Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines

Must-Win
Battles of
Discount Airline
Strategy Case Study
1
Image via Flickr user columbuscameraop
© Jukka Ala-Mutka / jukkaam.com / @jukkaam

Presentation
• Must-Win Battles* will show how to identify the critical
challenges that will make your business and help you to focus
on the most critical tasks.
• Strategy Model is a methodology to describe the grand
strategy and the model consist four levels:
1. Mantra (3-4 words and captures the essence of the
organization.)
2. Must-Win Battles (identify 3-5 critical challenges )
3. Key Development Areas (strategic issues 2-3 per MWB)
4. Key Activities (also Simple Rules)
• Presentation shows how to create visual model with six steps
2
*( http://www.mustwinbattles.com )

6 steps to visualize your strategic
management
1. Why you are successful?
2. Identify 3-5 Must-Win Battles
3. Define key strategic issues
4. Key activities & simple rules
5. Develop mantra
6. Manage strategic development projects,
metrics & risks
3© Jukka Ala-Mutka / jukkaam.com / @jukkaam

1. Why you are
successful?
4
Source: http://www.freeimages.com/

Identify industry recipe:
What are norms of your
industry?

In 1970 Airline industry was…
6
Hub and spoke
airline system More destinations
Premium
services for
high-end
customers
Glamour
atmosphere

…but world is changing as it
changed in 1970s
• New generation
• New music genres
• Advancements on technology
• Growth of middle class
• What are megatrends of your
industry?
7

8
Create your own recipe:
Break all the rules and
start a different kind of
business

The core idea of the discount
airline business
“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.”
- Herb Kelleher

• Over 40 years ago, Rollin King and
Herb Kelleher got together and
decided to start a different kind of
airline.
• Southwest Airlines started operations
in 1971 and it was a novel business
model innovation that breaks all the
rules.

11
Charge the lowest
possible fare with
highest possible
volume
Charge the highest
possible fare with
premium services
”Norm strategy” in
the airline industry
in 1970s
New strategy for
Southwest Airlines

Evidence of success:
growth
• 1971: begins service between Dallas,
Houston, and San Antonio.
• 1975: Southwest expands to 5 aircraft
• 1981: 2,129 Employees and 27 aircraft
• 2007: Southwest Airlines flies over 104
million passengers a year to 64 great cities
all across the country, and we do it more
than 3,400 times a day.
• Net income: $645 million
• Total operating revenue: $9.9 billion
• Making profit since 1975!
12
Source: www.southwest.com

2.Identify 3-5
Must-Win
Battles
13

management
5. Develop mantra
metrics & risks

15
What we need to must-
win, if we charge the
lowest possible fare
with highest possible
volume?

16
Economically?

Charge the lowest possible
fare with highest possible
volume
17
1. Highest utilization rate
Per Flight Aircraft / day

18
Operationally?

19
High utilization rate
(flight & aircraft)
Reengineering Work: Don’t
Automate, Obliterate*
* http://hbr.org/1990/07/reengineering-work-dont-automate-obliterate/ar/1
2. Simple structure

20
Resources?

21
3. Lean and productive personnel
Reengineering Work: Don’t
Automate, Obliterate*

Summary: Low-cost airline’s the Must-
Win Battles
• Discount airlines’
strategy model include
four Must-Win Battles:
• (1) High utilization rate
• (2) Efficiency through simple
structures
• (3) Productive personnel
= (4) Very low ticket prices
22
1 2
34

Key differences:
Network vs. Discount Airline
Network Airline
• Hub-and-spoke route system
• Connected and continental &
intercontinental flights
• Premium passenger services
(seating, meals, lounges)
Discount Airline
• Nonstop point-to-point routes
• Short haul
• Limited passenger service (no
meals, no seating, no lounges)
23
HUB

3.Define key
strategic issues
24

management
5. Develop mantra
metrics & risks

26
Fact:
The average aircraft trip
length is 630 miles with
an average duration of
one hour and 52
minutes.

Growth
27
Hub and spoke
airline system
Nonstop
point-to-point
routes
High utilization
rate

Must-Win Battle #1: Growth
• These the key issues
keep planes in the air
the most of the time
(flight time/day).
• Southwest is named
America’s Most
Reliable Airline by
Forbes. Southwest
proves that low fares
don’t have to mean
poor service.

29
Fact:
Southwest aircraft fly an
average of 7 flights per
day, or 13 hours per
day.

Economics of scale
30
More destinations
Frequent
departures
Simple
Structures

Must-Win Battle #2: Efficiency through
simple structures
31
• The process
perspective
based on
simplicity of
mainly in-
house
operations
directly with
customers

32
Fact:
In a 2008 TIME.com
survey of the friendliest
and stingiest airlines,
Southwest Airlines
ranked no.1 for being
the Friendliest Airlines.

Personnel
33
Glamour
atmosphere
Fun LUVing
attitude

Must-Win Battle #3:
Productive personnel
34
• The hardest part of the
implementation of low-
cost airline business
model is personnel.
• Create lean organization,
flexible, engaged and
productive personnel –
easy to say, hard to
create.
• The airline is about 86
percent unionized.

35
Fact:
Southwest received
329,200 resumes and
hired 4,200 new
Employees in 2007.

Productive
Personnel
36
Only
hire
persons
fit in
profile
Instead of high
skilled workers –
multiskilled &
right company
culture

37
Fact:
Southwest’s average
passenger airfare was
$114.48 (2007)

Very low ticket prices
38
Premium
service for
high-end
customers
Limited
passenger
service

Must-Win Battle #4:
39
• Low-cost airline allow
business travelers, who
could not fly in First
Class, to enjoy a
premium service.
• Frequent flyers are
people, mostly business,
who frequently travel
between destinations
that are average ~800
miles (average aircraft
trip length is 630 miles ).

4.Key activities &
simple rules
40

management
5. Develop mantra
metrics & risks

Must-Win Battle #1: Growth
42
Less traffic, reduced
taxi time, cheaper gate
& landing feesEvery aircraft flight 7
times per day
Less time on the
ground
Availability creates high
volume and access to
service for frequent flyer

Must-Win Battle #2: Efficiency through
simple structures
43
Efficient aircraft
maintenance, low
downtime costs
Simple services is easy
to buy
• Just one type of
aircraft (Boeing
737) keeps costs
down related to
pilots’ training,
spare parts,
maintenance, etc.

44
Fact:
The airline adopted the first
profit-sharing plan in the U.S.
airline industry in 1973.
Through this plan and others,
Employees own at least eight
percent of the Company
stock.

Must-Win Battle #3:
Productive personnel
45
Compensation system
Culture comes first
The core competence
of productivity

Must-Win Battle #4:
46
Sometimes it is hard to
say what to do…
say what NOT to do

Summary: Simple Rules
• 1.Decision making rules
• Midsized cities & secondary airports
• Standardized fleet of Boeing 737 aircraft
• Only hire persons fit in profile
• 2.Boundary rules
• Very low ticket prices
• Limited Service: No meals, No seating, No baggage transfer
• No connections with other airlines
• Short haul flights
• 3.Activity rules
• Point-to-point service
• Frequent departures
• 4.Performance rules
• 25-minutes gate turnaround
• High utilization rate
47
Source: Ala-Mutka 2008 p. 185-188, see also
Eisenhardt & Sull 2001 Simple Rules
Make your
strategy
executable !

5. Develop Mantra
48

management
2. Identify 3-5 critical challengies
5. Develop mantra
metrics & risks

50
A mission statement,
while touted as
necessary for any
company, often is not
representative of the
true meaning of the
company.
Source: Guy Kawasaki, Stanford 20.10.2004

Southwest Airlines’ Mission
The mission of Southwest Airlines is
dedication to the highest quality of
Customer Service delivered with a sense of
warmth, friendliness, individual pride, and
Company Spirit.

52
Develop the true
meaning of the
company -
A mantra is shorter 3-4
words and captures the
essence of the
organization.
Source: Guy Kawasaki, Stanford 20.10.2004

53
Frequent
FunLow price
Simple
I’m free to make my own schedule…
I know what to buy…
I have afford to fly…
I can make a choice…

Southwest Airlines’ Mantra
54
Frequent
Fun
Low
price
Simple

The whole
MWB Model
55
Profitable
Growth Efficiency of
Processes
Productivity
of Resources
Customer
Value
Must Win
BattlesMeans
Key
Activities
Source: Ala-Mutka 2008 p. 165
Themes of
Must-Win
Battles

56
Strategy is a model, but
it is not yet managed

6.Key strategic
development
projects, KPIs &
risks
57

management
5. Develop mantra
metrics & risks

59
Executable Model?

60
Make your model executable
Must-Win Battle
element
KPIs
Projects
Risks
Linking Management
Elements with
Model

management
5. Develop mantra
metrics & risks

Background of the case:
Discount Airline
• Case description based on analysis of Southwest Airlines, but the
rules of the strategy can be applied to discount airlines or also other
discount businesses in general
• A low-cost airline is also known as a no-frills, discount or budget
carrier or airline. It is an airline that generally has lower fares and
limited services.
• The term originated within the airline industry referring to airlines
with a lower operating cost structure than traditional airlines.
• Low-cost carriers should not be confused with regional airlines that
operate short flights without service, or with full-service airlines
offering some reduced fares, because they have different business
model.

Methodology of the Modeling
• The structure of the analysis is based on so called Must-
Win Battles and strategy as a visual model
• Must-Win Battles* will show how to identify the critical challenges that
will make your business and help you to focus on the most critical
tasks.
• Strategy Model is a methodology to describe the grand strategy and
the analysis consist four levels:
1. Mantra (3-4 words and captures the essence of the organization.)
2. Must-Win Battles (identify 3-5 critical challenges )
3. Key Development Areas (strategic issues 2-3 per MWB)
4. Key Activities (also Simple Rules)
63
*( http://www.mustwinbattles.com )

Modeling - From Mantra to Key
Activities
Step 1:
Make a
mantra
Step 2:
Define 3-
5 Must-
Win
Battles
Step 3:
Define 1-
3 Key
Means of
the Battle
Step 4:
Define 0-3
Key
Activities of
the Mean
1
2
3
4

65
Visual Strategy Model +
Must Win Battles
• Jukka Ala-Mutka, Strategiamalli (in Finnish),
Talentum 2008.
• Strategy Modeling
• Visual method
• Agile Strategy
• Peter Killing & Tom Malnight, Must-Win Battles,
2005
• MUST-WIN BATTLES WILL SHOW YOU HOW
TO IDENTIFY AND AGREE ON THE CRITICAL
CHALLENGES THAT WILL MAKE OR BREAK
YOUR BUSINESS, AND HELP YOU TO
MOBILIZE PEOPLE AND RESOURCES TO
ACHIEVE THOSE GOALS BY COMBINING
STRATEGIC FOCUS WITH EMOTIONAL
COMMITMENT.
• See also
• Eisenhardt & Sull 2001 Simple Rules, Harvard
Business Review.
• Porter, What is strategy, 1996, Harvard
Business Review
• Porter, Strategy Advantage, 1985, Free Press.
Source http://www.mustwinbattles.com

Author
@jukkaam
66
Contact:
https://jukkaam.com/businesscard
Serial entrepreneur,
speaker, scientist and
consultant
Contact me for
assignments:
• Consulting & Training
• Keynote Speaker
• Board Member
• Co-Founder

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