Human Resources Case 43 Homework Swas Success From The Beginning Herb Kelleher

TEACHING NOTE

SOUTHWEST AIRLINES:

CAN LUV RULE THE WORLD?

OVERVIEW

This case describes the factors contributing to Southwest Airlines’

phenomenal success. It provides an overview of the airline industry and the

forces that comprise industry structure and attractiveness. The central factors

underlying Southwest’s success in this competitive industry include: the

leadership of CEO Herb Kelleher, a competitive strategy based on cost

leadership, a culture and human resource management practices that

encourage superior performance. The case highlights several challenges facing

Southwest Airlines (SWA) as the company seeks to sustain its growth and

profitability.

OBJECTIVES

2. To identify the key elements of Southwest Airlines’ competitive advantage.

4. To explore ways in which a growth company can sustain its competitive

advantage in a competitive industry.

INTENDED AUDIENCE

This case is appropriate for graduate and undergraduate courses in strategic

management, management, organizational behavior, and human resource

management. The primary topics include: industry analysis, competitive

advantage, leadership, organizational structure, corporate culture, and human

resource management.

DISCUSSION QUESTIONS AND ANSWERS

1. What are the primary forces affecting the airline industry structure and

attractiveness (profitability)?

TEACHING NOTE—Southwest Airlines

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profitability.

Threat of Entry. Deregulation of the airline industry in 1978 allowed a

flood of new entrants into the industry and precipitated the demise of

some existing airlines. Although SWA was already established as a small

regional airline, deregulation allowed the company to grow rapidly into

some extent in reducing the power of buyers. However, leisure travelers

are more price sensitive than business travelers and are more willing to

switch airlines when they can get a better fare. Leisure travel customers,

and increasingly business travelers, are becoming more knowledgeable

and can shop, via the Internet, for the best prices. In general, increasing

buyer power is keeping a lid on pricing in this industry.

2. Despite a relatively unattractive industry environment, how has SWA been

able to consistently outperform its competitors?

Southwest Airlines has significantly outperformed other airlines in the

industry because of its low cost position. SWA has positioned itself in the

3. Describe the central elements of SWA’s competitive advantage.

SWA’s cost leadership stems from a number of value chain activities. By

using smaller, less congested secondary airports in major cities, SWA

can have lower gate costs and landing fees. This strategy also allows

them to maintain schedules more easily. Southwest has selected regions

turnaround time (and consequently, its asset utilization) is tops in the

industry.

In addition, SWA sells only about 60% of its tickets through travel agents

(as opposed to 80-85% for competitors). This reduces commission costs

and alleviates the need for a computer reservation system, a major

TEACHING NOTE—Southwest Airlines

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4. How has the leadership of Herb Kelleher contributed to SWA’s success?

From the beginning, Herb Kelleher has been the driving force behind

SWA’s unique approach to business. The early legal battles to establish

5. How does SWA’s culture and human resource management practices

contribute to the company’s success?

Herb Kelleher has made the development and maintenance of the

corporate culture one of his primary duties. The culture permeates the

organization and sends clear signals about the behavior expected at

TEACHING NOTE—Southwest Airlines

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6. What challenges currently face SWA? What can the company do to sustain

its competitive advantage?

Southwest has maintained consistent performance in the face of difficult

industry conditions and fierce competition. It faces the following

challenges:

Continued Growth: Southwest’s strategy has been focused on domestic,

short-haul markets. These markets are becoming saturated and the

company will have to look elsewhere, including longer-haul markets, for

TEACHING NOTE—Southwest Airlines

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