The Southwest Airlines Way
In his
recent CNBC interview, the current CEO of Southwest Airlines Gary Kelly
described the ingredients of company’s ‘secret sauce’ to competitiveness as
follows:
‘We’ve never
had a layoff, we’ve never had a pay cut, we've been profitable every single year
since our first year of operation in 1972. There is a lot to a culture. And it
is easier to have a strong culture if you feel like you are a champion. And
that’s the way our employees feel. The other thing that we try to do for our
people is to give them the tools and the resources they need to provide a
product they are proud of. We don’t charge bag fees, we don’t charge change
fees. And mainly, we care about passengers. And we try to have a family at
Southwest Airlines and ask our people to treat all their customers like their
guests in their homes, and it’s worked really well for us. Our people are
fantastic. It really is what sets us apart competitively in the industry, and
they are the ones that make Southwest so successful.’ (transcript)
Of course,
everything doesn’t go smoothly all the time. Disruptions happen, flights are
delayed or cancelled, causing inconvenience to passengers. Even giving the best
possible service won’t make everyone happy. What makes Southwest unique is the
attitude of care and best possible response in difficult situations.
And there is
another thing. When faced by challenges, Southwest do make changes but don’t
give up on their basic values. Their current plan to expand internationally and
grab the market share of its conventional competitors American, Delta, and
United requires investment in new fleet, rise in labour cost, and loss of
additional revenue opportunity by not charging passengers to change their
travel plans and to check their bags (‘bags fly free’ policy) - not a pleasing
thing for investors. But Southwest resists change to the core of company
values and view those still unique consumer-friendly policies as key elements
of the company’s advantage.
The European
way
For European
low-fare counterparts this kind of ‘secret sauce’ to competitiveness is not on
the menu. They are used to put the culture of growth in profit and market share
before people and quality, assuming that by offering low-fares to their
customers they free themselves from responsibilities related to travel mishaps,
passenger anxiety and discomfort. Take EasyJet as an example. Their
relationship with passengers is spiralling down, measured by service quality,
on-time performance, and passenger claim processing, with lots of negative
publicity. Things got worse since Gatwick, the world’s busiest single runway
airport, became EasyJet’s biggest base following the fast traffic expansion.
The consistent drop in punctuality from 81% in 2012 to 59% in 2016
illustrates the scale of mismatch between company’s strategic plans and
reality. As a result, the airline has become more vulnerable to external events
than other airlines facing the same difficulties. Still, EasyJet plans to
‘proceed with the strategy of building leading positions at important airports in
key summer beaches and European city destinations’ putting market expansion
before other values.
Unable to
grow revenue and stay competitive while trapped at congested hub bases,
conventional European airlines continue to buy growth through mergers and acquisitions.
They keep reducing costs and improving productivity mostly by laying off
people. And they don’t seem to be too concerned about a growing army of
passengers experiencing unpleasant delays and cancellations. After all, their
competitors do the same - European regulation on passenger protection can
easily be ignored. Their records on service quality are partial and short of
information about unpleasant consequences of flight delays and cancellations on
customers. Airline delay reporting is voluntary, based on self-made flexible
rules. Official delay statistics is therefore unreliable – the information is
incomplete, inconsistent, and includes assumptions needed to make up for
missing data. Reliable consumer reports do not exist.
Considering
infrastructural limitations at twenty busiest European airports with no hope of
expansion during the next two decades, disruptions are destined to rise and
with them system inefficiencies, airline costs, and travel inconvenience.
There are suggestions that more cooperation between
long-haul and low-cost carriers is on the way. EasyJet and Ryanair,
Europe's two biggest low cost carriers, see their future in serving long-haul
airlines operating from European hub airports. This is seen as a cost-effective
way for legacy carriers to bring their passengers to hub airports for long-haul
flights connections. Major hub airlines have already surrendered around 40% of
short-haul flights and have been forced to slash further their costs to offer
rock-bottom fares to remain competitive. Lufthansa and Air France-KLM still
prefer growing their own low-cost units to avoid giving up more market share to
the external disruptors. There are many hurdles to be overcome before these
arrangements take place. While passengers may benefit from lower ticket prices
and more connectivity at hub airports, their travel will undoubtedly become
more disruptive, even more costly in time and money, and filled with more
anxiety, especially if responsibility for compensating passengers for missed connections
is not clearly assigned. EasyJet’s experience at Gatwick offers some clues.
The good
news is that the ‘secret sauce’ remains an option for improvement in culture
and quality and with it increase in revenue and overall profitability. For
those for who consider words ‘culture’ and ‘quality’ too abstract and overused,
the impact of Southwest’s ‘secret sauce’ can be demonstrated in analytical
terms through geometric progression. Say, for the sake of simplicity, that on
the route between airports A and B an airline was carrying 1000 passengers
before it improved punctuality and overall care of customers. As a result,
total number of passengers was up by 10%, there were 10% more return
passengers, and revenue per passenger increased by 10%. The airline benefited
from 33% rise in revenue without additional investments and sales efforts. With
the addition of cost saving through improved punctuality, the very real
potential for improvement in quality to increase profit margin can be
understood.
The way forward
Obviously, elements of Southwest’s
culture cannot be introduced overnight. But even the smallest progress in
motivating employees and treating customers well can bring the rewards
relatively quickly.
Airlines with long history of hub entrenchment must work it
out from bottom up, getting closer to reality. The fastest way to start this
practice is by learning from disruptions, and digging more deeply into their
self-inflicted causes. Disruptions are events where plans and management practices meet reality and
become validated by passenger experience. Tracking their true origins at system
level and understanding their impact on both passengers and overall business
performance (as they unfold) is the key to improving competitiveness.
So, the remedies are available, surely more effective than more stringent regulatory interventions that may be on the way. Unlike regulations, they
cannot be forced on airlines, they are something that airlines have to choose.
