Wk 5, ORG 535: Summative Assessment: Strategies
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SouthwestAirlinesCaseStudy.docxSouthwest Airlines Comes of Age
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Southwest Airlines has perennially been considered a model of how an innovative strategy combined with strong culture and a strong relationship between management and employees can lead to business success. The company was founded in 1967 and was built on low costs, labor harmony, simplicity, and rapid expansion. Although labor strife seems endemic to the airline industry, Southwest always stood up for its workforce, which seemed unflinchingly committed to the company’s success.
However, as the company has expanded and grown older, the original strategy seems to be in peril. Mergers among the major airlines such as American/US Airways, United/Continental, and Delta/Northwest have enabled them to reduce their cost structures and come closer to Southwest on price. In addition, ultra-discount airlines, such as Spirit Airlines, can undercut Southwest on price. Finally, airlines like JetBlue and Virgin America compete for Southwest’s traditional middle-class customers.
While Southwest faces a number of competitive and technological challenges, its labor costs stand front and center. Because Southwest is not expanding as fast, the company cannot hire as many new employees at the lowest rungs of the wage scale. With 83% of its workforce unionized, Southwest now seeks to negotiate wage freezes and tighten rules on sick time. In addition, the airline wants to hire more part-time workers and has floated the idea of outsourcing a number of jobs.
Employees pine for the former CEO and co-founder, Herb Kelleher, who was beloved by employees. Says Randy Barnes, a union representative for the ramp workers, “Ever since Herb . . . left, this has been more of a corporation and less of a family.”
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Southwest Airlines’ challenges face every company sooner or later. Although firm success can be sustained for a number of years, at some point competition begins to take its toll. In addition, with changes in leadership (Herb Kelleher retired from the CEO role and handed it off to Gary Kelly in 2004), it is difficult to maintain the same strong culture. This has profound effects on how people must be managed to sustain success amid a changing competitive landscape.
In spite of these challenges, Southwest’s performance remains strong. The airline made a record $2.24 billion in profits in 2016. In addition, the airline will continue to expand internationally, providing new opportunities for revenue growth.
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