, it can improve its performance with slightly modified techniques. Information sharing will ultimately lead to increased success and expansion. In an industry as competitive as that of the airline, Southwest Airlines must remain flexible and able to respond to changing market demand. References Goh, Jeffrey. (2007) Problems of Transnational Regulation: A Case Study of Aircraft Noise Regulation in the European Community. Transportation Law Journal. University of Denver, pg 100-112. Bhatt, S. (2008) Aviation, Environment and World Order. Humanities Press, The American Society of International Law/The American Journal International Law, p. 201-217. Olin, Michael S. (2005) The Legal and Regulatory Environment: Safety and Labor. Transportation Law Journal. University of Denver, p. 102-113. Whalen, Thomas J.(2004) Warsaw Convention: Giemulla, Schmid and Ehlers. Kluwer Law and Taxation Publishers, pg 45 Read More