Southwest Airlines: A Recovering Innovator
Southwest is an operations leader recovering from on-time performance issues.
Southwest Airlines has a strong reputation for using efficient operations to maintain low prices, but it has struggled with on-time performance and aircraft turn times in the last few years. What went wrong, and how is Southwest fixing it?
Southwest’s low-cost carrier strategy is the stuff of airline industry legend. It operates primarily short distance flights. It flies only Boeing 737s. It does not assign seats to individual passengers. Its planes spend very little time at gates between flights. Southwest has used this basic strategy since the 1970’s to keep operating costs and ticket prices low.
Southwest famously “turns” aircraft more quickly than a traditional airline, meaning that the time between a plane’s arrival at and departure from an airport is incredibly low by industry standards. Southwest turns plans in 25 minutes on average, while other airlines can take an hour or more to execute the same operations. This extreme efficiency allows each 737 to fly an average of 6 routes per day. Using expensive aircraft more efficiently than competitors is a key part of Southwest’s low-cost strategy, but it requires the airline to manage each arrival and departure with incredible precision.
Photo: Basil D Soufi, from Wikimedia.
The airline’s typically impressive on-time performance began to slip in late 2013 when Southwest instituted a new flight schedule that aimed to increase the number of flights per aircraft even further. To accomplish this, the airline assumed even faster turn times for aircraft at gates and allocated less time in the air than it had previously allocated on the same routes. It sounded like a perfect way to “do more with less” but on-time performance suffered. While 81% of all flights arrived on time in 2013, a mere 70% did in early 2014.
A few things went wrong that the Southwest team had not anticipated. First, good weather in 2012 led the operations team to underestimate weather risks to on-time arrivals. Second, Southwest had recently revamped its aircraft interiors and added an additional row, so more people had to board and disembark from each plane during the turn times. Finally, Southwest’s very old reservation system did not allow the airline to rebook passengers with missed connections as efficiently as possible.
Southwest moved rapidly to address these changes. They began the transition to a new reservation system in 2014, and they increased the expected flight times to prevent minor delays from disrupting their schedule. Southwest also increased the standard turn time to 35 minutes.
Will Southwest be able to sustain its competitive advantage with higher turn times going forward? I have no doubt that they will continue looking for new ways to streamline their operations. Southwest will definitely be a company to watch.
Student comments on Southwest Airlines: A Recovering Innovator
Annie – I was actually on a Southwest plane yesterday. They finally added wi-fi to planes which is fantastic! This is a very interesting essay, particularly given all of their recent advertising about “transfarency” and their commitment to not charging any incremental fees for bags, change of flights, etc. Given they have made a business commitment to not up-sell consumers for any incremental perks, it seems like they are significantly limiting their ability to drive sales and margin improvement. You have highlighted their key focus on the operations side which is about improving turn-around time. Do you think they will be able to continue this trajectory without upsetting consumers? I wonder if there is a tipping point where consumers begin feeling turned off by being rushed off the plane, cleaning their own seats, or whatever Southwest thinks up next.
I think they would get a lot of push back if they charged for checked baggage, but my hunch is that the cost of bags is just baked into the ticket price now. Southwest’s fares are not as competitive as they were 10 years ago. This Bloomberg article describes it pretty well, and includes some average prices: http://www.bloomberg.com/bw/articles/2014-09-11/southwest-airlines-no-longer-the-low-cost-leader However, this was written in 2013, and oil prices have come down a lot since then.
I love flying Southwest for all the reasons you mentioned: fast boarding, quick takeoff from the time I sit down, and efficient deplaning versus other airlines I fly like United or even Virgin America. I am also a big fan of their standard policies that feel like value-added services compared to the other discount airlines now (e.g., JetBlue, Spirit) — no checked baggage or flight change/cancel fees. With Southwest I really feel like I know what I’m getting and their pricing model seems very clear to me. I agree with you that Southwest will remain one to watch as customers demand more from airlines over time. Whenever people tell me they dislike flying Southwest, I am always shocked. They seem to be able to get me from Point A to Point B faster, cheaper, and friendlier than the rest of the airlines out there today.
I totally agree! Their customer service is far better than US legacy carriers. I think the biggest issue for Southwest will be rising ticket prices if they can’t get their operations on track, but the culture and staff should (hopefully!) stay as great as they are now.
Annie, I know two points don’t make a trend but on my recent trip to Houston on Southwest they were able to board both flights ahead of schedule. I particularly enjoyed the simple zone and line arrangement they have at the gate for simplifying the boarding process and minimizing time clarifying to clients and turning them away for trying to board at the wrong time. It made for a very efficient and stress-free boarding; on my return leg, I arrived late to the gate but just by looking at the screens I knew exactly where they were in the boarding sequence and was able to slot myself in the correct order quickly.
That’s great to hear! I like their process too. Hopefully they can continue executing it well.
One of the reasons Southwest was so successful as they grew was because they were able to lock in oil prices while they were lower before they jumped up to over $100 per barrel a few years ago. It would be cool to see how well they have been able to monitor and lock in prices these days, especially as the price of oil has plummeted. Will Southwest feel the pain?
This is a great comment, and thanks for bringing up fuel hedging. I hesitated to include it in the post because it wasn’t purely operational, but it definitely gave Southwest a cost advantage for a long time. Low oil prices in 2015 have been great for airlines in general but not great for (some of) their hedging strategies. The economist has a great summary here: http://www.economist.com/blogs/gulliver/2015/01/fuel-hedging-and-airlines