1. For the acquisition of AirTran, Kelly and Southwest executives need to have some active moves to successfully integrate the new firm into Southwest operation. First of all, when acquiring AirTran, it also means that Southwest has to take on its more than eight thousands employees. These employees had been working for AirTran for some time. Thus, the firm’s culture had been embedded in their mind. It will be hard for them to adjust their former beliefs and values to new ones if there is no appropriate and timely guidance.
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As a result, Kelly must provide all of AirTran’s employees, from pilot and attendants to mechanics and luggage transporter with courses concerning Southwest culture. It can be in the form of seminars, training course at Southwest University of people or Orientation days. During the process, Kelly should be able to recognize which employees have the potential of being a part of Southwest and which ones have to leave since they do not meet the requirements. This may affect Southwest’s long history of no lay-off policy. However, it is impossible to keep all these unsuitable employees and risk having bad outcomes in the future because of the inconsistency in their behavior with the airline’s core values.
Secondly, AirTran’s facilities such as aircrafts, warehouses, offices, etc. may not meet Southwest standards which were implemented to become more cost-efficient. In order to sync up, it is essential to have some modification in the operations of AirTran’s facilities. For example, there will be less front-line receptionists needed to proceed with the purchase of printed tickets in AirTran because of Southwest’s ticketless traveling.
Finally, more than two third of AirTran’s airports have not been served by Southwest before. Some of them may not meet the requirements that Southwest focuses on when choosing an airport to land its aircraft. Thus, it is necessary for Kelly and Southwest executives to evaluate and judge if continuing with these airports will promote the core strategy of low cost, low fare. If not, they had better finding other airports or even stop serving in that city.
1. Long-term recommendations: From what Southwest has achieved for decades, it is highly recommended that this airline maintain its low-cost strategy. With the acquisition of AirTran, Southwest has gained more capacities as well as market share in US airline market. It is the low-cost advantage that gives Southwest competitive advantage relative to other rivals like Continental or Delta. This approach allows more people to flight instead using other means of transportation such as bus, train or boat. Traveling by air is surely more time-saving and more convenient than sitting on a bus for hours.
Thus, provided that the fee is affordable, customers do not put much emphasis on additional services but to enjoy their flight. For example, the airline does not have fancy frequent flyer clubs or no baggage transfer services to other carriers, but when it launch a $17 fare from Tampa to Fort Lauderdale, the number of passengers jumped by 50 percent. Still, low-cost strategy is giving Southwest more opportunities to develop. According to the indication of experience and learning curve, this airline can better perform operational activities more efficiently than such high-cost, high-quality approach of competitors. You can do best what you are accustomed with. Besides, by acquiring AirTran, Southwest has taken on 24 million more passengers of this airline, lifting the total passengers serviced to more than 100 million annually. Southwest entry’s new markets formerly served by AirTran will provide this airline with more chances to expand and exploit available resources.
Another issue that Southwest has faced recently is the emergence Jetblue and others rivals that have been growing rapidly with the same low-cost, low-fare strategy as which of Southwest. The airline is more vulnerable to losing its position in US market to these new entrants. In order to maintain its market share while still gaining acceptable margin, this airline needs to put more effort in keeping operating costs as low as possible. Considering the fact that fuel costs are increasing rapidly and uncontrollable, the only thing that Southwest can do is to manage its non-fuel costs well, especially maintenance and labor cost.
To reduce labor cost, unlike other airlines who cut back on pension plans or lay off workers, with its priority to employees, Kelly should instead trying to amend the agreements with unions to reach a win-win situation. He needs to evaluate thoroughly before making any decision in the negotiation with any groups of employees since other group may want to be treated in the same way as well. In addition, taking into account the good relationship between managers and employees, Kelly as well as Southwest executives can take advantage of this goodwill in negotiations to persuade employees. This will help keeping labor cost at stable level but still create satisfaction and loyalty of employees to the company.
It is notable that despite its decades of success and profitability, Southwest just serves domestic US market. It is good that the company focuses its resources and capability to provide good service to a certain segment of passengers in order to maintain their satisfaction. However, in the era of market globalization and internationalization of firms, Southwest needs to think out of the box and adjust its operation to the new trend.
US domestic market is relatively limited when concerning the significant number of passengers available all over the world for Southwest to serve. Together with the acquisition of AirTran, Southwest’s resources may exceed the demand of customers and it would be a waste if not investing in new markets. With Southwest current operational strategy of point-to-point flights to highly profitable destinations, it is suggested to develop routes from a certain number of US airport to big famous cities worldwide like London, Paris, Ottawa, Tokyo, etc. For example, Southwest can have routes from Chicago to Ottawa, or from New York to London.
Therefore, to begin, Kelly needs to conduct research on potential markets that low-cost strategy can be implemented profitably. After choosing one or two new markets to step in, the CEO has to choose the right mode of entry as well as learning about the rules and regulations of these markets to have adjustment in management. Once having enough information needed, Kelly can make Southwest service available in these markets. However, because of being a new entrant, he should provide only a few routes from the new markets to certain cities in the US to evaluate the potential of the new markets. This action helps reduce the loss when these markets turn out not as profitable as expected.