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DAL
SAN ANTONIOHOUSTON
“Herb, let’s start an airline” and “Rollin, you’re crazy. Let’s do it!”
The Napkin Concept
Executives
• Headquarters in Dallas, Texas
• Current LeadershipHerb Kelleher – Chairman of the Board and Chairman of the Executive Committee
Jim Parker – Vice Chairman of the Board and CEO
Colleen Barrett – President, COO, and Corporate Secretary
Southwest vs. the Majors• Debt
• Pricing
• Hub & Spoke
• Labor Costs
• Operations
• Understanding the Market
• Customer Service
Debt
• Major airlines– High debt– High daily losses– Low cash
• Southwest– Little debt– Low daily losses– High cash
Major airlines include Alaska Air, America West, America Trans Air, American, Delta,
Continental, Northwest and United. Not included is US Airways, which is bankrupt
and no longer traded on the NYSE.
Airline Aftermath How the sector has performed since 9/11
Carrier Stock % Change Since 9/11*
Earnings Comparison
Q2 2001 Q2 2002
American -69% -$105 million
-$465 million
US Airways -94 -24 million -248 million
Delta -55 -123 million -162 million
Northwest -55 -55 million -93 million
Continental -76 42 million -35 million
Southwest -18 176 million 85 million
United -90 -292 million -341 million
-America West -76 -15 million -10 million
*As of Thursday, Sept. 5, 2002. **Excludes all charges.
Source: Company reports, Baseline, TSC Research
Prices
• Competition• Seat prices• Operation costs
– Fuel
– Airport fees
• Hubs vs. surrounding airports
Labor Costs
• Union vs. Non-Union– Salaries
– Labor costs as a percentage of revenues
– Employees per flight
Operations
• Maintenance
• Training
• Boarding procedures
• Airport Fees
• Plane design
• Idle time
• Food Service
Operating Costs
0
200
400
600
800
1000
Operating Costs
JetBlue
Southwest
American
Continental
Delta
AmericaWestNorthwest
United
US Airways
Understanding the Market
• Niche market– Long haul flights– Short haul flights
• Price sensitive
• High customer service needs
The Belief
“Southwest people believe that customer service involves more than an objective understanding of the customer’s need. It also means, …, “being attentive to the person behind the need, and responding to the person more than just responding to the need.” NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success by Freiberg & Freiberg
The Policies
• Seating space
• Boarding procedures– Ticketing
– Safety
• Timeliness of flights
• Amenities
The Results
Best on-time service + Best baggage handling + Best customer Service = Triple Crown Award
5 Years Straight
Information Technology and Systems
What Helps Keep Southwest on Top?
IT/IS Helps Business Strategy
• Deploy’s Enterprise Software
• PROS Revenue Mgmt.
• CALEB Technologies Corps CrewSolver Software
• I2 Service Inventory Management
• Computerized Reservation System
• RAPID CHECK-IN
• Automated boarding passes
Focused Cost Leadership
• High frequency, short hops
• Low fair strategy
• Cost-effective inventory management
• Efficient and cost-effective recruitment
• Unique, high level customer service
What Major airlines are doing to compete
• Cutting jobs
• Retiring older planes
• Streamlining routes
• In the future, closing hubs
Combating Competition
• Structurally competitive through Operations
• Successful in utilizing Information Technology and Information Systems
• Creating a culture of Innovation and Great Customer Service