The low cost model has become so ubiquitous today that it’s quite easy to f0rget that, when Southwest airlines set up in 1971, its business model was quite revolutionary. This was just two years after Concorde had come into existence, and talk of the time was of quick flights for important business people prepared to pay a high price. The two oil shocks of the 1970s, and changes in consumer tastes had a huge impact on this and, no doubt had a great, positive impact on the business model set up by Southwest Airlines.
Management, strategy, corporate culture, corporate governance, leadership, high-performance relationship, market leadership, low cost airlines, customer service.
The Southwest Airlines way sets out just how the company has made itself into one of the world’s most profitable companies, and for a time, it was even the largest carrier until the recent spate of mergers in the airline industry in the United States. The business model has become well adapted today. The company only uses the same Boeing 737 aircraft, and they have a whole number of ways in which they reduce their costs, such as not having pre-booked flights and pre-booked seats, and taking away many of the extras that become quite expensive within the airline industry. The model has been hugely successful. Southwest Airlines was profitable for the first thirty-one years of its existence, which wasn’t seen in any other airline industry. This is particularly impressive, given the fact that airlines in general struggle to make profits. Today, the company employs 46,000 people and operates 3,400 flights per day.
The list of achievements by the company is fairly impressive. It is the only airline to have won the industry triple crown, for the fewest delays, fewest complaints, and fewest mishandled baggage. For years (not in individual months, but in entire years), from 1992 to 1996, its annual growth rate over the first three decades was 10-15%. In fact, it was so successful that there is even within the industry what is called the “Southwest Effect”: that is, there is a change in passenger volumes and fares as soon as Southwest Airlines enters the industry.
Southwest Airlines says that one of its key criteria for hiring people is based on teamwork. The book goes into great depth about how relationships are built up within the company, and how each person is made to feel very much part of the success of the company. It also gives some anecdotes about how certain members of the company have been helped during difficult times. In one instance, the Chief Operating Officer, Colleen Barrett, discovered a longtime employee had $1800 of legal bills due to divorce and custody proceedings. They were immediately sent the money. These types of stories often become a myth within the company. Similarly, the book gives clear examples of how boundaries are reduced within the company, how blame is not attributed to one particular person, how jobs are kept flexible, and how unions are made to be partners, rather than adversaries.
The book then finishes with how other companies might learn from the Southwest model. Given the number of copies that have been brought up in the past few years, such as Ryanair, Easy Jet in Europe, Kingfisher in India, it would seem that many have adopted this model. Indeed, the low cost model now has gone into other parts of different industries. Perhaps, the main weakness of the book is in terms of critical analysis.
Each chapter sets out just how wonderful the company is, without really ever going into detail about some of the failings, or some of the difficulties that they might have had. This is part of the problem you get when an insider, or someone who is given very easy access to the company, is asked to write what essentially leads up to a hagiography of a particular company or of a particular boss. That aside, it’s a good read. It doesn’t deal much with the details or the financial model of the company, but it does give a very good insight into how a company, despite working on low costs, can develop a very rich and strong corporate culture.
Interesting quotes from the book:
By 2002, however, Southwest was the fourth largest airline in the United States in terms of domestic passengers miles flown, serving 59 airports in 30 states. In terms of passengers flown per day, Southwest was the third largest airline in the United States, and the largest in terms of the number of flights per day.
Southwest is also known for its record levels of safety. Unlike any other major U.S. airline, Southwest has never suffered a fatality and was consistently found by the Federal Aviation Administration to have the fewest pilot deviations per flight departure of all the major U.S. airlines.
According to American Airline’s senior vice president of planning, a hub generates up to 20% more revenue per plane than a comparable point-to-point flight.
Southwest Airlines was founded to serve a unique market within the airline industry. Herb Kelleher and Rollin King, Southwest’s founders, wanted to provide frequent, low-cost service in busy markets of less than 500 miles.
W. Edwards Deming, the father of Total Quality Management (TQM), argued that the resort to fault finding rather than problem solving is a common flow in organizations, and one that undermines both performance and the potential to improve performance over time.
A pilot pointed out that American gate agents “were scared to death to take a delay”. However this fear generated a sense of competing goals rather than shared goals. Once another party was tagged as responsible for having caused a problem, others were effectively off the hook.
The division of labour is a powerful source of efficiency and productivity, as Adam Smith showed over 200 years ago, but it results in alienation and fragmentation of human identity.
Relative to the other airlines included in this study (United, Continental and American), Southwest placed far greater attention on hiring for relational competence.
Though information technology can be a facilitator, it is not expected to be an effective substitute. When a job is mediated largely through a computer or a telephone, an important element of social interaction is lost. The loss of social interaction weakens relationships, and weakens critical performance parameters. These limitations on the effective use of information technology exist because coordination is not simply about the transfer of information. Instead, coordination requires the construction of shared meaning in order to facilitate collective action.
Although rigid job descriptions are often blamed on unions, they were originally developed as part of a management system designed to improve workplace functioning.
Herb Kelleher (chairman and founder) and Colleen Barrett (president and chief operating officer) achieved high levels of credibility through repeated, consistent episodes of “telling it straight,” whether the news was good or bad. “If it’s bad, they’ll tell you,” said one employee.
Other Book Reviews
S4 Consulting: “This is one of the best business books I have read in a long time. In preparing to write our own book on unleashing the power of business relationships, I have read thirteen books on relationship-driven cultures. While they all had something to add to my knowledge, there was only one book that had me underlining madly, turning down pages, and slapping on multiple Post-it notes for special emphasis.”
My Flight Coach: “Other companies, large and small, are now learning this valuable and often overlooked lesson. Relationships are how we do business. Relationships that are (forgive the often-used buzzword) authentic truly can make a real difference in how we attract, sustain, and build business.”
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Excellent advice taken from Lorange’s business and academic career.
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