With the arrival of summer in 1993, Southwest found itself confronted with a choice of where to deploy two uncommitted airplanes. Ultimately, the direction Southwest chose would be a reflection of their overall strategy and how well the choice meshed with its operations, both of which were central to what differentiated the airline from its competitors. Southwest’s corporate strategy consisted of an approach that ran counter to what the largest airlines were doing at the time. They wanted controlled growth that was heavily weighted towards internal. In fact, 85% of their expansion was internal. In lieu of the hub and spoke model, they opted for short-haul point-to-point flights. Other airlines may have paid lip service to customer satisfaction, but they made emphasized it to the degree where it became an order winner. Furthermore, they adopted a strategy that was heavy on cost control and focused on fares, frequency, and credibility. Finally, they maintained a corporate culture that emphasized a family feeling, teamwork, and cooperation. The target market pursued by Southwest was not necessarily the same as other airlines looked to go after. Southwest competed against ground transportation, especially the car, and this influenced other decisions they made when it came to strategic direction. Getting the buy-in from their Customers was crucial for Southwest. They wanted them to be like ambassadors for the brand. In fact, as a sign of respect, they wanted their Customers to be written with a capital ‘C’. In terms of service, Southwest was particularly proud of their record of recording the triple crown of the airline industry – having the fewest complaints, fewest delays and fewest mishandled bags. Also, they chose to pursue the idea of being ‘nice’ and ‘luv’ as core tenets of their service approach instead of extra cost items – frequent flyer programs and onboard meals. From an operational strategy perspective, Southwest’s emphasis on low costs was clear everywhere, from their fares to having multiple vendors for fuel. They also only flew one model of airplane, the Boeing 737. This let them save on maintenance costs and provided increased buying power. They also used their own ticketing system and had high utilization and maximization of existing infrastructure. Most telling, though, is their choice of airports that they operated out of. By choosing uncongested airports, they could save 15-25% in average flight time which in turn positively affected the bottom line.
Turnaround Time
Quick airplane turnaround time allows Southwest to realize 56% higher utilization of its planes compared to its competitors (see Exhibit 1) driven by the difference in turnaround times. In theory, one Southwest plane could make 11 point-to-point flights in 16 hours of operation (assuming flights start at 6am and end at 10pm) while its competitors could make only 4 flights flying the same route. This higher utilization allows Southwest to fly the same routes as competitors more frequently and it can do so with fewer planes that are more highly utilized, which cuts down the costs of people, gates rentals and airport taxes. Exhibit 2 provides a breakdown of employee cost savings and demonstrates that with quicker turnaround times, Southwest can rent fewer gates. Finally, the higher utilization and more efficient use of planes frees up capital for the company to enable them to purchase additional airplanes to meet the demand if necessary.
Hub-and-Spoke and Point-to-Point
Both the hub-and-spoke (H&S) and the point-to-point (P2P) have their own distinctive advantages and disadvantages. In the H&S system, significantly lesser routes are needed to serve the network. This is because the number of pairings in a P2P network increases at a greater rate than the increase in nodes. Since there are less routes, assuming the number of planes are the same, airlines can schedule more frequent flights along each route and make full use of the capacity