The Rise of Southwest Airlines

Southwest Airlines.gif

Southwest Airlines is probably one of the most striking examples of a company that (a) defined a very clear and simple key business purpose, (b) chose the right business model to support the business purpose, and (c) consistently demonstrates the core values and behaviors derived from that key business purpose.

The brand promise of Southwest Airlines is 'Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit'. Every single employee of the company is aligned with this brand promise, and in spite of the current economic turmoil in the airline industry Southwest's performance in 2008 was among the best in the industry. Staff morale is exceptionally high.

In 1971, Rollin King and Herb Kelleher started an airline service with one simple notion: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline”. They were right about that. Southwest Airlines is now among the four largest airliners in the United States. Southwest currently has the lowest operating-cost structure in the US domestic airline industry and consistently offers the lowest and most of all simplest fares. Southwest holds the best cumulative customer satisfaction record for the past 18 years. In December 2008, the airline had 35,499 employees and generated total operating revenues of $11 billion (2007 = $ 9.8 billion, 2001 = $ 5.3 billion) from a passenger load factor of 71.2% with a fleet of 537 Boeing 737’s. Its stock exchange symbol is ‘LUV’, representing Southwest’s home at Dallas Love Field, as well as the theme of its employee and customer relationships.

Southwest Airlines provides low-fare air transportation service among 64 airports in 34 states in the USA (2009). Although the airline industry suffered a major blow from the terrorist attack of September 11th, 2001 and the 2008/2009 economic crisis, the company is still holding strong; while other airline companies are in debt or have gone bankrupt. The major success to their continued success seems due to their low-cost model and competitors being aware that they cannot match Southwest Airlines’ low prices. Southwest Airlines has the reputation of being able to force a competitor into bankruptcy.

We believe, however, that it was not just the choice of its business model that made Southwest Airlines such a successful company; it is the way they execute their business model through perfect strategic alignment. Southwest Airlines succeeded in defining a very simple yet clear key business purpose; the fact that they aim for being “the only short haul, low fare, high frequency, point-to-point carrier in America” leaves very little room for interpretation. What makes Southwest Airlines’ key business purpose such a powerful one however, is not just the very clear definition of their ‘raison d’ être’, but certainly also what the company and its leaders do with it. Their simple but effective key business purpose is the main guiding principle for Southwest Airlines’ strategic goals, business strategy, organizational infrastructure, and last – but certainly not least – their company culture.

The organization of Southwest Airlines is best described as an upside-down pyramid – an organization very much in line with the way they want to do business. The upper management is at the bottom and supports the front line employees (>35000), who are the experts. Front line employees play a major role in the yearly business planning and operational budgeting which for a great part is done bottom-up rather than top-down. This is the fruit of co-founder Herb Kelleher's unorthodox leadership style, in which management decisions are made by everyone in the organization, not just the head executives. The company does not put much emphasis on structure; instead, employees are encouraged to think freely without constraints such as titles or official mandates. 

The reason for Southwest Airline's success is due to their clear key business purpose and core values, and due to the way in which they consistently execute their business model (a combination of ‘disruptive innovation’ and ‘customer intimacy’) in line with their key business purpose and core values.

The Southwest Airlines fleet consists solely of Boeing 737s and offers only economy seats (there is no business or first class). Southwest Airlines also do not offer in-flight meals, only peanuts and other snacks. Southwest is simple and direct at the goal of their service; “A primarily short-haul airline that flies directly from city to city, with just one type of plane - the Boeing 737 - and the lowest costs”. With a simple goal, Southwest has excised many of the ‘luxuries’ that competitors offer, such as luxury seats; this is made evident by their decision to enforce a rule for passengers who cannot fit into the seats to purchase an additional seat. This rather unpopular move - whereas other airlines would have suggested a more luxury class seat - is simple in its purpose - get passengers from point A to point B with a minimum of frills, but with a friendly smile and great personal service.

While Southwest Airlines offer no frills, they do meet and exceed customer expectations when it comes to personal service. They base their model on the motto “If employees are happy, satisfied, dedicated, and energetic, they'll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy”. Southwest invests in very good relations with all their employees. Employees are either of independent labor unions or have flexible contracts which allow employees to work longer hours (= adapting the business model to the key business purpose).

Back