Herb Kelleher and Rollin King, Southwest's founders, wanted to provide frequent, low-cost service in busy markets of less than 500 miles. Instead of considering other airlines such as United and Continental as competition, Southwest considered the automobile and bus service as major competition. Southwest's flights were typically point-to-point - nonstop from originating airport to destination airport, although connections were available for customers who wanted them.
By the late 1990s, Southwest was the world's richest and most profitable major airline, while other players like United, Continental suffered heavy losses in an industry that had grown mature and highly saturated. Southwest's growth was driven by growing demand for the product that Southwest delivered so well: reliable low cost travel. Consumer behavior shifted towards greater price sensitivity in the early 1990s, motivated by a downturn in the business cycle and made possible by increasing corporate control over business travel. The shift appeared to affect business travelers as well as leisure travels, partly through corporate directives to cut down travel costs. While other airlines were wondering what to do, Southwest Airlines was well positioned to benefit from the increasingly price-savvy customer that it had helped to create.
The purpose of this case study is to study how this competitive advantage was created by Southwest Airlines by leveraging its human resources. The structure that the report will follow will comprise of answers to two questions which deal with identifying how human resources can become a source of sustainable competitive advantage and how to deal with problems as the company becomes bigger and older.
Question No. 1
How did Southwest use Human Resource Management practices to ensure the success of their business model
According to Langdon (2003), the "business model," is a comprehensive description of business as an integrated system functioning in an intimate relationship with the broader market. In this concept, the individual components of an organization do not matter as much as the way they work together to enable the organization to create value and deliver it to customers.
A business model is therefore a description of a whole system, a combination of products and services delivered to the market in a particular way, or ways, supported by an organization, positioned according to a particular branding that, most importantly, yields a particular set of strong relationships with present and future customers. Further, a business model describes how the experiences of creating and delivering value may evolve along with the changing needs and preferences of customers.
The Business model of Southwest is simply: "If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline." The main elements of Southwest's business model as stated above are:
1) Customers -who are they
a) Short haul business travelers who want to get there when