Up in the Air: How Airlines Can Improve Performance by Engaging Their Employees

5. Alternative Strategies for New Entrants: Southwest vs. Ryanair

New-entrant airlines that compete on costs are transforming the global airline industry. Their low-cost competitive strategies are the most visible part of their impact. Although less visible, their employment-relations strategies are also transforming the industry. This chapter considers the variations in the employment-relations strategies we observed among new entrants in the United States and other countries. We first describe the employment-relations strategy of Southwest Airlines, based on employee commitment and union partnership. Southwest is the longest-surviving new entrant and a prototype that many other firms have looked to as they entered the industry. We then contrast the Southwest approach with another prototype, Ryanair, a firm that has chosen to compete on low costs by taking a diametrically different— control/avoidance—approach to employment relations, and with AirAsia, a new entrant that has followed key elements of the Ryanair employment-relations strategy. We also consider hybrid new entrants that have taken Southwest’s commitment-based approach and paired it either with Ryanair’s unionavoidance approach (JetBlue and WestJet) or with a union-accommodation approach (easyJet, AirTran, and Virgin Blue). We conclude by considering what is at stake for firms, employees, and customers if one of these models diffuses to become the dominant model in the airline industry of the future. CHAPTER 5 AlternativeStrategiesforNewEntrants: Southwestvs.Ryanair AlternativeStrategiesforNewEntrants 87 The Commitment/Partnership Strategy Southwest Airlines Founded in 1971, seven years before deregulation, Southwest Airlines is the oldest of the “new entrants.” In 2004 Southwest became the largest airline serving the domestic United States and has been continually profitable each year other than its first year, an unusual feat in the postderegulation U.S. airline industry. According to a 1993 government report, Southwest’s success over time has created pressures for other airlines to change: Southwest is having a profound effect on the airline industry. Southwest’s much lower operating costs are making it the dominant airline today in the sense that Southwest, more than any other airline, is causing the industry to change. Other airlines cannot compete with Southwest in the same manner as they do with each other.1 Southwest’s competitive strategy was based from the start on achieving high levels of employee and aircraft productivity and low unit costs through rapid turnaround of its aircraft at the gate. Rapid turnarounds at Southwest were supported by standardization of aircraft and by offering a single class of service and open seating. But rapid turnarounds also require high levels of coordination across the functions involved in flight departures, including pilots , flight attendants, mechanics, ramp agents, gate agents, operations agents, and so on, to maintain a rigorous schedule and get the aircraft on its way without delays, customer complaints, or lost baggage (see figure 5.1). Coordination of the flight departure process at Southwest tends to be characterized by frequent, timely, problem-solving communication between functions, supported by relationships of shared goals, shared knowledge, and mutual respect , a form of coordination that is especially appropriate for work that is highly interdependent, uncertain, and time-constrained.2 This form of coordination , known as relational coordination, has enabled Southwest to achieve high levels of employee and aircraft productivity while also achieving reliable performance relative to its competitors (figure 5.2 illustrates the dynamics of relational coordination). Table 5.1 shows the relationship between relational coordination and airline performance, where airline performance is an index of quality metrics (on-time performance, baggage handling performance, and 88 UpintheAir Flight attendants Fuelers Cabin cleaners Gate agents Baggage agents Operations agents Ramp agents Ticket agents Caterers Freight agents Mechanics Pilots Figure 5.1. Employee work groups involved in the flight departure process. Source: Jody Hoffer Gittell, The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance (New York: McGraw-Hill, 2003). customer satisfaction) as well as efficiency metrics (aircraft turnaround time at the gate and employees per passenger enplaned). The high levels of relational coordination found at Southwest can be attributed to a distinctive set of human resource management practices that focus on building shared goals, shared knowledge, and mutual respect between distinct employee workgroups.3 Southwest used the hiring process to identify relational competence in addition to functional skills, and it used the training process to further build relational competence. In the hiring process, for example, prospective employees were asked to take an incident from their previous work experience when they had a conflict with...