An overview of the firm and its primary function
Southwest Airlines Co. is one of the major airline companies in the USA. Currently, it is the world's largest low-cost carrier. The company has its headquarters in Dallas, Texas. Herb Kelleher established the firm in 1967 (Southwest, n.d). The name Southwest Airlines was adopted in 1971. By the end of the 2014/15 fiscal year, the company had approximately 50,000 employees. Furthermore, the firm operates over 3800 flights in a single day. The company carries most of the domestic airline passengers in the USA. By 2016, the airline company had scheduled services to at least 97 destinations including overseas countries. The country has maintained its use of the Boeing 737 as its main aircraft. This has made it the largest Boeing operator in the world with approximately 700 planes in services and each averaging 5-6 flights in a single day (Southwest).
Gary C. Kelly is the chairman, president and current CEO of the firm. The company under Kelly’s leadership has experienced a great sense of financial stability. In the USA airline industry, Southwest Airlines is among those firms who continuously earn profits despite shocks and turmoil in the industry. The firm has been able to come up with policies and decisions that have proved efficient in its operations and primary functions. Notably, other burdened airlines have been unable to match the current performance and success of the airline. With 3800 flights in a single day, it is evident that revenues will not only trickle in, but profit margins will also expand (Southwest). Significantly, having a moderate amount of cost in their functions and operations is a major factor contributing to the firm's success.
The firm assumes a low-cost model of transactions that is characteristic of the effective strategies that the company has. The company, as noted earlier, uses only one type of aircraft, a strategy that has kept maintenance and training costs down. Additionally, customer service is characterized by a no-frills approach which ensures a low-cost production model. Notably, unlike other airlines, the firm does not offer first-class seats to its passengers (Gorman, 2015). Furthermore, no meals are served on board. The primary rationale behind this idea is that such services are unnecessary for short flights between cities. This thinking allows the firm to offer low-price tickets that make a trip affordable to customers.
Most Americans would prefer to fly from one city to another without luxurious and meal services if at all it means a lower ticket price. The company is, thus, one of the firms which enjoy a high level of customer satisfaction (Southwest). This level of satisfaction has led to a high customer loyalty rate. Notably, profit rates are bound to grow stronger for any firm which enjoys a high customer loyalty rate. Despite the fact that there are no frills, customers enjoy the short turnaround time for both departures and arrivals. Furthermore, most consumers are concerned about time and money contemporarily.
Business transactions depend on time. Therefore, if traveling needs are catered for in a short period, especially with a low-priced ticket in hand, customers are bound to enjoy (Gorman, 2015). The airline has one of the best customer services in the USA. There have been no cases of harassment or mistreatment on board despite the many flights the firm makes in a single day. The lack of mistreatment attributes to the fact that the workforce in the business is loyal and highly productive. The management, led by Kelly, the CEO, has been noted for treating their employees well and taking care of their welfare.
Notably, the firm currently has extended its services to the international front, a move that came in 2011 after it acquired AirTran Airways (Southwest). The main international destinations it offers services including the Bahamas, Jamaica, and Aruba. The firm is a pioneer of a low-cost air travel that includes a single flight strategy and short route point-to-point corporate model. Notably, the company’s chief competitors adopt the hub and spoke model that is characterized by a multiple fleet strategy. Moreover, in the 2013/14 financial year, Southwest Airlines revenues were hugely made up of the customer segment at 94.4% contribution. The ancillary revenue contributed 4.6%, while the cargo sector contributed 0.9% (Southwest). The firm currently has the second largest market share regarding revenue passenger miles. The company operates in an industry where companies have gone through several instances of bankruptcy. However, being the only airline with an investment grade, it has resiliently pulled through and maintained its revenues and profit margins thanks to the low-cost business model.
Remarkably, Southwest Airlines serves 59 airports. Its core advantage has always been working more creatively, more flexible and more productively. The firm currently has approximately 34,000 employees (Southwest, n.d). Southwest's mission hinges on dedication to a high sense of quality customer service delivered with a sense of friendliness and warmth according to the company spirit. The firm aims at transporting a great number of customers on short trips though on a high frequency. The company's aggressive marketing strategy also attributes to its success and the market share it enjoys in the USA. In summary, all of the firm's processes are efficient, standardized and low-cost, allowing for low fares and quick turnaround (Gorman, 2015). Furthermore, given that passengers are not assigned seats, the process is flexible and avoids congestion in the airport. Therefore, given the firm's business model and strategies, one can easily see where the success comes from. Resiliently enjoy high profits, even in times of industry turmoil is an attribute of the low-cost model. The firm has, thus, been able to beat its competitors and emerge as the world's largest LCC. Undoubtedly, the firm will continue to thrive and lead the USA airline industry.
Recent critical issues in the firm
Despite the success of the firm and financial stability even when the industry is down on its knees, there are several issues that keep on arising in and about the firm. Some of these issues are critical to the extent that they could severe the firm's reputation as well as financial performance if not dealt with. To begin with, the firm continues to suffer considerable criticism from the investment world due to its increasing CASM (Cost per Available Seat Mile). Notably, other firms have relentlessly been trying to challenge the firm's dominant position to no avail. As the CASM increases, it seems that Southwest becomes more vulnerable to losing its great market advantage. To retain the low-cost model, the firm has been forced to counter increasing fuel prices through enhanced non-fuel cost strategies. The firm, however, has found that many other operational costs are hard to manage and control in light with the CASM model. Notably, other competitors have maintained the old model hence, making a shift could simply bring back the firm to square one.
Reports indicate that Southwest might have strayed and ‘flown off course'. Such reports indicate that the firm is no longer a low-cost leader. This is because fuel costs have increased while its competitors remain streamlined with bankruptcy proceedings. The firm is thus, wrestling with tense labor negations, contracts, and agreements the same as those that have burdened its rivals. Gorman, (2014) suggests that Southwest's challenges are knowledgeable to any CEO, who is attempting to direct a core business at the same time preparing for a battlefield that is totally different from today's. Gorman further notes that amid intense competition, rivals will always target to capitalize on a firm's weakness. In other words, given that the firm is undoable to disrupt the industry, the likelihood of its being disrupted is very common and imminent (Gorman, 2015). In fact, it is a matter of time before criticism is turned into action to ensure the downfall of the firm.
Another critical issue occurring in the firm is related to the technical operations. In October 2015, the firm had to ground hundreds of flights due to what it stated as ‘technical issues' (Silverstein, 2015). Well, delaying over a hundred flights in a couple of days, if not a single day is detrimental to the revenues of a firm. Technical hitches are common, but major technical hitches should be avoided if not totally eliminated from a firm. For a huge airline like Southwest, the delays made it to top news stories in the USA. The bad reputation hurts profits and leads to a negative public image that could as well hinder the effective functioning of an airline. Despite the fact that firm boasts of a comprehensive and skilled workforce, many questioned why the technical hitches could not be fixed in time (Silverstein, 2015). For loyal customers, it could mean a delay in making money, a delay in a meeting schedule, etc. As a result, the firm was subjected to negative customer reviews especially considering the kind of reputation it has established within the USA market. Moreover, the software glitch could not be resolved within the first day spreading to the second day. To make matters worse, the firm could not immediately tell when the issue could be resolved or what might have caused the problem (Silverstein, 2015). Evidently, to customers, this is one disadvantage that could make them choose another airline over the Southwest.
Griswold (2014) argues that Southwest currently faces a lateness problem. Given its low-cost model, the firm has been subject to a surging market demand. The customer's numbers keep on increasing while the firm struggles to turn around its late flights. Apart from late-arriving flights, the firm has been subject to a mismatch of supply and demand. In late 2014, there were reports of congestion at the Southwest Airlines amounting to lateness and timelessness. Although the firm struggles to pack more flights, especially during peak hours, it is unable to meet the demand effectively.
Customers continue flooding the airports despite the fact that the firm is not well equipped to handle the upsurge. Although all lateness and delays cannot be attributed to the firm's failure, it is upon the company to guarantee timely flights regardless of all odds. For customers who are loyal to the firm, lateness could be a minus of the firm making them more vulnerable to switch to other enterprises. However, the issue of delay has not been common in the firm, although it is critical and deserves immediate redress.
So far, Southwest Airlines have not had any deaths on board since its operations. However, there are several cases of safety violation reported in the firm. For any airline carrier, the security of passengers is always a number one priority apart from ensuring that passengers arrive at their intended destination. For instance, in 2008, a report by the Federal Aviation Agency indicated that Southwest allowed 117 of its aircraft to fly carrying passengers regardless of the fact that they were not airworthy. It is evidently unethical and against the law to carry over 1000 passengers in a plane deemed unsafe. Such unethical practices have also been noted in recent years. During the same year, FAA reported that Southwest Airlines are voluntarily and knowingly grounded 44 aircraft alleging that they needed further checking. FAA had noted that the firm flew 60,000 flights without any fuselage inspection before this inspection.
Unfortunately, Southwest accepted these claims and had to pay fines for the safety and maintenance issues. However, FAA in 2009 also noted that the firm had been found to install improper parts on some of its aircraft. Although the parts were found not to present any safety danger, Southwest was required to replace the parts with those approved and tested by the FAA. Nevertheless, the firm has been praised for the mere fact that it has not experienced any major incidents or accidents and that its services have never resulted in a death of any passengers on board since its operations in 1971 (Southwest). All the same, Southwest needs to be more cautious of the ethics that govern the conduct of operations. In business, ethics are determinants of the public image of a firm. Customers tend to be loyal to a firm based on different things. However, no customer would want to be associated with a firm which is unethical or does not have the interests and welfare of its customers as their priority. Risking the lives of customers for the mere aim of obtaining profits is unethical and could create a bad public image of the firm.
According to Leff (2015) another issue that continues to haunt the firm is problems related to unions. In 2015, the company grounded 105 of its employees on the reason that they had attended union meetings. The employees got grounded for at least 90 days before resuming work. However, intrinsically, the truth behind the whole incidence is beyond this. The workers allegedly skipped work to attend a Transport Workers Union meeting in Southern California. It led to an understaffing and an increased workload for the available workers in Burbank airport and other West Coast stations. The following day, the firm had to ground 210 employees with pay waiting for a formal investigation of their behavior. Half of the grounded employees went on suspension without pay. However, TWU responded harshly noting that the suspensions were Grinch-like (Leff, 2015). Since 2011, Southwest has been in constant negotiations with this union. Unfortunately, lack of a formal agreement has made flight attendants and pilots reject tentative agreements. Most of the contracts have expired and not renewed pending the negotiations.
Surprisingly, the firm's workforce is approximately 85% unionized. As a result, the company always found itself negotiating seven contracts concurrently. Unlike its major competitors such as Allegiant and Spirit, Southwest did not go through bankruptcy during the crisis. Thus, when fuel costs go low, work groups are expecting raises. It increases the expectations of labor. Southwest, as a result, find itself squeezed in between labor expectations and low-cost operations. Thus, coming to terms with unions has been a bit hard for the firm. In business, unions always try to establish a fairground between employees and management.
Essentially, unions only strive to guarantee the welfare of workers while keeping the interests of the firm at heart. Therefore, a problem with the union cannot be taken lightly. In fact, it is recommended that the firm makes an effort to get into an agreement with the labor unions before things ‘get out of hand.' Nevertheless, while the firm continues to enjoy cost leadership, it should direct a significant effort and strategy to ensuring that complementary factors such as labor and ethics are handled correctly in the most appropriate manner. Conflict with unions could be detrimental to the firm's success.
References
Gorman, T., (2015). Has Southwest Airlines Flown Off Course? The Paradox Of Disruption And Direction. Retrieved on 1st April 2016 from http://www.forbes.com/sites/trishgorman/2014/09/26/has-southwest-airlines-flown-off-course-the-paradox-of-disruption-and-direction/#1f96c8e51f06
Leff, G., (2015). Southwest Airlines Faces Major Union Problems, Becomes Just another Airline. Retrieved on 1st April 2016 from http://viewfromthewing.boardingarea.com/2015/12/20/42719/
Silverstein, J., (2015). Hundreds of Southwest Airlines flights nationwide delayed, company blames ‘technical issues’. Retrieved on 1st April 2016 from http://www.nydailynews.com/news/national/delays-hundreds-southwest-airlines-flights-nationwide-article-1.2393272s
Southwest. (n.d). About Southwest. Retrieved on 1st April 2016 from https://www.southwest.com/html/about-southwest/index.html?clk=GFOOTER-ABOUT-ABOUT
