Rapid Rewards at Southwest Airlines

1. In my opinion, Southwest should not save low-numbered boarding cards for its most frequent fliers. First of all, that would go against the idea of having simplicity in its operations systems. If Southwest reserved their low number boarding cards for its most frequent fliers, the airline would run into complications with customer seating preferences or disagreements. This would cause the established simple system of Southwest to be ineffective if certain exceptions would be made for frequent fliers. Not only does Southwest stand for simplicity but also egalitarianism. It would be contradictory for Southwest Airlines to stand for equality while at the same time offering preferential treatment to its most frequent fliers. In order to continue to be “the best short-haul, no-nonsense, low-fills utilitarian airline” Southwest should not implement saving low-numbered boarding cards for their frequent fliers. A tradeoff for this egalitarian mentality is the loss of those frequent fliers who feel that their loyalty should be rewarded for preferential treatment. Airlines that offer first-class and business class seats have the potential to lure away customers who feel that an important requirement to them remaining loyal is to be given first priority in seats. Many customers would rather pay extra in order to get better treatment in compensation for the money they invest in flying frequently. If Southwest begins to reserve low numbers for their frequent fliers, they might end up not only experiencing a decrease in efficiency when it comes to boarding, but complaints from customers who chose Southwest strictly due to their “first come first serve policy”. . In my opinion, Southwest should allow frequent fliers to take the next available flight with an empty seat versus having these customers wait for the next available flight within the same fare class. My decision is based upon the fact that an empty seat is already a sunk cost, and that way frequent fliers could be rewarded for their loyalty without having to go against their egalitarian mindset. It would also be more efficient in the sense that a flight has to depart despite the fact that not all their seats have been sold. Lastly, customers who had missed their flight would not have to wait extra for an appropriate flight which matches their fare, which could in-turn reduce the amount of complaints the airline experiences about restricted fares preventing them in reusing their ticket. If Southwest begins to allow their frequent fliers to go sit in an empty seat, they could gain a competitive advantage against those airlines that impose service charges on top of letting passengers use their ticket on a later flight. 3. Southwest Airlines have a vast amount of sources, which contribute to their competitive advantage. Firstly, Southwest is more affordable because they brand themselves as a short-haul airline. By only offering short-duration flight times, Southwest Airlines are able to cut many of their service costs, an example being the absence of meals. Southwest chooses to fly to locations with smaller airports, giving them the competitive advantage of reduced congestion, reduced traffic delays and an increased convenience for customers who needed to fly to smaller towns remote from big international airports. All these factors allow Southwest to have the competitive advantage of having the lowest operating expenses per available seat miles. By flying one type of aircraft, Southwest is able to lower training costs for maintenance and flight crews. This gives the airline the competitive advantage of developing an increased knowledge about the technical difficulties that may occur with this specific model of aircraft, along with being able to maximize the utilization of the aircraft. By flying point-to –point as opposed to hubs, Southwest is able to minimize the issue of constantly connecting their flights. This gives the airline the competitive advantage of needing the use of reservation systems to coordinate smaller cities and hub cities. By framing their operations strategy on how race cars are serviced and fueled, Southwest was able to reduce their turnaround time by 50%, giving them the competitive advantage of having their turnaround time to be 30 minutes faster than the industry average. A “first come first serve” basis seating system gives the airline a competitive advantage regarding the efficiency of pre-boarding and boarding procedures. This way complications arising in seating are eliminated which allows for quicker departure time. Low-employee turnover has given Southwest the competitive advantage of allowing employees to build a relationship with passengers who fly frequently and saving costs of training programs. In addition, low-employee turnover has given Southwest the competitive advantage of securing a sense of trust with their employees, which increases work productivity by their employees wanting to work harder to the best of their ability and focusing on the shared sense of commitment Southwest enforces in its policy. This allows employees to enhance the overall operation by being able to share responsibilities and functions among one another, giving Southwest the competitive advantage of their employees being multi-functional, which lowers the cost which arises from having to employ people to undertake specific operations. The rapid rewards program gives Southwest the competitive advantage of giving their customers a fueled incentive to continue to fly with Southwest to receive free tickets and flights, which allows them to profit on sales with a smaller chance of seats remaining empty. As the leading airline with the fewest customer complaints, Southwest continues to be the nation’s leading and largest low fare airline, making a net income of 176 while many of its competitors came out in the minuses. 4. The economic importance of frequent fliers can be partly determined by Exhibit 2 Operating Data for 2000. In this table it is evident that Southwest Airlines, compared to some of its rival airlines, is able to operate at a profit, even though the rest of the airlines in Southwest’s category (Alaska, America West, USAir) are at a loss. This might be due to being able to keep their faithful “frequent fliers” through their Rapid Rewards. Out of America West, American, TWA, Continental, Northwest, US Airways, Alaska, and Delta, Southwest Airlines has outperformed their competition in the number of customer complaints, winning at least two Triple Crown Awards. Using this data, it is evident that Southwest holds their passengers, especially their frequent fliers as their top priority, and after analyzing the data it can be seen that Southwest customers are happy and content with the services received from the airline. Customer loyalty through the frequent flier program is the focus that Southwest tries to operate under. If Southwest didn’t have frequent fliers, they would have to make up for revenue in another profit area, which would most likely raise ticket prices which would compromise their current operating strategy and the basis on which they were established, which is to be a ‘no frill airline’ Without frequent fliers, they would have to offer more ‘frills’ which would cause operations to be more costly. In my opinion, the frequent flier segment constitutes for those who create profit for Southwest, since hey are the largest group of customers who fly the short-duration flights of Southwest the most frequently. By measuring the number of times versus the number of miles one travels, Southwest Airlines gives passengers greater incentive to become frequent fliers by offering a generous and flexible program. By offering such possibilities as transferring a free ticket to another person and allowing a person to fly for free in the frequent flier program, it can be concluded that Southwest places a high economic importance on their frequent fliers, who is the segment that contributes a significant amount to both revenue and profit. The fact that Southwest is the only airline that has managed to operate with a double digit net income, it can be said that frequent fliers, the largest consumer segment within Southwest, contribute substantially and have great weight on the airline when it comes to their revenue and profit and attribute greatly to the notion of customer loyalty. 5. Service firms, especially those in the hospitality and recreational industries offer tiered or differentiated service to customers. By differentiated or tiered service, it is meant that different levels of service are offered to the customer based on their unique needs and their willingness to pay. With tiered differentiation, firms give higher paying customers precedence over other customers. Tiered or differentiated service allows firms to identify the level of value in the different customer tiers and then correctly match a firm’s capabilities to meet the level of expected customer profitability. Instances where I advocate that firms offer tiered or differentiated service to its customers are industries such as hotel/hospitality, recreational (ex: casino), the airline industry and the night -life industry (ex: clubs). These are all service industries in which it is evident that the customer segments are varied in rank, especially in terms of financial standing. To illustrate with the examples mentioned, may pay extra to receive room service and a hotel suite looking over the city while others pay extra at the casino for a casino host to cater to their needs. For others business and first class flying is worth it to get the detailed service and the comfortable relaxation seating while others choose to pay extra to go VIP at a club because they are secured a table which offers privacy from the rest of the crowd. These are all examples of how value-added benefits are worth of paying the extra bucks to some consumer segments. It is important to treat higher paying customers exclusively and with great attention paid to detail, because these are the customers, which create profit for the firm. If the service is above the minimal treatment and these customer segments see that they are receiving value for their dollar, they tend to return and become loyal to the firm. According to Insurance and Technology “the rewards of differentiated service flow from first fully understanding where added value can be created and then applying appropriate operational design and technologies to create that value” Therefore the guidelines I propose firms use in making the decision to offer differentiated services is the following: 1. Segment the customers of the firm in regards to their financial standing, the services offered and the added value that is important to each identified segment 2. Based on the results, order the customer segments into categories which identify which customers would be willing to pay more based on the services of the firm which create added-value 3. Create and tailor specific service processes to match the added-value requirements of the firm’s most profitable customer segments 4. Use technologies and operations, which enhance the efficiency of the value-added service processes to ensure quality and consistency Works Cited Discher, Steve. “Not All Customers Are Equal: The Case for DifferentiatedService”. Customer Insight/Business Intelligence. insurancetech. com. Insurance and Technology. 22 May 2009. Web. 23 Jan 2010.

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