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School

Lynn University *

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320

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Management

Date

Apr 3, 2024

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History: Southwest Airlines Co., founded in 1966 by Herbert Kelleher and Rollin King as Air Southwest Company and later rebranded in 1971, revolutionized the airline industry with its low-fare, no- frills approach primarily utilizing Boeing 737 aircraft for short routes. Initially facing legal obstacles, the airline commenced operations in 1971 from Love Field in Dallas, incorporating a distinctive "love" theme into its branding. Throughout the 1970s and beyond, Southwest maintained its unconventional image, offering quirky in-flight experiences and expanding gradually into neighboring states post the industry deregulation in 1978. Facing financial challenges in the early 21st century, Southwest underwent significant restructuring, introducing innovations such as self-service kiosks and online boarding passes, alongside cost-saving measures and participation in the reality TV show Airline. Leadership changes ensued, with Colleen Barrett becoming the first female president of a major airline in 2001, succeeded by Gary Kelly in 2008. Structure of Southwest Airlines: Southwest Airlines' organizational structure promotes centralized strategic decision-making processes and a rigid hierarchy. Its profitable performance and large operational scale indicate that the company benefits from its organizational structure's implementation to address business needs and strategic challenges. Southwest Airlines uses its corporate structure to manage operations and compete with other firms, like American, Delta, and United. Southwest Airlines has a U-form organizational structure, which is typical in businesses that seek to maintain strong central control on all operations via top-level strategic management at the organizational headquarters. Southwest Airlines' U-form corporate structure involves main function-based groups and subgroups that report to one or more executives. This characteristic of the company structure ensures that the company maintains effective business functions that are arranged in a way that strategically supports the entire organization. A U-form organizational structure has a centralized hierarchy, with the CEO and other senior executives at the top of a pyramidal structure, and the bottom groups representing the rank-and- file employees in daily operations. This organizational structural characteristic ensures centralized control in all airline operations. Southwest Airlines' organizational structure allows corporate executives to have strong control over operations and minimizes redundancy, which allows the company to avoid unnecessary costs. Southwest Airlines' corporate structure is based on a unitary structural form, which limits organizational flexibility. In addition, Southwest Airlines' organizational culture is not strongly represented in the corporate structural characteristics. Factor that Influence Managing the Aviation Industry: Organizations, including aviation companies, rely on strategic plans encompassing formalized objectives, vision, and tactics to navigate complex environments. The aviation industry, influenced by factors like culture, structure, technology, and external elements, demands careful

balancing by leadership to ensure success. Strategic analysis in aviation, vital for performance enhancement, considers factors such as fuel costs, competition, and market dynamics, necessitating adaptable short and long-term strategies. Amidst market challenges and competitive pressures, organizational performance hinges on effective strategies, with leadership pivotal in fostering cohesion, trust, and adaptability, especially in response to changing environments. Aviation organizations, facing dynamic external landscapes and internal complexities, grapple with multiple strategic factors impacting performance. While various theories and studies underscore the importance of factors like culture, structure, and technology, their interplay remains a subject for further research. Strategic alliances, outsourcing, and innovative planning emerge as crucial elements, with the need for comprehensive studies integrating organizational theories and strategic analysis to better understand and enhance organizational performance in the aviation sector. Southwest Airlines and Boeing Relationship Downfall Airlines are reassessing their exposure to Boeing, even Southwest Airlines, which made a small adjustment to its 10-K annual report. Southwest said it was dependent on Boeing as the sole manufacturer of its aircraft, but changed the wording from its previous annual 10-K filing to mention the risk of the MAX aircraft becoming "unavailable" for operations. Southwest Airlines has 223 MAX 8s and 495 firm orders for MAX 7s and 8s, but it is reassessing the risks of its exposure to Boeing in light of its problems, including the emergency-door plug blowing out on an Alaska Airlines flight last month. Southwest is sticking by Boeing, but United Airlines is rethinking its plans for the Boeing MAX 10 aircraft. Emirates says Boeing is in a "last chance saloon" and both companies have order backlogs of 10-plus years at current production rates. Southwest Airlines is rethinking its 2024 financial forecast, after Boeing said it would only be able to provide 46 Boeing 737 Max 8 aeroplanes in 2024, having previously committed to 58 aircraft. Southwest Airlines said it expects the delivery schedule to be fluid and will reduce capacity and re-optimize schedules, primarily for the back half of 2024, and will provide updated full year 2024 guidance in conjunction with the reporting of its first quarter 2024 financial results on 25 April 2024. Southwest is hardly the only airline facing this issue right now. Alaska Airlines has also revealed that its capacity has been impacted due to Boeing's aircraft groundings, and United Airlines has also announced that it would have to stop hiring pilots this spring due to this. A Boeing whistleblower, John Barnett, was found dead in South Carolina on March 12, allegedly from a self-inflicted wound. Southwest Airlines is removing Boeing's 737 MAX 7 model from its 2024 plans, and said it won't take any MAX 7s. United Airlines has also said it no longer wants any 737 MAX 10s.

Southwest Airlines has revised its expectations for aircraft deliveries and isn't assuming placing the MAX 7 in service this year. The airline still has many firm orders for the MAX 7 and can convert them to the MAX 8 and MAX 9 versions. Southwest's report was still more upbeat than it was a year ago, despite a $140 million settlement with the U.S. Department of Transportation. Boeing's problems are rippling across major U.S. airlines, with Southwest Airlines cutting flight capacity and re-evaluating financial guidance, and United Airlines pausing pilot hiring for two months and hunting for new planes from Boeing rival Airbus to fill the gap. Boeing has slowed down production of its bestselling 737 MAX jets as it faces increased scrutiny from the Federal Aviation Administration and the Justice Department. The February tally signals that Boeing is well under its goal of producing 38 MAXs a month, and that production has been slowed by federal regulators and internal efforts to root out quality problems. Boeing announced a series of steps aimed at improving quality on Tuesday, including performing compliance checks and quality audits at its 737 factory and curbing a practice called traveled work. The steps are in response to an FAA production audit and recent findings of an independent panel. Boeing expects production to be below its 38-a-month target through the first half of this year. Airlines are giving up on receiving the smallest and largest varieties of MAX jets this year due to growing uncertainty about when aviation regulators will sign off on those models. United has pulled the largest MAX 10 jets from its schedule indefinitely. Southwest, which flies only Boeing planes, is planning to reduce pilot hiring by more than 50% and reduce flight-attendant hiring by more than 60% this year, looking to reduce costs. An airline's flights appear to be full when the load factor is high, meaning that most seats are occupied by passengers. A low load factor might give rise to concerns and suggest that the airline is not making a profit (Beers, 2022). The load factor is a metric of aircraft usage that reflects the ratio between available seat miles and revenue passenger miles achieved. The load factor has a significant influence on the cost and quality of air transportation services provided. A high load factor enables reduced fares. Southwest Airlines' load factor is calculated using revenue passenger miles (RPM) divided by available seat miles (ASM). Southwest Airlines' load factor decreased by 3.4% between 2022 and 2023, from 83.4% to 80% (Southwest Airlines Reports Fourth Quarter and Full Year 2023 Results, 2024). With a decrease in their load factor, fares might increase and the revenue will decrease. Available seat miles relates to how many seat miles are genuinely available for purchase on an airline. Seat miles are computed by multiplying the number of miles that an airplane will travel by the number of seats available for a particular journey (Kagan, 2020). A revenue passenger mile (RPM) is a transportation sector term that represents the number of miles traveled by paying passengers and is commonly used as an airline traffic statistic. Revenue passenger miles are computed by multiplying the number of paying passengers by the distance traveled (Kenton, 2022).

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2019 ASM - 157.25 billion RPM - 131.35 billion 2020 ASM - 103.46 billion RPM - 54.22 billion 2021 ASM - 132.01 billion RPM - 103.56 billion 2022 ASM - 148.47 billion RPM - 123.84 billion (Available Seat Miles (ASMs) of Southwest Airlines 2022 | Statista, 2023) (Revenue Passenger Miles |Statista, 2023)

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