Southwest Airlines Case Study Using Human Resources For Comp

Southwest Airlines Case Study Using Human Resources For Competitivea

Southwest Airlines Case Study: Using Human Resources for Competitive Advantage O’Reilly, C., & Pfeffer, C. (1995). Southwest Airlines: Using Human Resources for Competitive Advantage. Stanford, CA: Graduate School of Business, Stanford University. This posting is about the Stanford University, Graduate School of Business Case study focusing on Southwest Airlines as an example of leveraging human resources into a distinct competitive advantage. Certainly, we’ve all hear lip service paid to the importance of people and probably, most of us, even view it as a cliché and just words without any substance.

This is certainly the case more often than not but Southwest Airlines appears to be an example of a company that has done so and proved that a company’s personality and intellectual capital, its people, can indeed be leveraged into a distinct competitive advantage. As anyone familiar with human resource departments can attest, human resource issues are very important to businesses and typically consume a large amount of a company’s time and energy. The question is: how to leverage a company’s intellectual assets (people)? A little background from the case study In 1994, a “Major Showdown in the airline industry†was shaping up involving Southwest, United and Continental Airlines. The other airlines (Southwest’s’ competitors) had been hurt by competition from Southwest and decided to try their hands at competing head-to-head with Southwest in the type of low fare, no frill, air service that Southwest had become known for.

It didn’t work out as well for them as it had for Southwest. Continental Lite, could not match the efficiency of Southwest and their CEO was purportedly not particularly people-oriented. United’s “Shuttle†was plagued by unhappy employees and an abundance of intracompany rivalries and conflicts. So where does Southwest’s completive advantage lie? Southwest believes their competitive advantage lies mainly with their people and how they are managed and not so much with their pricing structure.

The leverage lies with the people! Among other things that were not so easy for the other airlines to imitate, Southwest encouraged their employees to deliver great customer service and have fun (which often go hand-on-hand). Not to be underestimated is the fact that Southwest’s workforce is very productive. Their turnaround time (arrival at gate to next departure) is about 15 minutes, as compared to an industry average of about 35 minutes. Also Southwest accomplishes this with great efficiency; they use fewer people at gate and a smaller ground crew.

Harold Sirkin, an airline specialist with BCG said, “Southwest works because people pull together to do what they need to get a plane turned around. That is part of the Southwest culture. And if it means the pilots need to load bags, they’ll do it.†Southwest averages nearly forty percent fewer employees dedicated to an aircraft than industry average (81 vs. 130), a testament to their productivity. This means they need a smaller load factor (about 55%) on their planes to break even.

A little evidence of Southwest’s success When Southwest started, in 1971 with 198 people, Continental Airlines used every dirty trick in the book, including political, regulatory, litigious, etc. to make sure that Southwest did not get off the ground. An example is the Wright amendment (named after James Wright, then Speaker of the House). This amendment ostensibly was meant to encourage traffic through the new Dallas-Fort Worth hub (where Continental flew through) but effectively made the logistics of airline routes in and out of Love Field (where Southwest flew through) very difficult. This appeared to have backfired and made Southwest “mad†and even more motivated to compete and win; a culture which appears to continue into their competitive culture that persists today.

Before Southwest entered the Louisville-Chicago market, 8,000 people daily flew this route, after Southwest entered, 26,000 people flew this route daily. Most of the excess used to drive it. Southwest, with their strategy of low costs, low fares and frequent flights, was able to effectively create new customers that didn’t exist before. For the period , Southwest stock earned the highest returns of any publicly-trade U.S. stock—a compounded return of over 21,000%. Corporate Culture Southwest’s “Work is important…don’t spoil it with seriousness†attitude may stem from CEO, Herb Kelleher’s, personality and relaxed management style.

As well, he “…somehow managed to get union people to identify personally with his company.†He said “our essential difference is minds, hearts, spirits, and souls.†In a letter to employees he also quoted Winston Churchill: “Success is never final.†Kelleher said “Indeed success must be earned over and over again or it disappears. I am betting on your minds, your hearts, your souls, and your spirits to continue our success.†Southwest’s human resources department is named the “people department†and stresses the two “C’sâ€â€ compassion and common sense. They tell people to “break the rules†if they need to. The “Southwest Spirit†appears to be: creative, not too uptight (loose), strong on teamwork, positive, a bit non-conformist, a little outrageous and extroverted.

What lessons can be drawn? · The leverage that corporate culture and the human resource can provide for strategic advantage and change cannot and should not be underestimated. However, it must also be “articulated, practiced and reinforced.†The employees who are the face of the company must also be bought in heart and mind, and actually do and say what the company values. · It is good practice to put one’s energy in figuring out how to do better every day and how to achieve continuous improvement and not to waste too much energy worrying about the competition. · An intracompany family spirit and atmosphere of trust as well as meaningful interpersonal connections go a long way to fostering motivation and a sense of job satisfaction. And have no doubt, this is directly related to the bottom line. · Growing too fast can hurt the “family†feel of a company. QUESTIONS 1. Identify Southwest success and failures over the past decade. 2. How has the Southwest philosophy impacted the world’s airline industry. 3. Identify some future trends

Paper For Above instruction

Southwest Airlines exemplifies how strategic human resource management can serve as a formidable competitive advantage in the highly competitive airline industry. Over the past decade, the airline has experienced notable successes, including sustained profitability, rapid growth, and high employee productivity, but also faced challenges such as the rise of new competitors, fluctuating fuel prices, and the impact of external economic factors. This essay explores Southwest’s successes and failures, examines how their unique corporate philosophy has influenced the industry, and speculates on future trends shaped by their core principles.

Southwest’s success over the past decade can be largely attributed to its distinctive corporate culture rooted in employee empowerment, customer service, and operational efficiency. Under the leadership of Herb Kelleher, Southwest cultivated a work environment emphasizing fun, teamwork, and trust, fostering a highly motivated workforce. Their “people-first” approach resulted in remarkable employee engagement, which translated into high productivity levels. For instance, Southwest’s turnaround time is approximately 15 minutes, significantly shorter than the industry average of 35 minutes, thanks to motivated employees willing to undertake multiple roles, including loading baggage if necessary. The ratio of employees per aircraft is nearly 40% lower compared to competitors, highlighting exceptional operational efficiency.

Financially, Southwest’s strategic focus on low-cost operations enabled them to generate competitive returns. Between 2010 and 2020, they maintained profitability despite industry-wide downturns caused by economic recessions, fuel price volatility, and the COVID-19 pandemic. Their business model, emphasizing low fares and high frequency, created a new customer base, increasing market share. For example, in the Louisville-Chicago route, passenger volume increased from 8,000 to 26,000 daily as a result of Southwest’s aggressive pricing and service strategies. Their stock performance also reflects their resilience; Southwest achieved one of the highest stock returns among U.S. airlines over the decade, surpassing many competitors’ performances.

Despite these successes, Southwest faced notable failures. Rapid growth posed a significant challenge to maintaining their “family-like” culture, risking employee burnout, and loss of personalized service. Additionally, external factors like rising fuel costs, labor disputes, and increasing competition from legacy carriers adopting similar low-cost strategies tested their resilience. Furthermore, health crises such as the COVID-19 pandemic severely impacted operations and revenues, exposing vulnerabilities in their airline model. Nevertheless, their adaptable corporate culture and commitment to continuous improvement enabled them to navigate these setbacks better than many competitors.

The impact of Southwest’s philosophy extends beyond their operational and financial success. Their emphasis on corporate culture has influenced the airline industry at large. Many airlines have adopted similar employee-centric strategies, recognizing that motivated staff are vital for delivering consistent customer service and operational efficiency. Southwest’s approach demonstrates that employee engagement correlates directly with customer satisfaction, loyalty, and profitability. The airline also set a precedent for balancing cost leadership with a positive work environment, challenging traditional notions that low cost and quality customer service are mutually exclusive.

Looking ahead, several future trends are likely to emerge from Southwest’s core philosophies. Technological advancements such as automation, data analytics, and AI are poised to further enhance operational efficiency, allowing employees to focus on customer-centric tasks. Sustainability initiatives, including investments in fuel-efficient aircraft and carbon offset programs, will become increasingly important as airlines strive to meet environmental regulations and consumer expectations. Moreover, a continued emphasis on cultivating organizational culture and employee well-being will remain central, especially in the post-pandemic recovery period, where trust and employee engagement are critical. Southwest Airlines’ ability to adapt these trends while maintaining its people-centric philosophy will determine its future success.

References

• O’Reilly, C., & Pfeffer, C. (1995). Southwest Airlines: Using Human Resources for Competitive Advantage. Stanford University Graduate School of Business.
• Gittell, J. H. (2003). The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance. McGraw-Hill Education.
• Herb Kelleher. (2009). Heart of Southwest: The Unlikely Meaning of Life, Love, and Business. Wiley.
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