Southwest Spirit Customer Service

TB00417 The Southwest Spirit Customer service far beyond the norm in the airline industry was not unexpected at Southwest and hadits own name—Positively Outrageous Service. Some examples of this service included: a gate agentvolunteering to watch a dog (a Chihuahua) for two weeks when an Acapulco-bound passenger showedup at the last minute without the required dog crate; an Austin passenger who missed a connection toHouston, where he was to have a kidney transplant operation, was flown there by a Southwest pilot inhis private plane. Another passenger, an elderly woman flying to Phoenix for cancer treatment, begancrying because she had no family or friends at her destination. The ticket agent invited her into herhome and escorted her around
Phoenix for two weeks.12 Southwest Airlines customers were often surprised by Southwest Spirit. On some flights, maga-zine pictures of gourmet meals were offered for dinner on an evening flight. Flight attendants wereencouraged to have fun; songs, jokes, and humorous flight announcements were common. One flightattendant had a habit of popping out of overhead luggage compartments as passengers attempted tostow their belongings, until the day she frightened an elderly passenger who called for oxygen.13 HerbKelleher once served in-flight snacks dressed as the Easter Bunny. Intense company communication and camaraderie was highly valued and essential to maintainingthe esprit de corps found throughout the firm. The Southwest Spirit, as exhibited by enthusiasm andextroverted personalities, was an important element in employee screening conducted by Southwest’sPeople Department. Employment at Southwest was highly desired. In 2006, 3,363 employees werehired and 284,827 applications were received. Once landed, a job was fairly secure. The airline had notlaid off an employee since 1971. Historically, employee turnover hovered around 7%, the lowest rate inthe industry. In 2008, Southwest had more than 33,000 employees; in 1990, Southwest had 8,600employees and less than 6,000 in 1987. During initial training periods, efforts were made to share and instill Southwest’s unique culture.New-employee orientation, known as the new-hire celebration, have in the past included Southwest’sversion of the Wheel of Fortune game show, scavenger hunts, and company videos including the “South-west Airlines Shuffle” in which each department introduced itself, rap style, and in which Kelleherappeared as Big Daddy-O. To join the People Department (i.e. Human Resources), employees requiredfrontline customer experience. Advanced employee training regularly occurred at the University of People at Love Field in Dallas.Various classes were offered, including team building, leadership, and cultural diversity. Newly pro-moted supervisors and managers attended a three-day class called “Leading with Integrity.” Each de-partment also had its own training division focusing on technical aspects of the work. “Walk-a-MileDay” encouraged employees from different departments to experience firsthand the day-to-day activi-ties of their co-workers. The goal of this program was to promote respect for fellow workers whileincreasing awareness of the company.14 Employee initiative was supported by management and encouraged at all levels. For example,pilots looked for ways to conserve fuel during flights, employees proposed designs for ice storage equip-ment that reduced time and costs, and baggage handlers learned to place luggage with the handles facingoutward to reduce unloading time. Red hearts and “Luv” were central parts of the internal corporate culture, appearing throughoutcompany literature. A mentoring program for new hires was called CoHearts. “Heroes of the HeartAwards” were given annually to one behind-the-scenes group of workers, whose department name waspainted on a specially designed plane for a year. Other awards honored an employee’s big mistakethrough the “Boner of the Year Award.” When employees had a story about exceptional service to share,they were encouraged to fill out a “LUV Report.”
8 TB0041 Southwest placed great emphasis on maintaining cooperative labor relations: 87% of all employ-ees were unionized.
Southwest pilots belonged to an independent union and not the Airline PilotsAssociation, the union that represented more than 60,000 pilots. The company encouraged the unionsand their negotiators to conduct employee surveys and to research their most important issues prior toeach contract negotiation. At its 1994 contract discussion, the pilots proposed a 10-year contract withstock options in lieu of guaranteed pay increases over the first five years of the contract. In 1974,Southwest was the first airline to introduce employee profit sharing. Through the plan, employeesowned about 10% of the company’s stock. Herb Kelleher summed up the Southwest culture and commitment to employees: We don’t use things like TQM. It’s just a lot of people taking pride in what they’re doing….Youhave to recognize that people are still the most important. How you treat them determineshow they treat people on the outside. . . I give people the license to be themselves andmotivate others in that way. We give people the opportunity to be a maverick. You don’thave to fit in a constraining mold at work—you can have a good time. People respond tothat.15 Southwest Imitators Southwest’s strategy spawned numerous imitators, most of which failed. Two of the more successfulstart-up firms, Midwest Express and America West, both went through Chapter 11 bankruptcy pro-ceedings. ValuJet
was grounded after its May 1996 crash in the Florida Everglades, reemerging a yearlater as AirTran. The major airlines tried to compete directly with Southwest. The Shuttle by United, a so-called“airline within an airline,” was started in October 1994. United’s objective was to create a new airlineowned by United with many of the same operational elements as Southwest: a fleet of 737s, low fares,short-haul flights, and less restrictive union rules. United saturated the West Coast corridor with short-haul flights on routes such as Oakland-Seattle, San Francisco-San Diego, and Sacramento-San Diego.The Shuttle was unable to achieve the same level of productivity as Southwest and, in 2001. Uniteddiscontinued Shuttle service and folded the remaining flights into its regular service. US Airways didthe same with its Metrojet discount service. In 2003 United started a new discount carrier called TED.Some of the attempts to imitate Southwest were almost comical. Continental Lite (CALite) wasan effort by Continental Airlines to develop a low-cost service and revive the company’s fortunes aftercoming out of bankruptcy in April 1993. In March 1994, Continental increased CALite service to 875daily flights. Continental soon encountered major operational problems with its new strategy.16 Withits fleet of 16 different planes, mechanical delays disrupted turnaround times. Various pricing strategieswere unsuccessful. The company was ranked last among the major carriers for on-time service, andcomplaints soared by 40%. In January 1995, Continental announced that it would reduce its capacityby 10% and eliminate 4,000 jobs. By mid-1995, Continental’s CALite service had been largely discon-tinued. In October 1995, Continental’s CEO was ousted. A Successful Start-up: JetBlue Airways Morris Air, patterned after Southwest, was the only airline Southwest had acquired and integrated intoits own operations. Prior to the acquisition, Morris Air flew Boeing 737s on point-to-point routes,operated in a different part of the U.S. than Southwest, and was profitable. When Morris Air wasacquired by Southwest in December 1993, seven new markets were added to Southwest’s system. In1999, Morris Air’s former president, David Neeleman, announced plans for JetBlue Airways, a newairline based at New York’s JFK Airport. JetBlue had a successful IPO in April 2002, with the stockrising 70% on the first day of trading. JetBlue had a geographically diversified flight schedule thatincluded both short-haul and long-haul routes. Although JetBlue was viewed as a low-fare carrier, theairline emphasized various service attributes, such as leather seats, free LiveTV (a 24-channel satelliteTV service with programming provided by DirecTV), and preassigned seating.
TB00419 In 2008, JetBlue served 55 cities in the domestic United States, Mexico, and the Caribbean.
JetBlue had a fleet of 194 Airbus A320 aircraft and 30 Embraer 190 regional jet aircraft. JetBlue revenue in2007 was $2.6 billion, one-quarter the size of Southwest. The company had a net loss in 2005 and 2006but returned to profitability in 2007. A major ice storm that hit New York in early 2007 severely testedthe company. More than 1,200 flights were cancelled over a six-day period. Not long after, DavidNeeleman was asked by the Board to step down as CEO. He remained as Chairman. Southwest Expansion Southwest grew steadily over the years prior to 2008, but the growth was highly controlled. New air-ports were carefully selected, and only a few new cities were added each year. As Kelleher wrote to hisemployees in 1993, “Southwest has had more opportunities for growth than it has airplanes. Yet, unlikeother airlines, it has avoided the trap of growing beyond its means. Whether you are talking with anofficer or a ramp agent, employees just don’t seem to be enamored of the idea that bigger is better.”17In October 1996, with the initiation of flights to Providence, Rhode Island, Southwest enteredthe northeast market. The entry into the northeast region of the U.S. was, in many respects, a logicalmove for Southwest. The northeast was the most densely populated area of the country and the onlymajor region where Southwest did not compete. New England could provide a valuable source
ofpassengers to Florida’s warmer winter climates. Southwest’s entry into Florida was exceeding initialestimates. Despite the large potential market, the northeast offered a new set of challenges for Southwest.Airport congestion and air-traffic control delays could prevent efficient operations, lengthening turn-around time at airport gates, and wreaking havoc on frequent flight scheduling. Inclement weatherposed additional challenges for both air service and car travel to airports. Nevertheless, Southwest con-tinued to add new northeast cities. A few years later, Southwest was flying to various northeast airports,including Long Island, New Hampshire, and Hartford. In 2004, Southwest began flying to Philadel-phia, which was the first major northeast market entry. As of 2008, Southwest had not entered anymarkets outside the domestic United States. Future Challenges With the airline industry in turmoil in 2008, Southwest was in an interesting and unique position.Although the company had a strong financial position, major carriers like Delta and Northwest hadcome out of bankruptcy protection with lower costs and more efficient operations. While Southwest’semployee productivity remained high, its operating costs were rising. The company had the highestsalaries for pilots of narrow-body jets. Clearly, 2008 and the years following would result in dramatic changes to airline industry struc-ture. Would Southwest be able to maintain its position as America’s most prosperous airline? CouldSouthwest quickly expand share in the northeast and still ensure that customer service and companyperformance were satisfactory? Should Southwest look at internationalization options? Would the ma-jor airlines finally learn how to compete on cost with companies like Southwest and JetBlue? In anticipation of tough times, the Chairman’s message in the 2007 Annual Report ended with: While our near-term outlook is cautious, we are prepared for bad times, and our long-termoutlook is enthusiastic. Our People have Warrior Spirits, Servants’ Hearts, and Fun LUVingAttitudes.