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Southwest's Low Cost Thrills Strategy
Is Southwest business strategy really innovative?
What are the key policies, procedures, operating practices, and core values underlying Southwest’s efforts to implement and execute its low-cost/no frills strategy?
Southwest Airlines (SWA) seeks to be an innovator in the airline industry with a low cost strategy. Several strategies of SWA set them apart from other carriers. One strategy implemented by SWA is using only one type of jet aircraft, the Boeing 737. This strategy allows SWA to minimize the sixe of spare parts inventories, simplify training of maintenance and repair personnel, improve the proficiency and speed of maintenance routines, and to simplify the task of scheduling planes for particular flights. SWA uses this uniformity approach to remain a low-cost flight service provider.
Another strategy that SWA implements is ticketless travel and the ability of customers to make reservations and purchase tickets at the company’s website. SWA was the first major airline to introduce ticketless travel, which accounted for more than 95 percent of all sales in 2007, indicating that SWA was an industry leader in this cost effective strategy. Allowing customers the ability of purchasing tickets online has also helped SWA remain a low-cost competitor. This strategy allows the organization to avoid paying commissions to travel agents for handling ticket process. These strategies that SWA implemented are now commonplace in the airline ticking purchasing process and basically an industry standard.
Using Airport Size to their Advantage
SWA has kept their costs low by stressing flights into and out of airports in medium-sized and less congested airports in major metropolitan areas. This strategy has assisted in producing better-than-average performance for flights being on time and also reduced the fuel costs associated with planes sitting in line or circling airports waiting for clearance to takeoff/land. This strategy also lowered the amount of time passengers spend driving to congested airports, parking, boarding the plane, drastically decreasing the total time it takes for the entire traveling process. Sticking with the saving time theme SWA also streamlined their flight routes direct to destinations rather than the hub-and-spoke approach; making for shorter routes and quicker flights. This strategy allowed SWA be more effective and efficient by lowering the number of gate facilities that would be required and ultimately minimizing the time the aircraft was at the gate. Another way SWA decided to save time was to speed up the boarding process. SWA assigned each passenger a reserved seat and a boarding group to improve the boarding process. This strategy avoided the previous “cattle call” method of patrons boarding by color-coded tickets and taking the any seat in the area that they wanted. This previous method lacked structure and SWA made a cost effective decision creating some order to the process.
SWA was able to reduce costs associate with contracted cleaning crews by having the flight attendants responsible for cleaning up trash left by deplaning passengers. Most companies in the airline industry have now adopted this SWA strategy after they had experienced financial losses in 2001-2005 and is now another strategy of SWA that is becoming an industry standard for airlines with a low-cost strategy.
There were some changes to the airplanes that SWA made to keep a low cost strategy. SWA changed the seat materials and added vertical winglets to the end of the wings. The seat material was changed from cloth to leather because this material was more durable and easier to maintain which made this investment financially successful for the long term. The addition of winglets on the wing tips allowed the planes to climb more steeply and reach higher flight levels faster, improved the performance, extended the life of the engine, and lowered the amount of fuel used for each flight. These investments were conducted to save the SWA organization money long-term, which justified the purchases.
SWA also participated in fuel hedging which saved them about $4 billion through 1998 to 2010. This practice only works effectively when fuel prices are increasing as SWA found out in 2009. The organization was able to adapt their strategy by modifying the amount of its future fuel requirements based on management’s judgment. SWA’s management team was able to adapt and keep a potentially (and historically) profitable strategy that could become profitable again in the future.
Upgraded and enhanced its management information systems to speed data flows, improve operating efficiency, lower costs, and upgrade its customer service capabilities
The flight attendants are encouraged to have fun while they are working; this positive emotion is passed on to the passengers allowing for a more relaxing flight.
Southwest Airlines works to put their employees first and empowers them to put their customers first.