Employee Productivity Drives Value
At Southwest Airlines, the seventh-largest U.S. domestic carrier, an astonishing story of employee productivity occurs daily. Eighty-six percent of the company’s 14,000 employees are unionized. Positions are designed so that employees can perform several jobs if necessary. Schedules, routes, and company practices—such as open seating and the use of simple, color-coded, reusable boarding passes—enable the boarding of three and four times more passengers per day than competing airlines. In fact, Southwest deplanes and reloads two-thirds of its flights in 15 minutes or less. Because of aircraft availability and shorthaul routes that don’t require long layovers for flight crews, Southwest has roughly 40% more pilot and aircraft utilization than its major competitors: its pilots fly on average 70 hours per month versus 50 hours at other airlines. These factors explain how the company can charge fares from 60% to 70% lower than existing fares in markets it enters.
At Southwest, customer perceptions of value are very high, even though the airline does not assign seats, offer meals, or integrate its reservation system with other airlines. Customers place high value on Southwest’s frequent departures, ontime service, friendly employees, and very low fares. Southwest’s management knows this because its major marketing research unit—its 14,000 employees—is in daily contact with customers and reports its findings back to management. In addition, the Federal Aviation Administration’s performance measures show that Southwest, of all the major airlines, regularly achieves the highest level of ontime arrivals, the lowest number of complaints, and the fewest lost-baggage claims per 1,000 passengers. When combined with Southwest’s low fares per seat-mile, these indicators show the higher value delivered by Southwest’s employees compared with most domestic competitors. Southwest has been profitable for 21 consecutive years and was the only major airline to realize a profit in 1992.