Business Report: Southwest Airlines

Co.
Module:

Operations and Process Management

Module Leader: Phill Morgan

Program:

MSc Business Management

Student Name:

Muhammad Faisal Khan

Student ID:

15123134

Hand-in Date:

14th April 2016

Pages:

Executive summary

Table of content

1. INTRODUCTION

This report aims to analyse Southwest Airlines operations and processes by employing key
operations management framework. It will be taking into consideration their domestic and
near-international routes such as; Mexico and Caribbean (Southwest, 2016).
In 1967, a low cost carrier revolution took place when Southwest airline has launched their
services in the United States. At that time, only few people were flying because air travel was
affordable only for the elite, but Southwest Airlines has changed the norms of airline industry
by introducing low-fare airline in order to make it affordable for everyone. Recently, almost
85% Americans prefer flying than other means of transport (Southwest, 2015). Companys
headquarter is situated in Dallas, Texas and it has nearly 34,726 employees (Southwest,
2015). In 2011, Southwest has done acquisition with AirTran, in the beginning it was very
difficult to predict that whether it is right move or not because southwest operates in a pointto-point network which means after transporting passengers and their luggage planes go
back to the point where they came from, whereas AirTran have a significant hub-to-spoke
strategy which only operates to their concentrated routes to fill the seats in order to
maximise the profit. It was also considering that AirTran integration will increase the
operational cost (Forbes, 2014) but, Southwest has used the opportunity of acquisition with
AirTran and started operating to near-international destinations such as, Mexico and
Caribbean (The Economist, 2012).
US low-fare airline industry is highly competitive as more than 8 low-cost-carriers are
providing their services such as JetBlue, Spirit Airlines Air Alaska and Virgin America.
Recently, Air Alaska bought Virgin-America by following Southwests footsteps (The
Guardian, 2016). Regardless of such competitiveness Southwests revenue is $19.8 billion,
which make Southwest a leader in the industry by having 18.8% market share see appendix
figure 1.1(CAPA, 2015).

2. ANALYSIS
2.1 Transformation Process
The operations are activities in which input resources (e.g. information, energy, people,
equipment, materials) converts through a transformation process into outputs such as;
products and (or) services) (Slack et al. 2011). As a part of aviation industry Southwest
output is a service see appendix figure 2.1 which illustrates.

successfully managed provide their services in more than 90 destinations across the US,
Mexico and Caribbean. Approximately, Southwest operates over 3,800 flights a day with
more than 500 roundtrip markets. Financial year 2015 was a historic year for Southwest
Airlines, since company has record net income $1.2 billion, which is $1.64 per diluted share.
Companys record earnings gushed by 125% as compare with FY2014 (southwest business
report 2015). Southwest Airlines also shown growth in their operating revenues were record
$18.6 billion a growth of 5.1 percent compare with year ended 2013.
This report aim to investigate Southwests operation processes, planning and designing.
Strategic recommendation will be proposed in order to improve their operations for gaining
competitive advantage.

See appendix figure 2.1

2.2 The 4 Vs
According to Slack et al. (2014), all operation processes are identical as they transform
resources, but they do varied in different manners, four of which are specifically are

important and also known as Four Vs. As all airlines have similarities in terms of operations
and their output, but in order to distinct them, a variety of elements were analysed. These
factors depict the effectiveness and productivity of airlines operations and their responses to
customer need and based upon their annual reports (2015) see appendix figure 2.2.
o
o
o
o

Volume: Capability of flight operations

Variety: Destinations
Variation: Airline Fleet
Visibility: Ticket Operations

Volume
The assessment of volume has been done by Available Seat per Mile (ASM) see appendix
table 2.1. This table shows the mileage and capacity of both airlines for the year 2015. The
high specialisation, repeatability and systemisation of the airlines can be reflect through the
high volume. Moreover, more passengers and miles reduces per unit cost to achieve
economy of scale (Slack et al. 2011).
Variety
The variety of locations is illustrated through the table see appendix table 2.2, fairly high
flexibility of destinations in order to fulfil customers demand portraying that regardless of
being in low-cost carrier Southwest catering their customer quite well and AirTran giving
Southwest an edge as it takes their passengers to near-international destinations such as
Mexico and Caribbean (Southwest and JetBlue 2015).
Variation in Demand
Companys characteristics reflects the implication of variation in demand. The high levels of
variation in demand in order to satisfy the customers demand would lead to high costs
(Slack et al. 2004). However, on the other hand high utilisation of available resources would
help organisation to reduce the unit cost. The low variation in demand can be seen through
table 2.3, see appendix, variation of airliners in Southwests fleet operated in order to satisfy
demand par seat, it allows Southwest to be flexible in terms of changing capacity due to

demand per route (Southwest and JetBlue 2015). However, wide variety of airliners limit the
standardisation which may be the cause of increased operational costs (Mintel. 2014).
Visibility
It is fairly difficult to understand the concept of process visibility in different types of
organisations. Visibility, shows that how much operational processes are exposed and
experienced by the customers directly (Slack et al, 2014). The level to which customers of
Southwest be able to track their booking through stages of the flight process. Southwest has
provided various options to their customers in order to gratify with their order. In airline
service industry customers do not need to know about the operational processes, apart from
essential information about logistics, available online, subsequent low customer contact see
appendix table 2.4.
In order to reduce the processing cost it is required to have high volume, low variety, low
variation and low visibility (Matopoulos, 2013). The Southwest experience low visibility, high
volume, low variation in most case high variety, because in airline industry high variety in
terms of location cant be compromised (Southwest and JetBlue 2015).

2.3 Key Performance Objectives

Organisation ought to work to fulfil their customers demand by providing them speedy and
dependable services at fair price, and they should also help their supplies to increase
services they offer (Slack et al. 2001). There are five core performance objectives and they
equally applicable to all sort of operations.
o
o
o
o
o

Quality
Speed
Dependability
Flexibility
Cost

Southwest airline will be assessed through aforementioned key performance objectives

parameters.
Quality

Quality can be seen in table 2.5 see appendix, this table shows that how airlines filling their
planes, illustrated through Available Seats per Mile, Passenger Load Factor and Total
Passengers boarded. The high volume of passengers using Southwest airline indicating the
trust on quality of service providing by the airline (Southwest and JetBlue 2015).
Speed
The time between order and delivery examined through delays and on-time flights see
appendix table 2.6. Well-organized operations are significant to airlines, since time is key
asset to customers. Southwest has proven track record with negligible delays in terms of
time and percentage (Southwest and JetBlue 2015).
Dependability
In airline industry mishandled baggage and cancelled flights are essential elements to
assess the dependability see appendix table 2.7. Flights and handling luggage are key
elements the customers rely on, therefore, their figures are vital. The information to
investigate the reasons behind these cancellation is missing which reduced the
dependability.

Flexibility
Airlines flexibility can be seen through providing individual treatment to their customers has
been examined by the provided services see appendix table 2.8. Each additional service that
airline provides increase the operational costs. Without wasting, Food and beverages need
to be profuse to cater all passengers, Wi-Fi and in-flight entertainment require investment to
equipped the flights, baggage charges can affect passengers airline chose , yet extra weight
resulted extra time, labour and fuel costs and this balance is very difficult to achieve
(Southwest and JetBlue 2015).
Costs

Airline costs shown in table 2.9 see appendix indicate the costs of the flights and the
turnover. Southwest has the maximum variance in Passenger Revenue per Available Seat
Mile and Costs per Available Seat Mile making profit $0.56 per passenger, high passenger
load factor could be the reason, since CASM and PRASM examined passengers overall
operating cost per seat, filled or not (Southwest and JetBlue, 2015).
2.4 Operating Process
Since, Southwest has high volume-variety and low-variation in order to achieve the economy
of scale and at the same time provide great experience to their customers it produces mass
services (Slack, et al. 2013). Southwest paying the cost of producing high volume-variety to
their customers. However, Southwest has made some changes to their operational process
in order to save the high operations cost such as; cutting down the turnaround time, at the
same time they have trimmed the block time as well, Block time is the amount of time
scheduled from departure from one gate until arrival at the next (Southwest, 2013).

2.5 Layout, Location and Capacity Management

Passenger distribution centre and integrated transfer hub plays a vital role in promoting the
improvement of transportation system and infrastructure (Sun and An, 2012). From Dallas,
Texas Southwest operate their flights through point-to-point strategy which means after
transporting passengers to their destinations planes go back to the place where it came from
(Stevenson, 2012), this strategy plays vital role in Southwest success. On the contrary, after
acquisition with AirTran in 2011, Southwest has started hub-to-spoke strategy for nearinternational destinations such as Mexico and Caribbean (Southwest, 2012), this strategy

allows airlines to operates in most concentrated areas see appendix figure 2.3 (Quora,
2015).
Every company who produce regardless of products or services must need to decide the
capacity of every single facilities (Slack et al. 2013). Southwests shares increased by 3% to
$37.98 on substantial volume since, airline has publicised the seating growth allowance at
7%, withdrawing previous anticipation of 8% growth (The Street, 2015). In 2015, Southwest
has announced that they are expecting seating capacity to improve between 7%-8% and it
will be 6%-7% in middle of 2016 (Southwest, 2015). On the basis on this growth Southwest
has predicted passenger revenue per available seat mile (PRASM), a core gauge to
measure airline profitability will slump almost 3 percent year-over-year (YOY) in 2 nd quarter
of 2016 (Southwest, 2016). The Street (2015) rating team has fully recommended Southwest
Airline by giving it A+ business rating. Southwest (2015), announced a good 11.1% yearover-year increment in traffic, which helped airline to gained their revenue by 8.9% for
financial year 2015, this consistent trend reflects the Southwest ability to perform to
maximum their capacity under tough conditions. Though, maximising the capacity is not the
only capacity measure in applicable to all sort of situations (Slack et al. 2010). Southwest
witnessed an 8% Growth in traffic was resulted by the heavy demand for travel across the
industry, which also indicates the solid economic situations.

2.6 Resource & Inventory Pslanning and Supply Chain Management

Decision making on the acquisition, allocation and utilisation of resources in order to gratify
customers demand in an effective and efficient manner is resulted by manufacturing
planning and control. Typical decisions comprises on assignment of overtime, workforce
level, production size and sequence of production (Graves, 2012). The corporate culture of
Southwest make it unique (Swmedia, 2015), the relaxed and fun working environment create
a strong sense of community. It is also help to naturalise the pressure of hard-work and

competition. Doubtlessly, Southwest Airline on of the US organisations who understand that

how fun and relaxed environment improve the employee management, customer and profits.
Though, Southwest has adapted no-frills approach in order to run their operations, but their
CEOs novel thoughts has changed the companys way of managing, training and recruiting
its human resource. Southwest uphold the cooperative labour relations in various manner,
for example: before each contract negotiation company encourages negotiators and
members of labour union to put their issues by conducting employee survey (Southwest,
2015).
For any organisation is it very important to manager their inventory (resources) to control the
operational costs and maximise the profit (Slack et al. 2013). Due to different route
concentration airlines employ various types of jets in terms of their capacity to their fleet,
unlike others Southwests fleet has only Boeing 737 airliners (Southwest, 2014). Due to
having one type of airliners, company has to train their engineers for one type of planes and
keep one type of extra parts inventory which helps to save costs from training and inventory.
Since, Southwest has one type of jets, it creates no challenge if plane has call off for last
minute maintenance as passengers and crew can be moved to another plane without any
problem since seating arrangement is identical and it doesnt create issue for crew as well
(Southwest,. 2012).
Beside, having an innovative and successful corporate culture even Southwest concern
about their information system in order to improve their profitability. Managing supply chain
and inventory in an effective and efficient manner is the key of success for any organisation
(Slack et al. 2013). Company was using their legacy information system in order to manage
their supply chain and inventory control but their system was unable to cope with the high
volume of data. Lack of Information regarding inventory and its availability causing slow
response time that effected everything from mechanical problems to part fulfilment
(Southwest, 2003). In order to avoid jets grounding company has to handle their $325 million
inventory more efficiently, Southwest has hired a supply chain consultancy firm i2 that has

provided a supply chain management software along with their services. After employing
SCM software, Southwest has designed and implemented i2 service budget optimiser, i2
demand planner and i2 replacement parts planner in order to overhaul its supply chain
management to improve data visibility (Southwest, 2004).
2.7 Total Quality Management
With the good reason it is common saying in the service industry that the customer is king.
In obsession to satisfy customers often companies forget their main stakeholders which is
close to them, their employees. Though, customers often play vital role to market the bran in
public but keep in mind employees are the actual storyteller for both brand and the company.
Global Retrak Pulse of Reputation Institute has stated that perception of the product weigh
about 40% but the brand perception weigh 60%. Unlike, other companies Southwest do not
emphasise on customer satisfaction or quality but they focus on employees satisfaction
(Corporate Excellence, 2011). This revolutionary method has shown some significant results,
even during financial crises companys focus doesnt change from employees to customers
and that created an amazing corporate culture in Southwest as the quality management and
a good customer service focused on the employees.