Sample Paper 4

IOD (April-2010-Dubai, November-2010- Dubai & Singapore)

Southwest Airlines Faces New challenge

For 32 years, Southwest Airlines has used the same formula to maintain its position as the most profitable airline in the United States. It offers low fares, high-frequency flights, and good service; it flies only Boeing 737s; it does not offer connecting flights, reserved seating, or free meals, it often relies on less expensive, secondary airports; and it prides itself on having the hardest-working and most productive employees in the industry. The company believes its true competitive advantage is its workforce.

Most of the major airlines cost per seat-mile is nearly 100% higher than Southwest’s. The company gets this cost advantage by paying its pilots and flight attendants considerable less than the competition and having them fly more hours. It has made up for the lower pay with generous profit-sharing and stock-option plans. In addition, because of Southwest’s rapid growth, it has provided its employees with something rare in the airline industry: job security. Because a large portion of a Southwest employees compensation comes in the form of stock options, employees have worked harder and more flexibly than their peers at other airlines. For instance, pilots will often help the ground crew move luggage and work extra hard to turn planes around fast. Of Course, many Southwest employees originally joined the company and have stayed because of its spirit of fun. The company has always encouraged employees to work hard but to have a good time. A sense of humor, for instance, has long been a basic criterion in the selection of new employees

In the last couple of years, the environment has been changing for Southwest. First, it faces a number of new, upstart airlines in many of its markets. JetBlue, Frontier, AirTran, Song, and Ted are matching Southwest’s low prices but offering benefits like reserved seating and free live-satellite TV. They are able to do this because they have newer, more fuel-efficient planes and young, lower paid workforces. In many markets, Southwest’s planes and service look dated. Second, the declining stock market of 2001-02 took much of air out of Southwest’s stock (although it has revived somewhat, its stock is still trading at 1997 levels). The company’s stock option plan no longer looks so attractive to employees. 3^rd, Southwest has to deal with the reality that it is no longer the underdog. For decades, employees enjoyed the challenges of competing against United, American, Delta, and other major airlines. They loved the role of being the underdogs and having to work harder to survive. Southwest’s employees are increasingly vocal and aggressive in demanding higher wages and shorter hours. In the past, workers were willing to go beyond the call of duty to help the airline thrive. It’s harder for management to motivate employees now by portraying the airline as the underdog. Finally, as the company has grown and matured, management has become more remote from the rank and file. When the company had a few hundred employees, it was easy for management to communicate its messages. Now, with 35,000 workers, it’s much tougher.

Southwest’s managers realize that times have changed. Now they face the question of whether they need to make changes in their basic strategy and if they do, what effect it will have on the company’s culture. For instance, in the fall of 2003, the company was considering adding in-flight entertainment, although it would cost millions to install and many more millions to maintain, and purchasing smaller jets to maintain competitiveness in smaller markets. The operating costs of these smaller jets would be 15 to 25 percent higher than those of its current fleet.

Questions:

1) What has sustained Southwest’s culture?

2) Do you think upstart airlines can successfully duplicate this culture?

3) Now that company is no longer the underdog, what can Southwest’s management do to retain its high-productivity culture?

4) What does the case imply about sustaining culture in a changing environment?