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Southwest Airlines: In a Different World

By: James L. Heskett, W. Earl Sasser Jr.

This is the fourth in a 35-year series of HBS cases on an organization that has changed the rules of the game globally for an entire industry by offering both differentiated and low-price service.…

  • Length: 16 page(s)
  • Publication Date: Apr 22, 2010
  • Discipline: Service Management
  • Product #: 910419-PDF-ENG

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This is the fourth in a 35-year series of HBS cases on an organization that has changed the rules of the game globally for an entire industry by offering both differentiated and low-price service. The focus of the case is on whether Southwest Airlines should buy gates and slots to initiate service to New York's LaGuardia airport, which does not fit the airline's profile for cost, ease of service, and other factors. The bigger issue is how the organization should deal with competition that has successfully emulated more and more of what it does in an operating environment that has changed significantly. Hence the subtitle, which was suggested by Herb Kelleher, Southwest's Chairman and CEO, Emeritus.

Learning Objectives

To evaluate a strategic decision in the context of a company's culture and the need to preserve the integrity of its operating network.

Apr 22, 2010 (Revised: Jan 9, 2013)

Discipline:

Service Management

Geographies:

New York, Texas

Industries:

Airline industry

Harvard Business School

910419-PDF-ENG

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southwest case study harvard pdf

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Product Description

Publication Date: January 01, 1995

Source: Stanford Graduate School of Business

In 1994, both United Airlines and Continental Airlines launched low-cost airlines-within-an-airline to compete with Southwest Airlines. From 1991 to 1993, Southwest had increased its market share of the critical West Coast market from 26% to 45%. Considers how Southwest had developed a sustainable competitive advantage and emphasizes the role of human resources as a lever for the successful implementation of strategy. Asks whether competitors can successfully imitate the Southwest approach.

southwest case study harvard pdf

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The Strategy Story

A unique take on Southwest Airlines Strategy

Anyone who has studied business management either as a degree or as an elective would have definitely studied Michael Porter’s 5 Forces framework. This framework was first published in  Harvard Business Review  in 1979. The model is very much relevant in 21st-century business as well due to its deep 360-degree view of a business.

One of the 5 forces is called “Barriers to Entry” and more often than not either Oil & Gas or Airline industry would serve as an apt example of an industry with very high barriers to entry due to its high Capex and Opex requirements.

But wait, then with so many barriers to entry, why do airlines still bleed red? There are many reasons for this, but one of them is stiff competition with low-cost carriers, the 5th, and the framework’s central force (competition among the players).

Before we move on, the below is an interesting tweet response from Anand Mahindra, on being asked to buy the ailing “ Jet Airways ”.

Remember the quote: “If you want to be a millionaire, start with a Billion dollars and then start (buy) an airline!” https://t.co/dYRdwup3kK — anand mahindra (@anandmahindra) June 29, 2019

The US Airline Industry

Following the 9/11 attacks, the US airline industry has been through rough weather. 20+ airlines have filed for bankruptcy protection under Chapter 7. 60+ airlines have filed for bankruptcy protection under Chapter 11.  This list also includes the top 3 out of 4 airlines namely, American Airlines, United & Delta Air Lines, however they were able to exit the bankruptcy within a few years.

The landscape has been constantly changing with a high volume of mergers and acquisitions, resulting in changing market share statistics.

southwest case study harvard pdf

The graph above covering the period January to December 2020 showcases that the top 4 airlines constitute approx. 65% of the market share.

In this story, we are focusing on Southwest Airlines that was founded on the notions of the low-cost carrier but with its unique strategy has been profitable for the last 45 years in a row. 

The takeoff strategy of Southwest Airlines

Southwest Airlines Co. , typically referred to as Southwest, is one of the United States’ major airlines and the world’s largest low-cost carrier airline. The airline was established on March 15, 1967, by  Herb Kelleher  as Air Southwest Co. and adopted its current name, Southwest Airlines Co., in 1971, when it began operating as an intrastate airline wholly within the state of Texas first flying between Dallas, Houston and San Antonio. 

Most airlines back in the 1960s followed the most popular “Hub and Spoke” model for their operations.

Hub and Spoke model – As the name suggests, there is a defined hub from where the flights originate, and the destinations are the spokes.

The benefit of a hub and spoke model is that it has fewer routes, but the major drawback of this model is its rigidity, and if there is a slight change in the airline routing due to weather, etc., it can have cascading consequences to the other planned flights.

southwest case study harvard pdf

Point to Point model – Southwest, being a low-cost carrier, focused more on the point to point model and bought significant process improvements, in a way mastered it to achieve very high operational efficiency.

In the point-to-point model, each flight is a single journey. The origin and destination are connected via a single non-stop flight. The point-to-point model offers more travel options and flexibility as compared to the hub and spoke model.

For passengers undertaking further journeys, they will have to collect the baggage and recheck them for leg 2 of their journey. This model has considerably led to saved travel hours and done away with the necessity for connecting flights.

southwest case study harvard pdf

Key Differentiating Factors in Southwest Airlines Strategy

Southwest airlines is the third largest airline in the United States of America and arguably the biggest in the low-cost carrier segment across the globe.

So, was the operational efficiency gained due to the change in the flight operations model the only reason why Southwest airlines is the #1 low-cost carrier in the world?

NO, let’s understand what differentiated Southwest airlines strategy from its counterparts.

Customer Eccentricity

For Southwest, they keep the customers at the center of their business operations. They offer certain benefits to flyers which are not offered by other airlines, like

  • Southwest allows two checked-in bags, free of cost, unlike many of its competitors.
  • Flight change thirty minutes prior to the departure is allowed by Southwest.
  • Southwest offers free in-flight entertainment like Live TV, Movies, use of whatsapp and imessage. It offers Wi-Fi services at very nominal rates.

All these have resulted in Southwest being the airline with the least number of complaints, according to the Department of Transportation of the United States of America.

Only one type of aircraft

Many airlines have different types of aircraft in their fleet, but not Southwest. Southwest operates by using only Boeing 737 aircraft. It saves a lot of money by:

  • Training cabin crews and support staff on only one type of aircraft.
  • Maintenance of inventory of spare parts for one aircraft type.
  • In case of breakdown, alternate aircraft can be arranged immediately.
  • Its policy of not assigning seats helps tremendously as customers can take any available seat when boarding the aircraft, thereby reducing the boarding time. In the case of alternate aircraft also, this policy hugely benefits the airline reducing the turnaround time.

Right recruitment policies

Southwest stresses a lot on the customer experience and hence it is very imperative for the airline to hire the right kind of people. Southwest focusses on hiring people who have an attitude for serving customers.

Employees undergo various pieces of training which also includes cross-training. Training is heavily centered around team building and collaboration.

The Southwest Airlines case study is a lesson in cultural strategy. An organization built on the fundamentals of customer eccentricity, effective processes, and a dedicated team is meant to achieve success and overcome challenges. This model of exceptional customer service can help a business earn an impeccable reputation in the industry. That’s what makes the Southwest model uniquely priced, yet one profitable in this cruel airline industry.

Southwest’s ability to be different and not follow the herd—not to mention becoming America’s largest airline—can be traced in large part to the Airline Deregulation Act. Thanks to this act, Herb and Rollin realized their Vision and the traveling public benefits on every flight, every day. Gary Kelly, Chairman & CEO, Southwest Airlines

-AMAZONPOLLY-ONLYWORDS-START-

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southwest case study harvard pdf

Vinit Joshi is Corporate Planning & Strategy professional with 15+ years of experience across renowned & diversified business groups. When not working or spending time with family, Vinit loves listening to a variety of music

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Solved Case Study of Southwest Airlines from “STRATEGIC MANAGEMENT: AN INTEGRATED APPROACH” 9TH EDITION BY HILL & JONES (CENGAGE LEARNING)

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southwest case study harvard pdf

hasan ahmed

This article analyzes the sources of Southwest Airlines' competitive aduantage using an integrative approach, employing economic analysis tools to illustrate the roles of commitment and organizational capabilities in delivering competitive advantage at Southwest. A framework is presented illustrating that much of the value Southwest generates is (1) created through employee needs satisfaction, (2) converted to customer and shareholder value via organizational capabilities, and (3) captured by the firm as a result of its cost advantage and superior service. This three-part framework may be applicable to other labor-dependent service organizations.

Elena Pavlova

Master Thesis

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  • May 1975 (Revised May 1982)
  • HBS Case Collection

Southwest Airlines (C)

  • Format: Print
  • | Language: English
  • | Pages: 19

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COMMENTS

  1. Southwest Airlines: In a Different World

    This is the fourth in a 35-year series of HBS cases on an organization that has changed the rules of the game globally for an entire industry by offering both differentiated and low-price service. The focus of the case is on whether Southwest Airlines should buy gates and slots to initiate service to New York's LaGuardia airport, which does not fit the airline's profile for cost, ease of ...

  2. Southwest Airlines: In a Different World

    The focus of the case is on whether Southwest Airlines should buy gates and slots to initiate service to New York's LaGuardia airport, which does not fit the airline's profile for cost, ease of service, and other factors. ... Harvard Business School Case 910-419, April 2010. (Revised January 2013.) Educators;

  3. Southwest Airlines

    Southwest used its short-haul and point-to-point strategy to achieve the lowest operating cost structure in the domestic airline industry. ... Govindarajan, Vijay, and Julie Lang. "Southwest Airlines." 2002. (Case No. 2-0012.) More from the Authors. May 2016; Harvard Business Review; Planned Opportunism: Using Weak Signals to Spur Innovations ...

  4. Rapid Rewards at Southwest Airlines

    Abstract. Southwest Airlines is well known as the low-fare airline that has achieved ongoing financial success in one of the most financially troubled industries in the United States. Told from the perspectives of two Southwest customers--a frequent flier and a more typical customer--the case revolves around two customer service requests from ...

  5. Southwest Airlines (A)

    Product Description. Publication Date: January 01, 1995. Source: Stanford Graduate School of Business. In 1994, both United Airlines and Continental Airlines launched low-cost airlines-within-an-airline to compete with Southwest Airlines. From 1991 to 1993, Southwest had increased its market share of the critical West Coast market from 26% to 45%.

  6. (PDF) Southwest Airlines: A Case Study Linking Employee Needs

    Information on Southwest Airlines stems from the Harvard Business School (HBS) case "Southwest Airlines: 1993" by James L. Heskett, case writer Roger Hallowell, the author's casewriting experience, and "Mobilizing People for Breakthrough Service," video number 2 in the series People, Service, Success, Harvard Business School Press, 1993.

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    Abstract. Southwest Airlines, a small intrastate carrier serving Dallas, Houston and San Antonio, begins service in 1971 in the face of competition by two larger, entrenched airlines. Improved quality service, lower prices, and innovative advertising and promotional strategy bring Southwest to the brink of profitability in early 1973, when its ...

  9. PDF Garrison & Keller

    Southwest Airlines Co. ("Southwest") is a major U.S. airline that primarily provides short haul, high-frequency, point-to-point, low-fare service. Southwest was incorporated in Texas and commenced operations on June 18, 1971 with three Boeing 737 aircraft serving three Texas cities Dallas, Houston, and San Antonio.

  10. Southwest airlines: A case study linking employee needs satisfaction

    Southwest airlines: A case study linking employee needs satisfaction and organizational capabilities to competitive advantage ... Harvard Business School, Baker Library West 473, Boston, MA 02163. Harvard Business School, Baker Library West 473, Boston, MA 02163Search for more ... PDF. Tools. Request permission; Export citation; Add to ...

  11. Southwest Airlines Is Playing with Brand Fire

    Southwest Airlines Is Playing with Brand Fire. by. Adam Richardson. October 10, 2011. Southwest Airlines is often used as a case study for a well-run business: it's consistently more profitable ...

  12. Southwest Airlines (A)

    Southwest Airlines (A) By Charles O'Reilly III, Jeffrey Pfeffer. 1995 | Case No. HR1A. Organizational Behavior. In 1994 both United Airlines and Continental Airlines launched a low-cost airlines-within-an airline to compete with Southwest Airlines. From 1991 until 1993 Southwest had increased its market share of the critical West Coast market ...

  13. Southwest Airlines: 1993 (A)

    Southwest Airlines, the only major U.S. airline to be profitable in 1992, makes a decision as to which of two new cities to open, or to add a new long-haul route. Provides windows into Southwest's strategy, operations, marketing, and culture. ... Harvard Business School Case 694-023, August 1993. (Revised April 1997.) Educators; Purchase; About ...

  14. Harvard Business School Case Study on Southwest Airlines

    Jul 29, 2015 • Download as PPT, PDF •. Southwest Airlines has been successful due to its principal values, creation of a unique culture, and business model focused on operational simplicity and low costs. Some strengths that have contributed to its success include having a friendly approach with customers, innovative retention strategies ...

  15. A unique take on Southwest Airlines Strategy

    The Southwest Airlines case study is a lesson in cultural strategy. An organization built on the fundamentals of customer eccentricity, effective processes, and a dedicated team is meant to achieve success and overcome challenges. This model of exceptional customer service can help a business earn an impeccable reputation in the industry.

  16. (PDF) Solved Case Study of Southwest Airlines from "STRATEGIC

    a fundamentals of management case study submission october , a case study on southwest airlines from "trategic management: an integrated approach th edition by hill & jone" cengage learning te t book page: "ubmitted by: group imad shahid khan roll | siddharth bhagat roll | soumya suman roll | ansai sony roll section a, st semester, bachelor of business management - g oup , "e io a, st ...

  17. Southwest Airlines (C)

    Southwest has successfully broken into a market dominated by two larger airlines and gained a significant market share through improved quality service, lower prices and other innovations, supported by heavy advertising and other promotions. ... Harvard Business School Case 575-118, May 1975. (Revised May 1982.) Educators; Purchase; More from ...

  18. Harvard Business School publishes Kaspi.kz case study

    The typical HBS case is a 20 to 25-page story developed for educational purposes about a managerial challenge facing a company. HBS cases are taught not only at Harvard, but at other leading ...