In 2004, Southwest posted a profit for its 32nd consecutive year and 55th consecutive quarter. Southwest 2004 profit of $313 million exceeded their 2003 profit by 5 percent. To maintain the low-cost competitive advantage, Southwest continued its countrywide efforts to improve Southwest’s cost structure. As a result, productivity was increased at all employee levels and the overall efficiency of its operations was improved. In 2003 Southwest consolidated its Reservations centers from 9 to 6, which went into effect February 2004, the company offered an early-out option to the majority of its employees in an effort to alleviate overstaffing in certain areas of the company, due to slow passenger growth; changes in customer buying habits, and boarding processes; and the federalization of airport security, Due to these productivity effects, Southwest headcount decreased from 85 to 74.
In December 2004, Southwest added, “blended winglets” to approximately 92 percent of its fleet of 737-700 aircraft. This addition helped to extend the range of the aircrafts, save fuel, lower potential engine maintenance costs, and reduce take off noise. Southwest expects annual fuel consumption savings of 3 percent. Southwest also phased out commissions on travel agency sales, which saved the company approximately $50 million.
Southwest added Philadelphia to its route system in May 2004, which increased its growth at Chicago Midway airport. In fourth quarter 2004, Southwest Airline was the winning bidder at a bankruptcy court approved auction for certain ATA Airlines, Inc. assets which ensures Southwest can continue to add low-fare services in Chicago. As part of the transaction Southwest agreed to pay $40million for certain ATA assets, such as leasehold rights to six ATA Chicago Midway Airport gates and to an aircraft maintenance hanger at Midway. Southwest and ATA have also agreed to a code-share arrangement, in which each carrier will exchange passengers on select routes at Midway. Southwest believes this agreement could result in additional revenue of $25 million to $50 million, annually.
Because of management devotion to continuing to make Southwest Airline a success, Southwest is able to acquire and enforce different cost saving measures to increase the company’s productivity and revenue. By implementing these factors Southwest was able to increase net income for 2004 by $15 million, which was primarily due to higher revenues from the company’s fleet growth and addition of capacity, which slightly exceeded higher cost. Operating income increased for Southwest Airlines by $71 million, and operating revenues $593 million, due to a 94 percent increase in passenger revenue. Fuel and oil expense increased 12.1 percent, primarily due to a 14.5 percent increase in the average jet fuel cost per gallon. The average cost per gallon of jet fuel was 82.8 cents compared to 72.3 cents in 2003. The increase in fuel prices was partially off set by steps Southwest Airlines took to better the fuel efficiency of its aircrafts, such as adding the blended winglets to 177 of its 737-700 aircraft and the upgrade of certain engine components of many of its aircrafts. Southwest estimates that these and other efficiency gains saved them approximately $28 million, at 2004 average up hedged market jet fuel prices. During 2004, Southwest Airlines and union representatives for the company’s flight attendants, mechanics, and flight stimulator technicians reached labor agreements. Each would receive a pay increase and the issuance of stock option. The majority of the attendants, mechanics, and technicians ratified the contracts. Southwest is expecting a decrease in salaries, wages, and benefits due to $13 million in severance and relocation costs associated with the reservation consolidation in 2005.
Due to the management of Herbert D. Keller and Gary C. Kelly, along with a staff who aims for high quality customer service at all levels of staffing, Southwest Airlines continues to thrive and to be number one in the airline industry. Southwest continues to add cost saving measures that increase revenue and decrease operating expenses while continuing to maintain low fares.
Southwest Airlines has a combination, centralized and decentralized organization of their human resource department. The main and central corporate human recourse is located in Dallas, TX. Although, each individual site has its own human recourse personnel representatives for easy connivance to those employees located in that area. The marketing and recruiting techniques range from job fairs, Internet site, and even employee referrals. Within the corporate human recourse department there are union representatives that work with the company to maintain employee benefits. Southwest Airlines has a mission statement to its employees.
“We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.” (Southwest Airlines, 2004)
Southwest Airlines maintains its employee base with such benefits as profit sharing, 401K, and each month Southwest Airlines selects an outstanding employee to be the Star of the Month in Southwest Airlines Spirit Magazine (Southwest Airlines, 2004). Most airlines follow this organizational structure for their human recourse departments
Human Resources and the monetary organizations functions a vital part of the business sector. The Human Resource department functions as a service to employees and their personal matters within the company. The department is organized to follow the needs of the people with in the company. The basic function of this structure is not only to serve the people in the company but to breakdown legal and monetary matters that people might have. A monetary function of a business is the only way a business can thrive or fail. Without accurate knowledge or handling of the monetary funds the business cannot flourish.
Reference
Southwest Airlines Co. 2004 Annual Report. Retrieved January 11, 2005 from
Southwest Airlines. (2004). Retrieved Jan. 17, 2006, from www.southwest.com.
