The Three Impacting Forces Case Study

FORCE 1: Digitization

Southwest Airlines Co. (SWA or Southwest) is widely known as an unspoken tech leader in the airline industry.

At the same time, the company is also famous for pledging their loyalty to the best customer experience possible. How does the digitization fit into this strategy?

As Erica Tyler, Director of Business Strategy and Delivery, explained in one of the interviews, that one of the slogans of SWA is “Putting Humans First with Technology”. This means that the managerial mindset is to use technology to fuel business growth while maintaining the human-centric approach.

The "new kind of tech leader” - a Chief Information Officer Kathleen Wayton - was appointed to lead the company-wide digitization in 2017. She is famous for delivering many strategic initiatives. Like, actively leveraging social media to build closer relationships with the customers, updating SWA websites and mobile apps to create a coherent message, and, arguably, one of the most impactful ones - the upgrade of the tracking service that had been the culprit of customers’ dissatisfaction for years. 

Among the many identified issues with the outdated analog workflow were:

· Employees did not have access to a centralized data source;

· Significant amount of paperwork ;

· No way to cross-check commitments to arrival times against feasibility of the schedule;

· Manual task tracking resulting in support request slipping through the cracks;

So, in 2017 SWA teamed up with Addison-based software developer, projekt202 to employ technology that would improve workflows, flight-time performance, ground operations, and boost overall customer experience.

A big part of this technological renovation was a project called OpsSuite - “a web-based app package that handles many of the tasks that ensure travelers make it safely from destination A to destination B. With OpsSuite tools, Southwest’s employees monitor gate assignments and use, ensure luggage is loaded onto aircraft, and track a myriad amount of other traveler data.”

This project required a substantial financial investment and time commitment, but after weighing up all the risks and benefits, the company gave way to OpsSuite solution. The digitization took off. 

This project is not the only large-scale effort. There are multiple examples of perceiving technology as a tailwind across different departments and managerial levels. 

It’s all part of one technological renovation totaling at 800 million dollars; $300 million invested in new technology for operations and $500 million in a new reservation system. 
As a publicly traded corporation, for SWA, there is no way around continuous digitization. They must keep their operations safe, workflows efficient, and customers happy. They do not merely want to stay competitive; they long to secure their position as tech leaders of the airline industry.

FORCE 2: Strategy

Using Michael Porter's conceptualized model, we can look at the SWA Strategy from 5 main angles: 

1) Unique Value Proposition compared to other organizations

Herb Kelleher, founder and longtime CEO of Southwest Airlines, wanted his company to own the “low-cost” category in the airline industry. He knew exactly who his customer was and what they were looking for. Instead of throwing one value over another at the market, the brand and the direct association with SWA became a simple 3-dimensional message: 

Keep Fares Low, Keep Costs Lower, Have Fun - It’s that simple.

2) A different tailored value chain: 

SWA designed a chain of activities that keep the value proposition possible. For example, it's focus is primarily on the local short-haul customer, aircrafts are scheduled on a point-to-point, not hub-and-spoke basis. Add to that the famously short turnaround time of 30 minutes on average. In comparison, the competitions’ is 45 minutes. 

All this results in significant structural savings.

3) Clear trade-offs and choosing what NOT to do: 

Not raising prices;

Not charging unnecessary fees (no salads!); 

Not cutting down on the employees.

As a result, the team is even more united in times of crisis ("Warrior Spirit"), just like one big family. Since the catastrophic effect of Covid-19, Southwest had 28% of employees take voluntary leave or early retirement to help out the rest of the workforce to survive. Kelly also took a 10% salary cut.

However, as payroll support grants expire on Oct. 1, the company will be faced with hard choices. 

4) Activities that fit together and reinforce each other

“Conserving cash and making good financial decisions” -- as Kelly said in an  interview with a Dallas newspaper.

• SWA only flies Boeing 737s, which allows the techs to become experts on maintaining and improving the aircraft. In addition, they do not need to stock parts for other makes and models.

• Buy tickets only at the AWS site to not pay any middle man and also maintain the brand identity and unique customer experience.

• Employees perform multiple functions. Might get paid less than the competition, but seem happier: fun exp, go sleep at home almost every night without layovers;

5) Strategic continuity

SWA flies in North America and mostly within the United States, so they were among the last airlines to feel the pandemic economic devastation. Following the strategy, SWA sticks to preserving their low-cost structure to serve the leisure side of the market in addition to the business travel market. 

Company sees an opportunity to go “broad” and tap into new destinations that will give their loyal customers even more choices announcing new services to Miami and Palm Springs, CA . 

With 62,000 employees worldwide, SWA doesn't want to temporarily shut down to preserve money. 

"I'd rather keep the blood flowing through the arteries, so to speak," Kelly said. 

And that reminds how back in the day during the Great Recession similar aggressive strategy allowed SWA to take market share from rivals.

Conclusion:

The company also reported strong positions in their 2019 Annual Report to Shareholders with $5.1 billion of liquidity, $4.1 billion in cash/short-term investments, and an impressive debt to invested capital ratio of 24%.

2020 is going to be a very different story. 

Still, even with all the unprecedented set-backs that are estimated to tear the airline industry for another four years, SWA strategy seemed to have helped them to come out on top of their competition. 

The CEO Kelly said: 

  "... relative to a normal recession and recovery scenario, this will be twice as long. I wouldn’t be surprised to see business travel languish for a decade before it gets back to 2019 levels. 

So yes, we’ll be prepared for that."

FORCE 3: Innovation

Innovation is something that has to be cultivated and propagated from within an organization. It is a product of ever-day decisions, investments and prioritization. Allowing the employees on all levels to have an exploratory attitude toward their work and the future of the company is a critical ingredient of sustained business growth. 

Here are some competitive advantages that, according to Investopedia, fuel SWA Innovation mindset:

• Southwest Airlines is more flexible than most other large airlines.

• Southwest is the only large U.S. airline that is also a low-cost carrier.

• Southwest Airlines' strategy emphasizes recruiting and retaining motivated employees.

• Southwest continues to improve its business model and practices.

Beginning of this year, SWA was actively making official strides in creating safe spaces for experimentation: 

1. In January 2020 a new SWA Innovation Lab in Dallas was announced. 

Innovation centers are a hot trend in corporate real estate, giving companies dedicated space for employees to test out ideas and products. IBM, Sabre, Deloitte, USAA and AT&T [source: here] 

2.In March of 2019 Southwest Airlines joined the FTE Innovation & Startup Hub as a Corporate Partner, which gave them access to both the FTE Innovation Hub and the FTE Startup Hub. The Innovation Hub is the world’s first innovation network for the organisations and individuals who are at the forefront of driving innovation in the air transport industry, while the Startup Hub makes it as easy as possible for corporate innovators to engage with the most relevant startups and scaleups in the aviation sector. [source: here]

“..our innovative spirit and survival instincts are alive and well. We are continually looking for better ways to eliminate waste and drive efficiencies in everything we do and embrace technology-driven solutions to drive both cost and customer service benefits.”

Tammy Romo

Conclusion:

The bleak picture of the catastrophic revenue decline makes it difficult to believe that the company will be able to stay in business even with all the innovation efforts put together:

However, being one of the earliest innovative powerhouses, SWA stands a much better chance of surviving the crisis as opposed to the rest of the incumbents.