Southwest Airlines Case Study

Symptom Identification

Southwest Airlines in its early years of operation experienced numerous losses that forced it to make a tough decision between laying off some of its workers or selling one of its planes. Losses in the early years of operation are signs of problems.

Airplanes are one of the most delicate machines in the universe. Routine checking and maintenance are very important to any plane for the safety of passengers and owners of the companies. However, it was revealed that Southwest airlines had flown more than 117 aircrafts without the mandatory safety checks.

A flourishing business is a business that continuously experiences an increase in the number of customers. That business, which experiences a decrease, should know that it is a symptom of problems. This applies to Southwest Airlines.

Southwest airline has many competitors and it strives to use new technologies to outcompete them. Though it was the first company to reap the fruits of the online booking system, it has neither allowed its tickets to be purchased nor could its pricing information be viewed through various travel search engines.

Southwest airline decision-makers experience many problems. The costs of fuel and operations are extremely high. In this regard, the company had to choose between laying off its employees or selling one of its aircraft. Instead of selecting the first option, it opted to sell its aircraft.

The costs of fuel fluctuate at very high prices. For the management to counter this, they definitely have to increase fare prices and device other methods of lowering costs to customers. When fare prices increase, customers try to cut down their expenditure by opting to use other cheaper means of transport. This negatively affects Southwest Airline that they resort to other means of lowering costs such as fuel hedging, utilizing EcoPower engine washing services, and implementation of blended winglets.

The company is reported to have been charged $10.2 million by the Federal Aviation Administration to have flown more than 117 aircraft without passing them through the mandatory safety check. Southwest Company is a huge business that should not be involved in violating safety regulations. With the large profits it gets, if it can fly the 177 airplanes without mandatory safety regulation checks, then the costs for the checks are extremely high. This disturbs the management and leaves them with the option of ignoring the checks.

Southwest Airlines is one of the companies that treated their employees well both socially and financially. This was evident with the many numbers of people interested to work in the company through their applications and the positive commendations given by various agencies. However, as of 2005 the company was unable to increase salaries of its employees and was paying them unequally. This means that employees of the same rank, which were to be paid equal amounts of money, were given different figures. This prompted a walkout by the labor union. Failure to support its staff’s financial requirements showed that the management was experiencing high costs that it had very little left to increase or harmonize salaries of employees.

Problem Definition

The problem of competition is inevitable in the airline industry. Many companies are emerging and coming up with new strategies that would enable them satisfy customers. Their aim is to attract and retain customers. While Southwest Airline was the first one to develop website and implement online booking system in the industry, many companies in the airline industry have implemented the same. With the drive to retain its customers, Southwest Airline has continuously been alternating its boarding criteria to meet the changing demands of its customers.

“Customer is a king” is a term usually used by people to explain the importance of customers in a business. When the number of customers decreases in any business, it becomes a major concern as they are the driving force. The number of Southwest Airlines customers continuously decreases. This is due to the high cost of traveling and the many alternative airlines available in the market.

With the current economic crisis, the costs of fuel and operations are extremely high not only in the airline industry but also many others. The airline industry’s high costs begin at its inception. The starting costs are so high that players supplement their available starting capital with loans from financial institutions. This has seen many entrepreneurs with best minds, such as Warren Buffett with his U.S. Air, enter the business and fail. During its early years of inception, Southwest Airlines suffered operating losses and was forced to either sell one of its airplanes or lay off workers. In response to this, the company opted to retain all its workers, but sell one of its planes. It also incurred a lot of costs while setting up a training center for flight crews, which counted up to billions of dollars.

Problem Analysis

Costs for meeting safety regulations are high. This is evident when it was revealed that the company flew more than 117 aircrafts that were in violation of mandatory safety checks. This made it to temporarily ground its 47 aircrafts for re-inspection and get fined with $10.2 million. Moreover, instead of taking immediate corrective measures, the Federal Aviation Administration contended that the company continued to use the planes before the inspection was complete. Though the company had been in good relationship with its employees for many years, it experienced a union walkout due to its inability to harmonize and raise its employees’ salaries since 2005. In addition, even though the company is big and has been in operation for many years while making profits, it still relies on debts and has a D/E ratio of 77.6 out of that of the airline industry of D/E ratio of 330.

Even though Southwest Airlines was the first airline company to provide low-cost fares to customers, it has experienced stiff competition from both emerging and existing airline companies such as JetBlue and Skybus. Most companies are cutting costs and providing customers with low-cost services. This has made it device other innovative means, such as website creation, online booking, punctuality, exceptional customer service through proper employee treatment, humor advertising, and customer reward programs. However, all of these strategies are perfectly done by other competitors.

The decreasing number of customers is the result of high traveling costs, the entrance of many players in the industry, and the kind of customer services offered by the company. With the current economic crisis, the traveling costs offered by the company are high. This coupled with the customers’ urge to minimize costs and the reduction in the number of customers as they choose other cheaper alternative means of transport. When there are many players offering same products and services, customers are left with many alternatives to choose from.

The emergent of many companies in the airline industry provides customers with many alternatives, thereby making the number of Southwest Airline customers reduce. Many companies come up with different innovations that would enable them satisfactorily meet the needs of customers. With the advancement and improvement of technology, companies that constructively utilize technology attract and retain more customers. The kind of services offered to customers greatly determines the increase or decrease in the number of customers.

Alternative Identification and Evaluation

Alternatively, Southwest Airlines should consider implementing the online marketing, innovation, customer satisfaction strategies, cloud computing, and salary harmonization to solve the problems. Online marketing will help the company use the latest technology both to market worldwide and save costs. Through online marketing, the company will utilize online marketing tools such as social media marketing, banner advertising, email marketing, search engine optimization, and search engine marketing to advertise its products and services (Charlesworth, 2009).

Continued innovation will help the company come up with new products and services that not only meet the needs of users, but also make their lives comfortable. Cloud computing is a form of calculating, where computer applications are used as a service in the cloud (Sridhar, n.d.). This will help the company reduce most of the costs it incurs while using information technology.

Since all the airline companies have now resorted to providing customers with low-cost services, Southwest Airlines should consider implementing ways of improving customer satisfaction such as ensuring that it does market research before coming up with a product or service.

Employees determine reactions of customers to a particular service or product. They do interact with customers personally and their actions to customers can cause either a negative or positive reactions from the side of customers.

Online marketing is a good alternative as it both helps tackle stiff competition and reduce costs. The company, therefore, will divert the saved money to more important activities such as purchasing of fuel, covering the incurred costs associated with safety requirements, and harmonizing salaries of employees. Since airline business normally target global customers, online advertising is very convenient as it is seen worldwide. With online marketing tools such as email marketing, Southwest Airlines can send custom messages to specific customers. Online marketing is also fast. An item uploaded on the internet becomes available for viewing worldwide within a very short duration of time.

Marketing of a company starts with employee relationship to customers. Customers normally prefer companies whose employees greet and serve them warmly. Employees normally develop the interpersonal relationship with customers and always contact them some other time (Oechsli, 2005). Interpersonal communication and positive employee-customer relationships has a disadvantage, however; employees who later emerge to be entrepreneurs and venture into airline business may transfer most of a company’s customers to his or her new company.

Innovation is a good strategy as it provides customers with improved service or product delivery. It enables customers to taste new products and services or their improved versions. Innovation, however, consumes a lot of time and money.

Harmonizing salaries of employees improves the morale of employees and makes them work hard and deliver on time. It also creates the interpersonal relationship between employees and customers, therefore increasing the chances of many returning customers. With the high costs of fuel and operations and high inflation rate, salary harmonization will make the company spend a lot of money that it may not be able to bring back.

The Course of Actions

Improved technology usage in all aspects of the company’s operation will greatly solve the above problems. The main aim is to attract as many customers as possible and satisfy their needs. The use of online marketing will enable the company to reach customers globally, while other technologies will support improved service delivery, customer satisfaction, and viable and sustainable innovations. Customer satisfaction is made possible when comprehensive market research is done, and an engineering approach to system development is followed to develop products and services (Shelly, Cashman, & Rosenblatt, 2009).

The use of up-to-date technology will save costs and serve customers efficiently and effectively. Online marketing, for example, will provide customer feedback, complaints and compliments, which enables company marketers to know whether their marketing campaigns are successful or not by checking the number of visits or views at their site (Charlesworth, 2009).

Market research enables the company to identify the needs of customers, strategize on the ways of meeting the needs, and come up with products and services that meet consumer needs. This way many of its developed products may not go into waste due to customer rejection. Though the company may spend the considerably large amount of money performing market research, it will earn more money when customers accept their developed products and services. Moreover, through market research, the company will be able to get feedback from customers concerning its products and services. This way, it will be able to identify what customers want and what they do not want regarding the services the company offers and change to suit their needs.

While the success of the company requires input from all stakeholders, i.e. customers, employees and management, the management, marketing department, finance department, and information technology departments will be highly responsible for its execution. Marketing department performs market research to get what customers want, brings the information back to the company’s management, which liaise with the information technology department to come up with appropriate technology would meet the needs of users and the budget planning. The budget will then be taken to the management for approval and to the finance department for allocation of funds. The funds are finally channeled to the procurement department, which procures the requested technology.

New technologies usually affect all departments and stakeholders. Their implementation requires input from all stakeholders. Southwest Airlines should involve all stakeholders and departments while implementing its new technology in order to make it march with its operations.