Bag sorting area in Baltimore has reached its capacity. This can also result in a bottleneck for the company, as it slows down the entire flight process. Alternatives: Training program. Implement a more efficient training program for new employees. Create an employee rotation program where more experienced employees work at BWI and mentor new colleagues. Also, new employees, after they finish their training in Dallas can be transferred to work at less congested airports to get the grip of all functions. The training time might lengthen and training expenses will go up, yet employee turnaround time might decrease and employee morale might increase.
Passenger accommodations. These accommodations will result in increased expenses to Southwest, yet they will reduce customer dissatisfaction. Southwest should consider partnering up with local hotel chains to provide overnight accommodations and other airlines to offer customer next flight in order to reach final destination on time.
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Expansion of bagging system. An investment in a new and more efficient bagging system should be made.
This would alleviate connection problems. In the short term, company will need to boost the morale of employees. Southwest should implement a new training program by placing experienced employees to Baltimore location. This program will allow new employees to gain experience and expertise from already experienced employees. This program can be temporary, until Baltimore station gains necessary skilled labor and morale. The implementation of this program will lead to increased relocation and housing expenses.
Yet this program could significantly reduce complication during connections and passenger accommodations costs. With new training program, Southwest would improve morale of employees and perhaps attract new applicants to fulfill the labor demand. There is a direct correlation linking current employee overtime with the amount of complaints coming from customers about bagging.
Seek advice from Phoenix station, as based on data provided in the exhibit 7, Phoenix location has successfully implemented a more efficient connecting system. In the long run, Baltimore station should expand the bagging station. Bagging station is a bottleneck that will slow down the explanation of the Baltimore operations.
As mentioned in the Goal , the bottleneck determines the capacity of operations.
southwest - Organizational Pay Analysis A Case Study of...
In case with Baltimore, if this station cannot handle increased number of bags in will have operational issues such as longer connection times. Southwest Airlines Southwest Airlines is a marketing driven company. Their strengths seemed to be how well they managed time. They saved a lot of time on flight and in the airport which led to cost savings later. They now were on cross roads and wanted to make their strategy sustainable. The second dilemma was about their expansion strategy. South west had always followed a controlled expansion strategy and always was known for its deliberate and cautious moves to expand.
Now they had three options at hand. In assessing the best option we evaluated all the three options both qualitatively and quantitatively. We evaluated the risks as well as the returns in each of the three options separately and determined the best option. We forecasted the demand based on past growth rate. NPV and an calculation of the payback period for each of the options gave us an understanding of the returns that each project would provide us with.
They could maintain their low prices only through their low operating costs. The second option seemed to turn very bad in the worst case scenario in which southwest could operate due to entry of new competitors. The first option of expanding within the system was moderate and fared well in both the worst and best case scenario.
Southwest Airlines Case Study Problems
Looking at it qualitatively the first option seemed lucrative since there were a lot of passengers already asking for the particular route to be established and this would improve the brand image of Southwest since they would be responding to customer. It remained the core for globalization due to its involvement in international investments and world trade. But during the early years of s the industry was hit with recession, Gulf war and the effects of deregulation in In the number of passengers decreased with an effect on the financial results which were already at war with the excess capacity losses due to overbuying of aircrafts in the s.
Changing Consumer Perception: Several low fare airlines were introduced during those times that changed the whole perception of people towards air-travel. As, they were low priced due to which there was a fear in their minds that the airlines might have lower safety standards which proved to be wrong. The deregulation also had some negative effects as well:. The airlines operating strategies also got changed as a result of deregulation, liberalization and increase in the competition. Rather than focusing on increasing the load factor, the airlines started to work towards increasing the overall productivity with increased profitability through economies of scale.
Southwest Airlines in Baltimore, Supplement
They provide the lowest possible fare in the industry. This leaves South West with not much competition in the industry. At the same time South West focuses on differentiating itself on the basis of the service, operations, cost control, marketing, its people and corporate culture. They believe in providing customer focused services.
They believe in adding fun element to their services. Their main aim is to offer great service at the lowest cost. Southwest Airlines always banked upon their people for carrying out most of their time saving and cost saving activities. None of them would be possible if the ground staff is not dedicated. To maintain the same amount of enthusiasm amongst the workforce to work efficiently even with wages lower than the industry average. They should start hitting on the emotional side. They should foray into markets only after a study of their passengers.
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So, in considering the risk and return factors, we chose the first option as best for south west airlines. Hence It is clear that range is highest in third option so instead of highest expected revenue it has the highest risk. While second option has the least variation but the chances of giving negative returns in worst conditions is high. Hence first option seems to be best option. If the price war occurs in these places by the competitors of south west, the company can go for worse fares and increase the revenue still in competing with their competitors.
From NPV and break even analysis we get the third option as the best as it has least period for break even and highest NPV. The first option comes second and then the second at last. But this does not give us a holistic picture to make any suggestions right away. We should also analyse the risk in a certain investment along with the returns. Some factors which would arise as risk factors are follows:. After going through the risk and return part will choose the best option. From return point of view it is very clear that third option we should choose. Third option has only one major risk which is weather condition.
Let see how significant it is. It helps to reduce cost and save time also.
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This is a big differentiating factor for them. This delay in time by 6 times is very significant from cost as well as revenue point of view. It means a flight covers around 5 miles in one minute. So after considering the risk part, third option gives negative returns as the revenue is declining and cost is increasing.
This option will also improve their brand image as an airline carrier that cares not only for its employees but its passengers as well. Airport charges are charged by multiplying the number of charges to the no of passengers expected by its given rate for the airport. As the investment of two aeroplanes is common for all options hence it was not considered to calculate cash flows. Tax rate, debt rate has taken from income statement while to find out cost of equity we use dividend discount model DDM.
For DDM. Revenue Price Airport charges Airport charges
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