Analysis of Southwest Airlines

1.     About the Organization:

For making analysis of the operational issue facing by an organization we have choose a successful airline company Southwest Airlines.

Ø Abstract of the Company:

Southwest Airlines is a very big air travel company in USA and it was incorporated in 1978 with intent to serve air route service by air travelling service. And after formation of the southwest airlines it continuously gets success in the fields of customer satisfaction, profitability, good employee and union relation. By the year of 1998 it has grown up to the25 states in the USA with the help of 24000 employees served in with 2500 flights per day. Southwest airlines co. provides major passenger airlines that provide scheduled air transportation in the United States and near international markets. Southwest airlines are one of the low cost carriers in America. Southwest ranked largest airlines in the world in terms of passenger carried. Southwest become largest domestic airlines in United States. Company have mission to provide highest quality of customer service with warmth, company spirit, individual pride and friendliness. Southwest airlines have 26% market share in airlines industries out of which 14.9% market share in Domestic Airlines. As of today, Southwest Airlines Co's weighted average cost of capital is 5.83%. Return on invested capital of the Southwest Airlines Co's is 26.70%.

Ø Services Provided by the Organization:

Southwest provide airlines service in North America. But company has some number of products delivered quality of service, e.g.; Early Bird Check in – Early Bird Check-In is a low-cost option giving us the convenience of automatic check-in before our traditional 24-hour check-in, Pets are welcome on southwest – with this service pet also can travel in international flights, Fly By – Fly By is for special business customer and rapid rewards member,   Mobile Access – Access by mobile app & site, Southwest Gift card, Express Bag Drop , Business Travel in Group, Southwest Airline Cargo, Southwest Charter, etc.

Ø Financial Conditions and Strategies:

Financial results of the company are differ from the result achieved from GAAP as southwest only reflects the cash transaction related to the purchase of oil and fuel. That means southwest only reflect the transaction of oil and fuel purchased in cash as oil and fuel expense but GAAP provide that transaction should be shown in the accrual basis of financial accounting.  Hence maximum portion of the cash outlay f the company includes fuel and oil expense of company it also includes the contracts of fuel derivative. In the same manner to enter into the option contracts premium paid for option are shown as parts of other losses hence it is net for GAAP and NON GAAP reflection in the financial statement of company.

Profitability Abstract over the Past Three Years:

Southwest Airlines Co.
Consolidated Statement of Income
(in millions, except per share amounts)
Particulars	Year Ended Dec. 31,
	2014	2013	2012
Total operating revenues	18,605	17,699	17,088
Total operating expenses	16,380	16,421	16,465
OPERATING INCOME	2,225	1,278	623
Total other expenses (income)	409	69	-62
INCOME BEFORE INCOME TAXES	1,816	1,209	685
PROVISION FOR INCOME TAXES	680	455	264
NET INCOME	1,136	754	421
NET INCOME PER SHARE, BASIC	1.65	1.06	0.56
NET INCOME PER SHARE, DILUTED	1.64	1.05	0.56
Cash dividends declared per common share	0.2200	0.1300	0.0345

Summary:

Southwest Airlines is one of the big names in the field of air travel. Southwest provide air travel service to 10.8 million customers in a month. Southwest provides their service in the 42 states of USA but though there we can see the red balance sheet in Nixon presidency.  With the success in the field of financial and commercial company get 10^th place in the customer satisfaction in the year 2012. Which represent company is worked for zero complaint. According to the websites of southwest their mission statement itself reflects the best of quality of service to serve customer with highest satisfaction level. Their mission statement is “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” By dedication of this mission statement and decision of company customer satisfaction is earned 33.9% which can be considered as a good rank for the company. In the same manner survey of Temkin group compared the customer support quality of nine US company and Temkin survey ranked each company based on the their functionality to serve customer and satisfy the customer. And from the above survey company get the point more than 8 which is considered as good rating towards customer satisfaction quality. Hence we can say that southwest try to serve customer in best possible manner. 

2.     Operational issue faced by the organization:

To make analysis of the specific operational issues being faced by the organization, we are going to discuss the issues faced by the organization is the light of Topic-5 (Capacity Management and Planning).

Key Objectives and purpose of the operation:

Here we try to understand the operational issue faced by Southwest Airlines in early 2013. Process design of any organization has to be right to the particular analysis of the tasks. The operation manager require to design the process looking to the market conditions and the factors that affecting the workflow of the organization. For establishing effective working system, it is require that the manager is having in depth understanding of the process of the working system. Any working process being designed based on the current situation of the market and organization current performance and market share. The target has been set according to the current capacity of the organization, the once all the functions of the facility network is analyzed, that establish the exact capacity of service provision of the organization. The expectation about the future performance of the organization also requires considering according to the changes in the environment within which organization is operating.

Operational issue faced by the organization:

Here in this case the Southwest Airlines in early of 2013, have faced one issue in the operating system, the fact of the case like that, the company had targeted that the market demand would be so strong that the company require to tighter its current schedule, however that decision of the organization put it in difficult situation and drag down the operation of the organization, and due to this problem the company’s increasing trend of performance also drag down to normal in that period.

Opportunity for change in the process:

The issues in capacity management and planning have to face by the company because of mismanagement in making decision with respect to the capacity of the service provision. The target being decided by the organization was not up to the mark and as per the perfect analysis of the current situation of the market. While setting up the planning the manager is required to set the operation so that the best use of the available resources can be made. Capacity management has been defined as the matching of capacity and demand for the product. When the market shows the strong demand and good fares the company organizes its target to take the advantage, and accordingly the southwest airline was going to operate the 16 new airlines worth of flying without increasing its fleet at all. To achieve this target the organization set its planning, and for this it had its cut down its turn times and at the same times it had trimmed its block times, block time in airline is the time when the flight takes departure from one gate until it arrives to the next gate. The planning was made looking to the performance and whether condition of 2012 at the same period of time, and the southwest had run an aggressive schedule, however it could not work as per the planning due to bad weather condition and unfavorable market condition.

It has been turned out that the situation has been changed since 2012 in the way southwest originally operated. The southwest has started to increase its seat capacity, and it has been increased from 137 to 143 by 6 seats and was keep trying to add more seats.

The Other functional working get disturbed:

The another problem that southwest have to face due to that increasing seat capacity that it make tougher to turn an airplane quickly if the available capacity has been fully occupied.

Capacity has been defined as the operation for the particular period of time and for the prevailing condition in the market; if any mistake is being done in planning stage then it destructs the other functional working of the organization. The capacity management strategies require the proper understanding of the market condition and available opportunity, whether to increase capacity or not this is very crucial decision and has to be taken after making detailed analysis of the market conditions.

3.     Analysis of the Issue and steps taken by organization to recover from that issue:

Southwest is also one of the big and multinational companies in the field of airlines. Every company have face some critical time in their business and southwest also face some critical condition for the business.  In this case Southwest Airlines in the year 2013 predict wrong about their demand. From the market situation they realized that company have strong demand in market and from the expected market demand they planned one option from the available two options to them i.e. they could keep fling in the existing schedule of the plan rather introduce more flight for the operation. They choose second option from the available option and they introduce more flight in operation. But due to bad weather condition their prediction goes wrong and their demand got reduced drastically and their performance having impact negatively. Company is take very long time to realizing their problem as they realized the problem about the capacity management after two months from the issue arise. Day by day there is one and more issue arise i.e. capacity management, load transfer, seat management etc. And due to that all issue flight of southwest are generally 3-5 minutes late. And even though they increased the number of flight in the operation but they could only utilized the 75% of the capacity that means there 25% capacity are remain idle which is not utilized anywhere in the operation. Southwest well planned to recover from the problem as soon as possible but the problem is also not that much small as southwest invested lot of amount for introduce new flight in the operation. Southwest firstly planned well to mitigate problem as we know reservation in the seat is basic system for flight operation and it does not require more changes into it hence southwest airlines started a programme called “strong start” where they targeted to reach each flight within schedule time. Hence firstly management focused on the flight out time they out each flight on time.

Southwest Airlines also prioritised the maintenance issue at the higher level. That means southwest just planned to run perfect airlines on their schedule. Though the entire problem is not mitigating at zero level hence they decided to provide the best customer service to the customer so that number of customer can be increased. And capacity can be utilized at the full capacity level. They compensated to the customer wherever necessary to compensate which make customer happy with the service of company. And also this will create faith into the mind of customer. Southwest targeted to reduce complaint level at the bottom line which they fixed at zero. Management try to fix the each and every problem faced by the customer. The entire airline is closing to the cost cutting and they will add new edge to their cost. To reduce cost southwest planned to reduce maintenance cost of the airlines so that they can achieve lower cost with the good quality of service to the customer. Normally a common person think that that kind of problem can be recovered by the southwest within very short span of time for the company name as southwest and other multinational company but without with operational plan one cannot reach to the their target and hence southwest also reach to the target level at the completion of more than 2 year. No doubt time taken for recover from the issue is very long but now company is operated at good condition. Almost all the problem is mitigated.

And from this entire way southwest airline achieve the 83.5% capacity utilization within very little time. Now from the beginning of April 2015, Southwest rum on the schedule time and new schedule of southwest are run on time though the capacity utilization of the southwest is still behind the big group company of US name ass Delta and US airlines. Southwest recovered from the issue after very long time. Now customer in percentage terms also increased with the southwest.

4.     Conclusion:

Recovery from the operational issue is not a cup of tea for everyone but it required well drafted plan to recover and some efforts from the management and superior level of employee.  For recover from the bad condition of the company southwest plan at the operational level as well as strategic level. And they achieve their target after a long journey of two year. Company have firstly planned to reduce the time gap and block time by starting a programme which is implemented in the company with the efforts. Company have recovered from all the issue faced by them. Issue includes the time lap of the flight between two stop points, block time of the flight, non utilisation of the capacity, non utilisation of the available seats and non utilisation of available flight. All the issue seems very critical and major for the company. In that Situation Company concentrate on the operational and strategic goal of the company once they realized the problem company take some stringent action includes tighter schedule, reduction of cost, customer satisfaction. By providing customer satisfaction to the client of the company management increase number of customer which help to the company to achieve capacity utilisation level at the good position. From the April 2015 onwards company is operate their business in well manner. Almost all the issue faced in the past two year are reduced and mitigated hence we can say that well drafted plan and operation management of the company help to achieve the target level and face with the issue of the company.  From the above issue we also concluded that wrong predication of the company may sometimes dangerous for the company hence company have to predict with the good analysis of the expected and predicted figure related to the company.