1. September 25th, 2017
MBUS Case Study Presentation
Group 1 - Casey Tucker, Felicia Conklin, Alyssa Mcdonald,
Scott Zeller, Natalie Pluskota, & Kirsten Querna

2. But first, a quick announcement.

3. IS/IT Strategy Triangle
Class discussion and presentation.
5 minutes for collaboration.
From Chou-Hong Chen: Present and conduct the class discussion (make sure ask all groups show their IS/IT Triangle Strategy Model first)

4. Information Systems Strategy Triangle
Business Strategy
Profit Creation
Low-Cost Leadership
Organizational Strategy
IT/IS Strategy
Point-to-Point Flights
Fun Loving Spirit and Team Culture
Highest Paid Employees
Fleet Comprised of Only Boeing 737s
Ticketless Travel Program/Southwest.com

5. Executive Summary 1967-1971 1971 - 1998 1998 - 2014 2014 - Current
Founded in 1967 by Rollin King and Herb Kelleher
Love Field - Dallas, Texas
By 1973 Southwest broke even, and experienced 30 consecutive years of profit.
Average turnaround time of 24 minutes
“You are now free to move about the country”
‘Southwest Effect’
Prices were often 70% below competitors
Target customer: business travelers
Point-to-Point Service vs. Wheel-and-Spoke Competitors
Current

6. Southwest & Financial Success
Process of recruitment
Near Religious Experience
Lower Turnover costs
No Layoffs or cutbacks post 9/11
Salary comparable with competitors
Employees work more productive for the pay.
Received $278 million from Federal financial assistance bill
How does this company make money even when other airlines don't? What are the most important contributors to its financial success?

7. Response to On-Time Performance Drop
New directives that impacted the time needed to be at the gate and board the plane
Longer turnaround times and no adjustment made to flight schedules
Implement new procedures competitors already had in place prior to 9/11 and maintain competitive advantages
How should management respond to the fact that Southwest Airlines has fallen to next-to-last place among major airlines in on-time performance as of September, 2002?

8. Recommendation to Management Team
Adjust flight schedules to accommodate longer turnaround times
Longer turnaround times due to new security measures and boarding procedures
SWA is able to implement this adjustment on their own as it is not regulated by the Government
Continue to be unique and maintain high customer satisfaction scores
What is your recommendation to the management team for improving the company’s competitive advantage?

9. Southwest & Historical Growth Rate
Post 9/11, 5-8% would be a more reasonable goal
Allows continued expansion (new cities and aircrafts)
More than 100 cities requesting new connections (mid-2002)
Re-evaluate as industry changes
Steady increase in aircrafts from (~7%)
2011 acquisition of AirTran Airways (+140 aircrafts)
Once operations are fully stabilized, would you recommend to the management of the airline that it resume its historic growth rate of from 10% to 15% per year? Why?
Fleet Size at year end:
Between , increase between %
Recession , 3.27% in 2008, 0% in 2009, 2.05% in 2010.
Huge increase in 2011, 27.37%
Reduction in due to decommissioned old aircrafts
2015, 5.86%
2016, 2.70%, 735 total aircrafts

10. Southwest & Continued Growth Rate
Focus on efficiency of existing flight structures
Profitability of long-haul flights
Introduce operational strategy to increase revenue
Free checked baggage to increase passenger base
Focus on company culture and employee engagement
If you would not recommend a resumption of previous growth rates, how would you suggest dealing with the consequences of reduced growth, whatever they may be?

11. Southwest & Bankrupted Airlines
As others are going bankrupt under the pressure of high operation and fuel costs and low-fare competitors, Southwest gains a favorable position in the market.
With less and less competition, Southwest has the opportunity to expand and increase its operations.
Southwest’s strategy has been likened to Walmart’s, as it continues to gain the advantage in its market through low-cost leadership and differentiation.
What are the implications for Southwest of the actual or threatened bankruptcies of other major U.S. airlines?

12. Why is the profit of the Southwest Airlines dropped in year 2008?
, Southwest saved $4+ billion due to aggressive fuel hedging years into the future
2008 was a very volatile year for gas prices (recession hit)
Peak: $147 /barrel
Bottom: $37 /barrel
SW locked in $51 a barrel for ~70% of its fuel in 2008, and 55% of its fuel in 2009
Southwest lost $120 million, its first quarterly loss in 17+ years (still turned a profit for the full year).
2008 Profit Drop
Why is the profit of the Southwest Airlines dropped in year 2008?
Fuel Hedging:
A contractual tool some large fuel consuming companies, such as airlines, use to reduce their exposure to volatile and potentially rising fuel costs.
Graph exported from -
, Southwest saved $4 billion+ due to aggressive fuel hedging years into the future
In July, 2008 fuel costs rose to $147 a barrel
SW locked in $51 a barrel for ~ 70% of its jet fuel
Fall of 2008, recession hit, oil prices collapsed.
December 2008, crude bottomed at $37 a barrel.
Southwest lost $120 million, its first quarterly loss in 17+ years (still turned a profit for the full year).
2009, SW locked in at $51 a barrel for 55% of its fuel
A contractual agreement with a bank or other financial services firm. Occurs when an airline bets oil prices will go up; the other partying bets they will go down. The loser must pay the difference to the other. Viewed as insurance; purchased to minimize the volatility of fuel expenses.

13. Lessons Learned Never a follower. Always an innovator.
Organizational Innovator
“Feel the Luv” culture differentiation
Succeed and fail as a team
Promote unions, offering high employee compensation
Low turnover rate, high employee productivity, satisfaction and loyalty.
Technological Innovator
Point to point route system, greater aircraft utilization, quicker turnaround.
Minimized operational expenses through streamlined fleet
In 1995, was one of the first airlines to have a website and offer web-based services.
(Originally Air Southwest)
Screenshot from wayback machine:
What do you think? Looks Good, but where did the competitive strategies go?

14. Lessons Learned Continued… 2017 Survey
#1 Virgin America Airlines - appeals to the tech savvy consumer, offering “Wi-Fi on every flight, soothing mood lighting, and seat-to-seat messaging.” Fastest airline.
#2 JetBlue Airways - focus on customer service, offering “roomy coach seats, free ‘Fly-Fi’ high-speed Internet access, free DirecTV, and unlimited free blue potato chips and other snacks.”
#3 Southwest Airlines - unique, largely, for what it does not do… tack on extra fees for things like flight changes. Additionally, customers get “two free checked bags, including skis and golf clubs, making it the most generous in the business.”
Adding the new Boeing 737 Max to its fleet by October 1, 2017
roomier
14% improved fuel efficiency
longer range route capabilities
same updated interior already found on many of the carrier's jets.
… Time to innovate! Improve inflight experience, to attract tech-savvy customers, while maintaining low-fare.
Ok, done. Do what you think is best with it.

15. Class Discussion
Questions? Comments? Concerns?