SOUTHWEST AIRLINES HRM CASE STUDY

 

 

1)        A Key Strategic HRM Issue/Problem Identification section

1. a) A brief background of the HRM practices within Southwest Airlines

Southwest Airlines has remained a competitive company in the industry based on the model adopted to deliver success and profits. Some of the practices witnessed on the company have been aircraft utilization, Universalism, good leadership, low pricing model, customer friendly services, and strategic human resources management. As a result, the company is loyal to humanity and consider the customers and employees with much consideration. Besides, the company has been employing a productive cost-saving factor that keeps their employees motivated always. The good HRM practices in the company have led to a low turnover that enhances the shareholder value (Kim, Su and Wright, 2018). As a result, there is high productivity and enhanced high satisfaction levels among the employees. The company treats all employees as a family, which attribute to strong teamwork as the employees are involved in decision-making. The good leadership has helped the company not to record any serious accident, which led to being recognized with Triple Crown severally based on on-time performance (Baker, 2015). Further, there have been fewest complaints from clients over lost items. Lastly, the HRM has handled labor welfare well to avoid major disputes. 

1. b) One primary/key HRM issue/problem facing the organization

Despite the success story for Southwest Airlines, there have been some HRM problems especially the labor problems that were witnessed in the early 2000s. As a result, there was a light attendant’s protest in 2002 as they protested over poor working conditions (Voigt, Buliga and Michl, 2017). In addition, there were issues related to appraisals and stock options. Lastly, there was an issue with the formulation of a tentative agreement as fare increased. However, the problems have been addressed over the years as the working environment has improved through the Southwest model. 

1. c) The best case, likely case, and worst-case scenarios if the strategic HRM issue/problem is not addressed (i.e., no action is taken)

The best-case scenario of not addressing the labor problems would be an increase in the cost of production as no additional costs will be incurred in paying wages and salaries. In addition, it will reduce incidents of hiring new employees who would require orientation and recruitment, which wastes time and resources (Jehanzeb and Mohanty, 2018). 

The likely case scenario if the labor disputes increase would be poor performance among the employees as job satisfaction reduces. In addition, the level of profits will reduce significantly, as the level of production reduces.

The worst-case scenario is the increase in losses as the level of production increases. Poor performance will contribute to customers shifting to other services providers, which lead to the non-competitiveness of Southwest Airlines. 

2)        An Alternatives section to address the key issues

Labor problems are common in every company and they should be addressed appropriately given the role played by the employees in propelling profitability. In this case, Southwest Airlines could opt for various alternatives that will help in curbing possible protests and low satisfaction levels among employees. 

First, the alternatives include increasing the wages and salary once the working environment is improved (Baker, 2015). The company can decide to increase salaries and improve the working environment or just increase salaries, as the working condition remains the same. 

 Secondly, the company can decide to have all employees involved in major matters such as stock ownership and appraisal. Alternatively, the company can deny any form of stock ownership as the employees concentrate on labor delivery. 

1. i) Strategic advantages of the alternative 

The advantages of increasing salaries and wages include increased job satisfaction and productivity among the employees (Voigt et al., 2017). In addition, improvement in the work environment creates a healthy working condition. Lastly, increased remuneration will improve customer relations as the employees handle the customers better.

The advantages of involving employees in some company’s activities are that it enhances the sense of ownership. It will increase their efforts to ensure the business succeeds as they benefit from the profits made and dividends. 

1. ii) Strategic disadvantages of the alternative 

The disadvantages of increasing salaries include the increased cost of running a business. The profit margin will reduce too. In addition, the cost of improving the environment will require a huge amount of capital from the company. 

On the other hand, involving the employees in the appraisals and stock business could ruin activities in the company as influences maybe lead to selling the business. 

3)        A Recommendation Section on “what should the organization do?”

1. a) Key decision criteria and/or assumptions, with rationale, that will serve as the basis of the decision

Based on the alternatives, the increase in salaries of the employees sounds the best recommendation for the company. It is assumed that the increase in the level of remuneration will boost the job satisfaction of the employees (Froese, Peltokorpi, Varma and Hitotsuyanagi‐Hansel, 2019). Further, they will be in a better position to take care of themselves when working in an unfavorable environment. In addition, an increase in salaries and wages to the employee works a river to more productivity among the employees, which will help the company to regain a competitive advantage against their rivals. 

1. b) recommended course of action (from your list of alternatives) 

It was recommended that paying the employees more is a better course of action for the employees. The airline industry is competitive and failure to pay these employees can attract interest from the competitions where they are paid better. Also, it will reduce the turnover rate as they remain in the company and reduced inappropriate costs of operation. 

1. c) Describe why the recommended course of action is the best alternative and the weaknesses of the other alternatives 

An increase in the level of remuneration by far is the best cause of action for a company that highly depends on highly productive human resources. The industry cannot operate without a strong working unit. Other alternatives such as the inclusion of the employees in some activities such as appraisal and stock buying are optional but the need for motivated employees cannot be disputed (Froese et al., 2019). Further, the business can opt to remain private and eliminate incidences of IPOs.

1. d)   Goals and objectives of the recommendation 

Therefore, an increase in the remuneration level of the employees should be reached under consensus to win the trust of the employees. The goals and objectives are to reduce cases of interruptions and ensure the employees are highly productive within the company. The period should be less than 6 months to ensure the company is well prepared. The goal is to ensure the profits increases without increasing costs of running the business as well as regaining the market share once the employees are committed (Jehanzeb and Mohanty, 2018). The expected costs will include costs of operation, as the salary increase will reduce the level of profits over the next few months. However, the benefits to be accrued from stable human resources surpass the cost of increasing the salaries. Further, the battles witnessed with workers' unions will be reduced marginally and ensure better employee relations to be envied by rivals. 

4)        A section discussing the Implementation/Action Plan

The decision to increase salaries should not be rushed because the implications can be felt immediately as the company starts recording lower profits levels. Therefore, there should be a well-orchestrated plan through consensus to ensure there is a formula to be adopted to attain a win-win situation. That is, the employees should understand the implications of demanding an immediate salary increase because it should ruin the daily activities in the company (Froese et al., 2019). On the other hand, the company should understand the efforts made by the company in retaining them and the need to have the capital to invest in other activities such as promotion to propel the competitive advantages. Therefore, a good communication channel should be created to bring all the stakeholders in one round table and discuss the issue in a detailed manner. Further, there should be openness and commitment from all parties for the well and goodness of ensuring Southwest Airlines remains competitive in the industry. 

Therefore, the plans should be made within a favorable timeframe that is achievable and less vulnerable to human resources. For example, the employees should be in a position to wait for the dispute team in the company to resolve the existing labor issues such as reporting and working hours in a manner that will not ruin daily activities (Ogbonnaya, Daniels and Nielsen, 2017). In addition, the decision to increase salaries should be based on a feasibility study given that the company is operating activities in a very competitive industry. Any decision to rush the decisions would put the company in a dilemma and even lead to collapse unless the appropriate measures are taken. It is the role of the labor dispute unit, unions, and employees to have a representation in the decision making to ensure that all decisions are made for the good of all stakeholders. If the increase in wages will end up significantly reducing profits then it should not be the best move because the costs are a major challenge in such an industry (Ogbonnaya et al, 2017). There are other options that the company can take such as outsourcing some activities to reduce the losses. Therefore, it is up to the company to decide if the move will impact the costs of operations in the short and long terms. 

The plans may fail if the salary increase is done to impress the employees and workers unions without considering the cost implication to the company. It will be critical to assess the current issues such as fuel costs, demands of the services, and budget constraints (Froese et al., 2019). Sometimes there could be condonation issues between the employees, labor unions, and company if there is poor communication. For example, the decision to lay off excess workers should be communicated well to avoid wrath from labor unions and employees. Further, the obstacles such as protests and go-slows should be handled well to ensure that the increase in salaries is replicated in higher productivity of the employees. There should be signs of a return to normalcy as decisions are made between the involved parties. 

5) Financial Analysis

Southwest Airlines is known to have a commendable employee turnover ratio and high employee retention ratio, which has earned the company’s recognition globally. As a result, Southwest Airlines boasts of a reputable Corporate Culture that helps the company retain most of its employees despite the hard working conditions and dealing with diverse customers. The company may have undergone hard times in the early 2000s, which led to some labor disputes but the company has improved over the years. As a result, the company has managed to overcome all problems to achieve a 96% employee retention rate. This culture has helped the company to record profits for the last 44 straight years and it has never recorded any layoffs (Robertson, 2018). It indicates the commitments to maintain a cordial working relationship.

There are policies in the company established undervalue of recognition, which create a connection between the company and their customers with the help of happy employees through an incentivized peer recognition system. The employees get compliments based on the points gained over a certain period and they can use them to redeem prizes. A survey conducted indicated that more than 85% of Southwest’s employees are satisfied with working for the company. According to Robertson (2018), Southwest Airlines have some other outstanding business statistics such as a 4% voluntary turnover and ranked top being the company that records the lowest complaints from their customers. 

The good employees’ turnover ratio and retention have helped the company to generate significant revenue based on their efforts. The following chart indicates the revenue per employee. Despite the reduction of the values, the company has remained above the average.

 

LUV Sales per Employee	(Sep 30 2020) III. Quarter	(Jun 30 2020) II. Quarter	(Mar 31 2020) I. Quarter	(Dec 31 2019) IV. Quarter	(Sep 30 2019) III. Quarter
Y / Y Revenue Change	-68.2 %	-82.94 %	-17.77 %	0.47 %	1.15 %
Sales per Employee (TTM) $	278,363	362,225	469,091	489,043	488,454
Total Ranking	# 142	# 158	# 96	# 60	# 489
Seq. Revenue Change	77.88 %	-76.19 %	-26.12 %	1.63 %	-4.57 %

 

 

 

Unfortunately, the Net Income per Employee has been reducing and in the third quarter of 2020, it was -36,044. Such records put the company in a bad state given that most of their rivals have better results on this ratio. It should be a wake-up call for the company because it indicates the inefficiency of the company as the level of income is reducing compared to the number of employees in the company. At one point, the company may be forced to lay off the employees; an action that has never happened in the company’s history.

 

LUV Net Income per Employee	(Sep 30 2020) III. Quarter	(Jun 30 2020) II. Quarter	(Mar 31 2020) I. Quarter	(Dec 31 2019) IV. Quarter	(Sep 30 2019) III. Quarter
Y / Y Net Income Change	-	-	-	-21.56 %	7.15 %
Net Income per Employee (TTM) $	-36,044	3,554	39,663	50,152	53,226
Total Ranking	# 1346	# 121	# 778	# 809	# 637
Seq. Net Income Change	-	-	-	-22.15 %	-11.07

 

 

 

References

Baker, W., 2015. Southwest Airlines’ Nonstop Culture: Flying High with Transparency and             Empowerment [Online] Available at: <https://store.hbr.org/product/southwest-airlines-     nonstop-culture-flying-high-with-transparency-and-empowerment/W94C04> [Accessed     14 Jan. 2021]

Beardwell, J., and   Thompson, A., 2017.  Human resource management a contemporary approach 8th edition, Pearson Education UK

CSI Market 2021.Southwest Airlines Co   (LUV) [Online]   Available at:             <https://csimarket.com/stocks/LUV-Revenue-per-Employee.html> [Accessed 14 Jan.       2021]

Froese, F.J., Peltokorpi, V., Varma, A. and Hitotsuyanagi‐Hansel, A., 2019. Merit‐based rewards, job satisfaction and voluntary turnover: moderating effects of employee           demographic characteristics. British Journal of Management, 30(3), pp.610-623.

Jehanzeb, K. and Mohanty, J., 2018. Impact of employee development on job satisfaction and             organizational commitment: person–organization fit as moderator. International Journal of Training and Development, 22(3), pp.171-191.

Kim, S., Su, Z.X. and Wright, P.M., 2018. The “HR–line‐connecting HRM system” and its          effects on employee turnover. Human Resource Management, 57(5), pp.1219-1231.

Ogbonnaya, C., Daniels, K. and Nielsen, K., 2017. Does contingent pay encourage positive          employee attitudes and intensify work?. Human Resource Management Journal, 27(1),         pp.94-112.

Robertson, K., 2018. Southwest Airlines Reveals 5 Culture Lessons, [Online] Available at:                      <https://www.humansynergistics.com/blog/culture-university/details/culture-            university/2018/05/29/southwest-airlines-reveals-5-culture-lessons> [Accessed 14 Jan.     2021]

Voigt, K.I., Buliga, O. and Michl, K., 2017. Pioneer in the Skies: The Case of Southwest Airlines. In Business Model Pioneers (pp. 171-184). Springer, Cham.