Organizational Design & Analysis Case11 Southwest Team2

8/8/2019 Organizational Design & Analysis Case11 Southwest Team2

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Case #11: Southwest Airlines

Group MembersMuhammad KashifMuhammad Sarfraz


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Contents

Overview of the case

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Southwest Airline Today


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Whats in the case?

wIt cover Two aspects

wSouthwest airlines intial war with its environment forces

wSouthwests growth while fighting with its competitors

wThat was Rollin King who put the idea on a cocktail napkin byMaking a triangle.

w

The proposed route of southwest airline

Houston San antonio

Dallas

Texas

Overview Of the Case

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Whats in the case?

w Initial capital 560000

wLgal Battle for thre years fought by Kelleher

w For three years

wNo mangement

wNo Air planes

wNo employe

wAnd almost no capital

w

w


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Whats in the case?

New legal issue(Just before 48 hours)

Restraining order from District court for ban the southwest

Kelleher approach another time & get approval

1st flight on 1971

No profits for One & half years

Reasons

Dallas to Houston route was okay but Dallas to san Antonio was in loss

Low price strategy

Deregulation in 1978 as an advantage for southwest

Expansion of operation outside Texas

Chicagopartnership

California Competition

Next Target Florida


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What environmental forces affect thesouthwest airline initially?

wTwo Major Forces

Legal Rules & Regulatory issues

w CAB (Civil aeronautical Board) Federal regularity body

w Under CAB REGULATION, investment and operating decisionswere highly constrained

w(CAB) controlled entry, exit, and the pricing of airline services, aswell as inter carrier agreements, mergers, and consumer issues

w Also Didn't permit any airline forinterstate activities

w For avoid competition


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http://www.econlib.org/library/Enc/Regulation.htmlhttp://www.econlib.org/library/Enc/Regulation.html


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What opportunities southwest airline seek?

Improper service of Existing airlines at that time

Fares are high

Flight are delay

Bad scheduling

Demand of passengers still exist

That led the Rollin king & Herb Kelleher for new horizon

They seek the hidden opportunity & decided to go for a airlinewho can provide better service at reasonable fares

Kelleher also found that although CAB restrict interstateairline activities but intrastate activities can be channelizedby fulfilling legal formalalities.


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Southwest airlines Business Strategy(Model).

Profitability


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Lower cost Increase Revenue

More Customer

Lowest PricesReduced Turnaround Time

Allign Ground Crew

On Time FlightsSouthwest Airline Today

Increase Revenue


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It is realization that a politically controlled economy served no continuing publicinterest.

The 1978 Airline Deregulation Act partially shifted control over air travel fromthe political to the market sphere.

The Civil Aeronautics Board (CAB), which had previously controlled entry, exit,and the pricing of airline services, as well as intercarrier agreements, mergers,

and consumer issues, was phased out under the CAB Sunset Act and expiredofficially on December 31, 1984.

CAB rules limiting routes and entry and controlling prices meant that airlineswere limited to competing only on food, cabin crew quality, and frequency. Asa result, both prices and frequency were high,

w

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How would you describe the airline industry afterderegulation?


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Advantages of Deregulation

The air transport market after deregulation is remarkably different. Because

airlines compete on price, fares are much lower.

Airline deregulation was a monumental event. Its effects are still being felttoday, as low-cost carriers (LCCs) challenge the legacy airlines that were inexistence before deregulation (American, United, Continental, Northwest, USAir, and Delta)..

Even the partial freeing of the air travel sector has had overwhelmingly positive

results. Air travel has dramatically increased and prices have fallen.. Since passenger deregulation in 1978, airline prices have fallen 44.9 percent in

real terms according to the Air Transport Association.

In (1997) estimated that when figures are adjusted for changes in quality andamenities, passengers save $19.4 billion dollars per year from airlinederegulation.


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Advantages of Deregulation

The airlines have the freedom to innovate in routes and pricing.

Over time, the legacy carriers and the LCCs(low-cost carriers) willlikely use some combination of point-to-point and network hubs tocapture both economies of scope and pricing advantages.

.As prices have decreased, air travel has exploded. The total number ofpassengers that fly annually has more than doubled since 1978.

Travelers now have more convenient travel options with greaterflight frequency and more nonstop flights.

The LCCs have thus far successfully competed on price due to lowerhourly employee wages, higherPRODUCTIVITY, and no pensiondeficits


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http://www.econlib.org/library/Enc/Productivity.htmlhttp://www.econlib.org/library/Enc/Productivity.html


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Disadvantages of deregulations

Although the gains of economic liberalization have been substantial,

fundamental problems plague the industry. Some of these problems are transitional, the massive adjustments required by

the end of a half century of strict regulation.

The regulated airline monopolies received returns on capital that were supposedto be reasonable (comparable to what a company might expect to receive ina competitive market), but these returns factored in high costs that often

would not exist in a competitive market. For example, the airlines unionized workforce, established and strengthened

under regulation and held in place by the Railway Labor Act, gainedgenerous salaries and inefficient work rules compared with what would beexpected in a competitive market. Problems remain in todays market,especially with the legacy airlines.

.



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Disadvantages of deregulations

Consumers became more price-sensitive and gravitated toward the lower-cost

carriers. High labor costs and the network hub business model hurt legacy airlines

competitiveness. Hub-and-spoke systems created high fixed costs thatrequired larger terminals, investments in INFORMATION technologysystems, and complex revenue management systems.

Restrictive foreign ownership and COMPETITION laws. While labor contracts,airport asset management, and other business practices are themselves highbarriers to restructuring,



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http://www.econlib.org/library/Enc/Information.htmlhttp://www.econlib.org/library/Enc/Competition.htmlhttp://www.econlib.org/library/Enc/Competition.htmlhttp://www.econlib.org/library/Enc/Information.html


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Conclusion

The industry is still structurally adjusting to a more competitive situation and

remains subject to a large number of regulations. The capital, work rules, andcompensation practices of the airline industry still reflect almost fifty years ofpolitical protection and control.

We are finally seeing the kinds of internal restructuring among airlines that wasexpected from deregulation. Yet, government still has much to do to ensurethat the airline market will thrive in the future. Land slots and airport spaceshould be allocated using market prices instead of through administrativefiat..

If the government deregulates the grid and transitions toward a market solution,the benefits of flow deregulation will increase, and costs for air travelers willfall even more.



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Southwest Airline Today.

Southwest is the largest airline in the world by number of passengers carried peryear (as of 2009).

As of May 3, 2009, Southwest operates approximately 3,510 flights daily

Nearly 35,000 total Employees throughout the Southwest system.

Today, Southwest operates 541 Boeing 737 aircraft between 69 cities.

Mission Statement

The mission of Southwest Airlines is dedication to the highest quality ofCustomer Service delivered with a sense of warmth, friendliness, individualpride, and Company Spirit.

To the employees

We are committed to provide our Employees a stable workenvironment with equal opportunity for learning and personal

growth. Creativity and innovation are encouraged for improvingthe effectiveness of Southwest Airlines. Above all, Employeeswill be provided the same concern, respect, and caring attitudewithin the organization that they are expected to share externallywith every Southwest Customer.


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Vision

To have a conservative increase growth, capitalize and cutback schedules of

other airlines. To continue expanding conservatively in long-haul success.

OrganizationalStructure

Flat & decentralized structure

Only three layer of management

According to southwest philosophy bureaucracy influence the entrepreneurspirit in a negative way

No Red Taping Kelleher himself sometimes approaches to all staff to knowabout their feedback & suggestions.

Employee can voluntarily swap their job with a colleague in a differentdepartment one day

A negative aspect is job specialization doesn't go as for as other airline e.g.

To reduce the turnaround time pilots also help to clean the plane



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Organizational Culture

Southwest airline have a real fun working, friendly & family oriented culture

Strong internal relationship with employees

Celeberation on the achievments

Motivational Factors Besides the usual package of secondary

Employment benefits, like free airline tickets, profit sharing, stocks, and in-

Surance, and the employee of the month election,

To create a real family spirit, All the corridors of all SWA buildings are full of pictures and memo-ries of all the parties

celebrated by the employees.

Presents are sent to people who get sick, are having a baby, and so on.

All this is done

Because

The employees comes first at southwest airlines.



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Organizational Design & Analysis Case11 Southwest Team2

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