Operations Management
SBS MBA
STUDENT ID
UNIT
CODE UNIT TITLE Name (in Full) __________________________________________________________ INSTRUCTIONS:
1. Please submit your soft copy of the assignment on or before 11th August 2017,
to examinationboard@atmsedu.org , assignmentsubmission123@gmail.com and cc to
afatima@atmsedu.org 2. Assignment extension request has to be applied 5 days before the submission date with
valid evidence as a proof, please note being busy or out of country will not be accepted as
a reason of extension. 4. Penalty of late submission – 10 % deduction of marks with every 24 hours delay and
after 3 days assignment will be graded as Zero. Total Marks: _______ / 60 Case Study on South West Airlines
What’s the airline-industry jargon for unconventional wisdom? Southwest Airlines.
By some estimates, the country’s major carriers have consumed perhaps $100 billion in capital
during the past decade, but Southwest Airlines continues to be profitable. It’s been in the black
for 33 consecutive years and, last week, for the 127th consecutive quarter, it paid a modest
dividend. Its balance sheet, with about $3 billion in cash on hand and $600 million in available
credit, is the envy of an otherwise fuel-price-ravaged industry.
Its competitors among the network carriers—American, United, Delta, Continental, Northwest
and US Airways—are shrinking passenger capacity by more than 10 percent and grounding
hundreds of aircraft starting in the fall. Southwest will add a handful of daily flights. It will take
delivery of another dozen aircraft next year and still plans to grow by 2 to 3 percent. And
Southwest now carries more passengers annually (101 million last year) than any other U.S.
carrier, a nifty trick for an airline that didn’t fly outside Texas at the dawn of deregulation in
1978.
Even the fickle financial markets, which have long discounted Southwest’s relentless growth and
steady profits, have finally taken note. As oil prices doubled in the past year, share prices of the
six network carriers have slid, with the drop-offs ranging from 76 to 94 percent. Southwest’s
decline has been more modest, within a point of the Dow’s 21 percent 52-week drop. As a result,
Southwest’s market capitalization yesterday (about $9.7 billion) is now more than the combined
$5.7 billion market cap of its Big Six competitors.
What does Southwest know that no one else in airlines does? It keeps things simple and
consistent, which drives costs down, maximizes productive assets, and helps manage customer
expectations.
One Plane Fits All
Unlike the network carriers and their commuter surrogates, which operate all manner of regional
jets, turboprops, and narrow-body and wide-body aircraft, Southwest flies just one plane type,
the Boeing 737 series. That saves Southwest millions in maintenance costs—spare-parts
inventories, mechanic training and other nuts-and-bolts airline issues. It also gives the airline
unique flexibility to move its 527 aircraft throughout the route network without costly
disruptions and reconfigurations.
Point-to-Point Flying
Network carriers rely on a hub-and-spoke system, which laboriously collects passengers from
"spoke" cities, flies them to a central "hub" airport, and then redistributes them to other spokes.
Not Southwest. Most of its flying is nonstop between two points. That minimizes the time that
planes sit on the ground at crowded, delay-prone hubs and allows the average Southwest aircraft
to be in the air for more than an hour longer each day than a similarly sized jet flown by a
network carrier. Southwest’s avoid-the-hubs strategy also pays dividends in on-time operations. According to FlightStats, Southwest’s 78 percent on-time performance in June is eight
percentage points higher than the industry average and higher than that of any of its major
competitors.
Simple In-Flight Service
Business travelers haven’t always loved Southwest’s über-simple service, but it’s looking better
and better as competitors cut back. There is just one class of service, a decent coach cabin that is
slightly more spacious than those of Southwest’s competitors. There are no assigned seats. There
have never been meals, just beverages and snacks. Keeping it basic allows Southwest to unload a
flight, clean and restock the plane, and board another flight full of passengers in as little as 20
minutes compared with as much as 90 minutes on a network airline. Airline efficiency experts
say that the savings allow each Southwest jet to fly an extra flight per day. Extra flights mean
extra revenue.
No Frills, No Fees
As other carriers have rushed to remove perks and pile on fees and restrictions, Southwest has
kept its customer proposition streamlined and transparent. The airline only sells one-way fares
and only in a few price "buckets." That not only keeps costs down—complex fare structures are
expensive to manage—it convinces fliers that they are getting value for money. Prices are allinclusive too. Southwest doesn’t have fuel surcharges, doesn’t charge for standby travel or ticket
changes, and continues to permit travelers to check two pieces of luggage free. And since every
seat on every flight is virtually identical, travelers know exactly what they will get when they
make a purchase.
Strong Management
The public face of Southwest Airlines for a generation, hard-drinking, chain-smoking, alwaysleave-’em laughing Herb Kelleher, finally stepped away from the carrier earlier this year.
Kelleher’s bonhomie masked the discipline that Southwest has had throughout its history. The
airline has always avoided fads and eschewed anything that increased costs or complicated the
basic travel proposition. When it has changed—last year it ended its infamous cattle-call
boarding process to favor its most frequent fliers and highest-fare customers—it has done so
without slowing down the movement of aircraft. Management ranks are lean, but well
compensated and, most importantly, productive. I once calculated that the top executives of
Southwest generated 10 times more revenue per dollar of compensation than did the C-suite
types at some of the network carriers.
A Relatively Happy Workforce
Network carriers have railed for decades about the power of their employee unions. But guess
who’s the most unionized carrier in the nation? Southwest, of course. The airline says that 87
percent of its employees belong to a union. Southwest has never had a strike, and now that the
network carriers have whacked away at salaries and benefits, Southwest staffers are generally the
highest paid in the industry. But since Southwest has about 30 percent fewer employees per aircraft than its network competitors, it has the lowest non-fuel C.A.S.M. (cost per available seat
mile) of any of the major carriers.
Aggressive Fuel Hedging
Rampaging fuel prices now represent around 40 percent of an airline’s costs, but, as usual,
Southwest Airlines has been ahead of the curve. Since 1999, the airline’s aggressive fuel-hedging
program has saved it an estimated $3.5 billion. In the first quarter, for example, it paid $1.98 a
gallon for fuel, approximately a dollar less than its network competitors. And Southwest’s future
position is admirable: It is 70 percent hedged at $51 a barrel through the end of the year and 55
percent hedged at the same price next year.
In a world of $140-a-barrel oil, suggesting that any airline is a guaranteed winner is beyond
hubris. But this much can be said: Southwest Airlines is sitting on a pile of cash and fuel hedges
and has a proven and easily adaptable service model. And history shows that Southwest has
comfortably survived every airline-industry downturn, then grown rapidly and profited hugely
when the business cycle turns. Go through the above case study and answer the following questions:Each Question carries
10 marks
1.What is your understanding of South West Airlines?
2. Discuss as to what you feel about the Culture and environment of South West Airlines?
3. What in your view is South West Airlines’s mode of operations?
4. What is South West Airlines Operations Strategy?
5. Do you feel South west airlines’s operations strategy will work out well? for other airlines or
organizations as well? Justify your answers with proper reasoning.
6. Will you recommend their operations strategy for other airlines or to other organizations to
follow? Provide appropriate justification.
