Southwest Airlines’ lessons on growth over the long-haul

Opinion and Analysis

Southwest Airlines has a policy that makes its employees to have fun while knowing they are great people. FILE PHOTO | KAREN BLEIER |  AFP

By Francis Kalama Fondo

In Summary

• Good corporate culture is what runs an organisation profitably over the long haul.

Culture, values and operating practices can differentiate between a profitable airline and one that accumulates losses but operating in the same market. An example from the American commercial airline industry can be a useful reference point.

When the 9/11 terrorist attack took place in 2001, the American airline traffic tumbled by 20 per cent. The industry went into a crisis mode and airlines began to borrow money to cover cash drains arising from the reduced passenger traffic to the tune of $3 million (Sh300 million at current exchange rates) to $8 million (Sh800 million) daily. Flights were cancelled and employees were laid off.

Roughly 100,000 of the 500,000 employees in the American commercial airline industry were laid off. The major US carriers had a combined loss of $7.8 billion (Sh780 billion) in 2001.

But there was one airline whose business performance continued to flourish despite the terrorist attack. This was Southwest Airlines. Southwest did not cut flights and no employees were laid off. The management philosophy for the past two decades had been to manage Southwest in good times so that both the company and its employees could prosper through bad times.

Southwest was in a strong financial position. It had the lowest operating costs of any US airline and it had $1 billion (Sh100 billion) in cash including the strongest balance sheet and credit rating.

This rating allowed management to quickly borrow $1 billion (Sh100 billion) giving the company a buffer to pay its bills and absorb any cash drains.

During 2002, Southwest proceeded to add almost 40 new daily flights and was able to boost its market share by about two per cent.

How can an airline perform wonderfully even in the aftermath of a major industry disaster such as that of September 11? Why do the majority of airlines make losses and complain of obvious market challenges such as competition or occasional short-term disaster like the outbreak of an epidemic in a certain circuit of their passenger routes? The explanation is business culture, values and operating procedures.

Right from day one after being incorporated, Southwest pursued a low-cost/low-price/no-frills strategy. Its tag line is “The freedom to fly’’.

The following measures have been instituted in pursuit of this strategy:

The company operates only one type of aircraft -Boeing 737s. The idea here is to minimise the size of spare parts inventories, simplify the training of maintenance and repair personnel, improve the proficiency and speed with which maintenance routines are done and simplify the task of scheduling for particular flights.

Southwest encourages customers to make reservations and purchase tickets on the company’s website, thus by passing the need to pay commissions to travel agents.

Since mid 2001, Southwest has put in place a software that significantly decreased the time required to generate optimal crew schedules and help improve on-time performance.

Since 2001, it has been converting from cloth to leather seats— leather interior is durable and easy to maintain. Southwest goes all out to make sure passengers have a positive fun flying experience. The airline has built a reputation of presenting a happy face to passengers and displaying a fun–loving attitude.

A fare structure that is consistently the simplest and most straightforward. Its expansion is gradual, adds flights in areas where rivals are cutting back service, and it has an attractive frequent flier programme.