Southwest Airlines sees narrow concern over 737 jet

DALLAS (Reuters) – Southwest Airlines is willing to expand inspections for its older Boeing 737 aircraft but sees no reason for concern a week after one of its jets made an emergency landing with a hole in its fuselage, the discount carrier's chief executive officer said on Friday.

An older-model Southwest Airlines 737-300 was forced to make an emergency landing in Arizona on April 1 when a 5-foot tear opened up in its fuselage 20 minutes after takeoff.

The incident prompted Southwest, the largest domestic airline by passengers flown, to ground planes and cancel hundreds of flights over the weekend so it could inspect more than 70 of its older model 737-300s.

"If there is some finding that suggests that there is merit to expanding inspections beyond what we've done, well of course we're going to do that," said Gary Kelly, chief executive officer of the discount carrier, speaking to a conference of business journalists.

However, Kelly warned against an over-burdensome inspection regime.

"At some point if you are going to fly on an airplane, you've got to take off," he said.

The Federal Aviation Administration, National Transportation Safety Board and Boeing are all investigating the cause of the April 1 incident, which has raised concerns about wear and tear on older models of Boeing's 737.

Boeing responded quickly to the Southwest incident, and the airline has no plans to seek links with other aircraft makers, Kelly said.

"Boeing has been there for Southwest Airlines," he said.

The 737-300 represents roughly 20 percent of Southwest's all-737 fleet, the most popular commercial aircraft ever and a workhorse globally.

As a result of the inspections, Southwest found "very small cracks" in five of its aircraft -- and four of those five aircraft will be back in service by late on Friday, Kelly said.

Southwest's operations are largely back to normal, Kelly said. Kelly declined to say how much the inspections cost Southwest in lost revenues, but said "it is not multimillions of dollars."

So far, the problem has been limited to Southwest, which paid a $7.5 million Federal Aviation Administration (FAA) fine for operating 737s without required fuselage structural inspections in 2006/07.

(Editing by Gary Hill for http://news.yahoo.com)

Southwest Airlines Reports March Traffic

DALLAS, April 7, 2011 /PRNewswire via COMTEX/


Southwest Airlines Co. (NYSE: LUV) announced today that the Company flew 7.3 billion revenue passenger miles (RPMs) in March 2011, a 9.8 percent increase from the 6.7 billion RPMs flown in March 2010. Available seat miles (ASMs) increased 8.9 percent to 9.0 billion from the March 2010 level of 8.2 billion. The load factor for the month was 81.6 percent, compared to 81.0 percent for the same period last year. For March 2011, passenger revenue per ASM is estimated to have increased in the eight to nine percent range compared to March 2010.


For the first quarter of 2011, Southwest flew 19.2 billion RPMs, compared to 17.2 billion RPMs flown for the same period in 2010, an increase of 11.9 percent. Available seat miles increased 8.3 percent to 24.5 billion from the 2010 level of 22.6 billion. The year-to-date load factor was 78.3 percent, compared to 75.9 percent for the same period last year.


This release, as well as past news releases on Southwest, is available online at southwest.com.

Rigourous Methods of Creating New Business Models

Why is it so hard to create new business models?

The business model of a company – its formula for sustained success – becomes deeply ingrained. It is reflected in who the firm hires, how it measures performance, who it targets as customers, the standards it creates for budgets, and how it views competitors. Indeed, the business model must permeate the firm in this way if the company is to become better at executing this formula than its competition. When a company is well-aligned around a business model, it repeatedly wins battles fought on that turf.

However, industries evolve. Pfizer became arguably the world’s greatest firm at selling blockbuster drugs like Lipitor, but the next wave of growth has to come from tightly-targeted therapies such as expensive biologic drugs, sometimes coupled with other offerings such as diagnostics and home monitoring. These new drugs call for totally distinct approaches toward R&D, marketing, sales, and business partnerships. They are sold at vastly higher price points, to far smaller populations. Cost structures, internal processes, staffing, and much else needs to change. For Pfizer, creating a new business model is wrenching.

To surmount these challenges, firms need to be proactive about rigorously defining the business model they have today and mapping how that model might have to change in various future scenarios. The company can then plot its transition, building new capabilities bit-by-bit and testing new models. Change can become more strategic and manageable.

This process begins with a rigorous de-construction of the current model, including clearly stated strategies (e.g. customers targeted), norms (acceptable gross margins), and unconscious factors (how headquarters interacts with staff in the field). Management can then discuss which aspects of the model are easily changed, which are threatened by industry evolution, and what inter-dependencies exist. While the output of this work could be slide decks of gargantuan scale, we find that focused workshops with key staff can achieve most of the objectives of this phase quickly and efficiently.

Subsequently, companies need to relate their future strategies to the new business model required for their success. Questions might include:
Who will be the most desirable customers? Who will we be competing against? What capabilities will make us win?
What will the P&L need to look like? The balance sheet?
What staffing mix would be appropriate for the new world? How would qualifications need to change? What will get people promoted?
How will we use sales channels? How loyal will our channel partners be?
How quickly will we need to make decisions? Who must be involved in decision-making?

Once the firm has laid out the potential components of a new business model, it can decide how to sequence its transition to new approaches. Seldom would a company want to change many variables at one time in the core business. That is like building the plane while flying it – dangerous. Instead, the firm may opt to create a separate business unit to trial a radically different model, or it might enact small-scale experiments within the core business.
For further thinking about how we approach creating new business models, please complete our short form.

Southwest Airlines strategy

Southwest Airlines strategy of focusing on short haul passenger and providing rates as low as one third of their competitors, they have seen tremendous growth in the last decade. Market share for top city pairs on Southwest's schedule has reached 80% to 85%. Maintaining the largest fleet of 737's in the world and utilizing point-to-point versus the hub-and-spoke method of connection philosophy allowed Southwest to provide their service to more people at a lower cost. By putting the employee first, Southwest has found the key to success in the airline business. A happy worker is a more productive one as well as a better service provider. Southwest will continue to reserve their growth in the future by entering select markets only after careful market research.
Southwest Airlines faced many barriers to entry from the fierce competition of other airlines in the industry. Though competition was fierce, Southwest Airlines managed to succeed by doing things differently. Their mission was to provide affordable air travel to those who would not normally fly. Contradictory to the rest of the airline industry, Southwest maintained a profit while keeping its fares low. Southwest was unique to the industry in two ways. They focused on the short haul traveler and used a point-to-point method of flight connections.
The short haul traveler is the backbone in which Southwest was built upon. The market for short distance airline flights was large enough to allow Southwest to maintain a profit for over 30 consecutive years. Shorter flight times allowed for more flights to take place per day. With the industry average sitting at one or two flights per day, Southwest set itself leaps apart by averaging 10 to 12. Maximizing utilization and minimizing ground time were the key elements to Southwest's profitability.
If the short haul passenger was the backbone of Southwest Airlines success, then their 737s were the lifelines that supported it. By choosing the 737 as the airplane for all of Southwest's flights, the company saved time and resources in training its employees. The crew could be easily substituted for one another due to the extensive training on the 737. Low costs and, therefore, low fares are an enormous competitive advantage, when combined with their high-quality and loyal workforce. A very unique culture was found at Southwest Airlines among all of its employees. The company generated a culture around prioritizing their workers over their customers. This family oriented atmosphere that was created enabled worker retention and customer service to skyrocket. Southwest was ranked number one among all major US carriers several times on a customer service as well as safety, price, on time performance, and baggage handling basis.
Though Southwest has many extravagant features to its organization, it does not go without some flaws of their own. Some of Southwest's prices cutting policies were also some of their weaknesses. Unlike their competitors, Southwest does not offer first class seats on any of their airplanes. This may have potentially caused Southwest to lose first class customers to rival airlines. Since their flight times usually run less that an hour, Southwest implemented the policy of not providing meals on their flights, another potential loss of customers. Also, around 1997, Southwest's fleet consisted of 47 737-200s. This model of the 737 has been replaced over the years with the 300, 500, and 700 series 737. Southwest's 737-200 had an average age of 17 years per aircraft. The age of their planes as well as the high maintenance costs were a considerable weakness for Southwest. Over the years, the gradual replacement of the 200 series gave Southwest the opportunity to reduce their costs by increasing fuel efficiency and slashing maintenance.
Always trying to stay a step ahead of the competitors, Southwest was the first airline to establish a home page on the Internet. The opportunity to service customers on the Internet is a great cost cutting tool for the present and future. It costs Southwest one dollar to book online versus around 10 dollars via a travel agent or somewhere in between the two for the use of their own reservations agent. Advances in technology provided many new options for the company. With the Boeing 737-700 model airplane being the most advanced of its class upon it release to Southwest in 1997, Southwest was stepping to the forefront again. These planes were quieter, more fuel efficient, and easier to maintain than their earlier 200 predecessors.
With the airline industry as highly competitive and as cutthroat as it is, the chance for the larger competitors such as United and American Airlines would follow Southwest lead by providing more short haul flights of their own. To their dismay, American and United being both in poor financial situations has made it extremely difficult for them to enter Southwest's niche in the market. A quick glance into Southwest's financial history, their net income has more then doubled between 1993 and 1997 alone.
Southwest Airlines has stood in a unique position in the airline industry since its inception. Making profits and maintaining employee job satisfaction have been the strongest aspects of their business. Southwest refuses to enter a market unless they can have at least 10 to 12 planes operating there immediately. These are examples why the company has continued to grow through their corporate strategy, using their competitive advantages, and unbeatable organizational culture to their benefit.

Southwest Airlines "Keep It Simple" Business Model

A&BS processes need to be high quality but no-frills - doing only the essential functions, and executing them very well. Southwest Airlines provides a useful object lesson of this principle.
Southwest Airlines' "Keep It Simple" Business Model
They don't fly everywhere
Sparse customer amenities
No seating class distinctions
Fewest customer options
No choices on type of aircraft
Simplest pricing structure
Bare-bones frequent flier program
No frills
Few pretenses
Peanuts, not meals
But...
Good schedules for destinations served
Fewest cancellations
Best on-time performance
Safest airline worldwide
Fastest gate turnaround
Employees appear to be happy
Simplest customer-interface
Highest customer ratings
Most consistently profitable
Lots of peanuts

Southwest changes its business model

Southwest Airlines continues to take the sort of steps that the classic low-cost carrier model says are at best unorthodox and at worst heretical. The carrier's new offerings, from special boarding to special treatment for its highest-paying passengers, are a reversal of its "all flyers are equal" type of airborne democracy, but they are needed, says the airline's chief executive Gary Kelly.

Southwest is introducing priority security lanes for premium customers at selected airports, starting this autumn. It calls these lanes "Fly By", setting them aside for its Business Select and premium level Rapid Rewards "A Listers". The A List members will receive identification cards stating that they are entitled to the treatment. "Fly By" will be rolled out at Dallas Love Field, Baltimore/Washington, Denver, Los Angeles, Orange County, Phoenix and San Francisco.

Just a year ago, it rolled out Business Select, a product that gives priority boarding, extra frequent-flyer credits and free drinks for the highest-priced fares. Southwest senior vice-president of marketing and revenue management Dave Ridley says the carrier's share of flyers on its highest categories increased by 5% between 2006 and 2008, and it is tracking towards its goal of achieving $100 million in incremental revenues.

The airline, which long relied on jokes by its flight crews to keep passengers entertained, will have an Internet-equipped Boeing 737-700 in trial runs by the end of the year and will have the entire fleet outfitted by the end of 2010. Supplied by Row 44, the Internet will be free during the trial, but may move to a tiered pricing structure later, Ridley says.

The carrier is also moving towards its first international codeshares, adding a Mexican partner, probably by the end of the year, to its previously announced codeshare with ­Canada's WestJet.

The airline's executive vice-president for strategy and planning, Bob Jordan, says some 17 million passengers fly between Mexico and the USA annually. At least 75% of them move through an airport where Southwest already has a presence, therefore, "we don't have to modify our network much".

http://www.flightglobal.com/articles/2008/10/29/318014/southwest-changes-its-business-model.html

Basic business model of Southwest Airlines

 Southwest Airlines Co. (NYSE: LUV) is an American airline based in Dallas, Texas. Southwest is the largest airline in the United States, based on domestic passengers carried, as of June 30, 2010.[2] Southwest operates more than 3,400 flights a day, as of March 2011, utilizing a fleet of 547 Boeing 737 aircraft.[3]

Southwest is known throughout the aviation industry as a "low-cost carrier" because of its unique business model. The model includes flying one aircraft type, the Boeing 737, on high-density routes throughout the United States. Southwest's "low-cost" business model is further defined by the airline not offering many services, which are a standard offering on most traditional American carriers, such as a First Class cabin, airport lounges, reserved seat assignments, and video/audio programing. By not offering these services, Southwest claims that it can offer lower fares and produce a higher return on invested capital than other airline companies.

Southwest Airlines has gained a reputation for "outside the box thinking" a proactive risk management, including the use of fuel hedging to insulate against fuel price fluctuation. Some analysts have argued against the style of profit-motivated energy trading Southwest did between 1999 and the early 2000s. They suggested that rather than hedging business risk (such as a hedge on weather to a farmer), Southwest was simply speculating on energy prices, without a formal rationale for doing so.[47][dead link]

At present, Southwest has enjoyed much positive press (and a strong financial boost) from its energy trading skills.[48][49][50] However, while most analysts agree that volatility hedges can be beneficial,[47] speculative hedges are not widely supported as a continuing strategy for profits.[51]

In the third quarter of 2008, Southwest recorded its first loss in 17 years due to its fuel-hedging contracts being of lesser value because of the drop in oil prices.

Southwest has been a major inspiration to other low-cost carriers, and its business model has been repeated many times around the world. The competitive strategy combines high level of employee and aircraft productivity with low unit costs by reducing aircraft turn around time particularly at the gate.[53] Europe's EasyJet and Ryanair are two of the best known airlines to follow Southwest's business strategy in that continent. Other airlines with a business model based on Southwest's system include Canada's WestJet, Malaysia's AirAsia (the first and biggest LCC in Asia), Sir Richard Branson's and Australia's Virgin Blue (although Virgin Blue now operates two aircraft types), Qantas's Jetstar (although Jetstar now operates two aircraft types), Philippines's Cebu Pacific, Thailand's Nok Air, Mexico's Volaris and Turkey's Pegasus Airlines. Although Southwest has been a major inspiration to many other airlines, including Ryanair, AirAsia and Jetstar, the management strategies, for example, of Ryanair, AirAsia and Jetstar differ significantly from those of Southwest.[57] All these different management stratgies can be seen as means of differentiation from other competitors in order to gain competitive advantages.

Original article http://en.wikipedia.org/wiki/Southwest_Airlines