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Globalization Defined
‘Globalization is a process fueled by, and resulting in, increasing cross border flows of goods, services, money, people, information, and culture’ (Held et al 1999, pp. 16). Sociologist Anthony Giddens (1990, p. 64, 1991, p. 21) offers to judge globalization as the decoupling of “distanciation” between space and time, while geographer David Harvey (1989) and political scientist James Mittelman (1996, p. 1–19) remarks that globalization entails a “compression” of space and time, a shrinking of the world. Sociologist Manuel Castells (1996, p. 92) emphasizes the informational aspects of the global economy when he defines it as “an economy with the capacity to work as a unit in real-time on a planetary scale.” Similarly, sociologist Gary Gereffi (1994, p. 95–122) writes about global “commodity chains,” whereby production is harmonized on a global scale. Management scholar Stephen Kobrin (1997, p. 147–148) describes globalization as determined not by foreign trade and investment however by increasing technological scale and information flows. Political scientist Robert Gilpin (1987, p. 389) defines globalization as the “increasing interdependence of national economies in trade, finance, and macroeconomic policy.” Sociologist Roland Robertson (1992, p. 8) argues that globalization “refers both to the compression of the world and the intensification of consciousness of the world as a whole.” In addition sociologist Martin Albrow (1997, p. 88) defines globalization as the “diffusion of practices, values, and technology that influence people’s lives worldwide.” To combine the perspectives of Robertson and Albrow, and so it describes globalization as a process leading to greater interdependence and mutual awareness (reflexivity) among economic, political, and social units in the world, and among actors in general (Guillen 2001, Held et al 1999, p. 429–31, Petrella 1996, p. 63–66, Waters 1995, p. 63).
Globalization, on the other hand, is also philosophy with several meanings and extractions. As Cox (1996, p. 21–30) has remarked, sometimes it appears loosely related with neoliberalism and with technocratic solutions to economic development and reform (Evans 1997, p. 62–87; McMichael 1996, p. 177). The term also appears linked to cross-border support networks and organizations defending human rights, the environment, or world peace (Guidry et al 1999 p. 1–32, Keck & Sikkink 1998). The environmental movement, especially, has raised the banner of globalism in its struggle for a clean planet, as in its “Think Global, Act Local” slogan (Held et al 1999, p. 376–413). Therefore, globalization is often constructed as an unfriendly and unavoidable force to justify definite policies or behaviors, though commendable some of them might be. Hirsch & Fiss (2000) remarks that the use of the term “globalization” in the press appears associated with multiple ideological frames of reference, including “financial market,” “economic efficiency,” “negative effect,” and “culture.”
‘The start of globalization is also a contested issue’ (Held et al 1999 p. 429–31). One could claim that globalization begins with the dawn of history. The literature, nevertheless, has tended so far to the start of globalization more recently in the experience of the West. At one end of the range, historians have observed the significance of the first circumnavigation of the Earth in 1519–1521 (Mazlish 1993 p. 1–24). World-system theorists maintain that the expansion of European capitalism in the sixteenth century marks the start of globalization (Wallerstein 1974; see also Waters 1995, pp. 2–4). Some economic historians identify the turn of the twentieth century as the glory days of international trade and investment before the convulsions of World War I and the Great Depression threw the world into the growth of protectionism (Williamson 1996 p. 277–306). Robertson (1992, p. 179) argues that globalization “took off ” between 1875 and 1925 with the “time-zoning of the world and the establishment of the international dateline; the near-global adoption of the Gregorian calendar and the adjustable seven-day week; and the establishment of international telegraphic and signaling codes.” Murphy (1994) narrates the history of international organizations to promote transportation and communication since 1850. Students of social movements for the abolition of slavery, woman suffrage, or the prohibition of female circumcision argue that the emergence of contemporary transnational advocacy networks can be traced back to the second half of the nineteenth century (Keck & Sikkink 1998, p. 41–72).
Rapid Growth Defined
Since an industry’s life cycle may include a stage of very rapid growth, many industries pass through a time when they are “growth industries.” Rapid growth is often momentary; some of the leading industries nowadays may quickly become slow-growing in a few years. Others may grow into large industries with stable although average growth. No industry has been able to keep consistent high growth over an extended period of time.
Thus rapid growth industries are defined as industries that achieve particularly high rates of growth in sales volume over a five-year period. Despite the fact this assumption is rather arbitrary, it helps to isolate industries that are rapidly growing–not just for a few months or a year, however over a longer period of time. Choosing a longer period–say, 10 to 20 years–would hide some of the interesting growth dynamics that take place as a result of regulation, technology, international trade, and other competitive factors.
The no-frills airlines like Southwest Airlines have shown rapid growth and had great economic success. In contrast, many full-service airlines have stagnated and gone into bankruptcy. Their comparative trajectories imply that the parallel networks of aviation services of no-frills airlines are likely to become stronger. They may even go from being interesting but marginal networks to being a major if not dominant alternative over the next generation. This possibility might completely alter the trends in airport use and our expectations for the future of airport development and airport services.
Indicators Southwest Airlines Performance
Southwest Airlines ranked the seventh-largest U.S. airline calculated concerning revenue passenger miles (RPM). To continue its ascendancy in the low-fare, short-haul market, Southwest plans to grow its list of destination cities, increase its services to those cities already being served, and increase the number of existing aircraft.
Southwest signed an agreement to purchase 22 new Boeing 737-700 aircraft and ordered 59 Boeing 737’s valued at over 2.5 billion, to deliver between 2000 and 2004. These aircraft are more fuel-efficient, require less maintenance, and have a lower capital expenditure than other aircraft on the market. Besides, Southwest is looking for other 737 aircraft that they can purchase for an affordable price. Southwest also plans to withdraw some of its older, more maintenance-intensive aircraft. These strategies continue to contribute to Southwest Airlines ‘ low costs.
A delay in the production of the 737 by Boeing has caused Southwest to find alternative solutions for the time being. Southwest is offsetting Boeing’s lack of timeliness in production by delaying the retirement of some older Boeing 737-200 aircraft. Besides, Boeing is paying Southwest cash penalty payments to compensate for these delays. Southwest’s management has pointed out that if these delays continue, they could produce a pessimistic effect on the expansion plans of Southwest.
The US Government passed the Taxpayer Relief Act of 1997. This Act increases the tax burden on short-haul, low-fare airlines such as Southwest. Southwest has estimated that this new tax could cut operating profits by up to $35 million in 1998. To help counteract this new tax burden, Southwest plans to offer more long-haul flights and recover its higher costs with fare hikes. Southwest is unable to predict the long-term consequences on operating profits resulting from the tax increase and rate hikes.
The FAA’s recent ruling requiring the inspection and repair of wiring problems in those Boeing 737s with more than 50,000 flight hours may also affect the future operating profits of Southwest Airlines. Southwest has had 38 planes affected by this FAA ruling. However Southwest has not experienced any additional operating costs due to these inspections.
Drivers of Growth for the Southwest Airlines
Following are the key drivers of growth of the Southwest Airlines
Goals
- To make profit.
- Achieve job security for every employee.
- Make flying affordable for more people.
Core Competencies
- Short hall.
- High frequency.
- Low fare.
- No-frills.
- Point-to-point.
Strategies
- Conservative growth pattern.
- Cost-containment policy.
- The commitment of its employees.
- Expansion Strategy (not less than 12 flights/day).
- Flying large numbers of passengers on a high frequency.
- Short hops (usually one hour or less) barging fares.
- Avoid hub-and-spoke.
- Avoid most congested major airports.
- Creates market segments peculiarly (for adapting changes that are most efficient and economical)
- Longer non-stop trips (to save changes to “ticket tax 1997”)
- Faster turnarounds, Plastic Cards, No assigned seating, Low Cost.
- Only (737) jets.
- Operating costs/available seats 15-25% lower than rivals.
- Flexible work rules.
- Employee retention policy.
- Maximizing profitability.
- Full fare ticket along with “Chivas Regal”.
U.S. Airline Industry: A Critical Analysis
The U.S. airline industry has been in a disorganized state for a number of years. In 1993, a U.S. government report pointed out that the industry had lost huge amounts of money in the past three years, and it has never made a constant, significant return on investment. According to the Air Transport Association (2006), the airline industry trade association, the loss from 1990 through 1994 was about $13 billion, at the same time as from 1995 through 2000; the airlines earned about $23 billion and then lost about $35 billion from 2001 through 2005. Early in 2006, the association expected about a $10 billion loss in 2005 (Trottman, 2006 p. A-3).
Table 1. Annual Loss and Earnings
Still, a few U.S. airlines can vie successfully. Southwest Airlines has a long record of success. Except for America West and Southwest, there are airlines known as “legacy” carriers since they carried out interstate flights before deregulation of the U.S. airline industry in 1978.
The Key Success Factors
Successful airlines do many things well. Not doing well in any one area may not result in failure. However, performing very poorly in any one area, or poorly in two or more areas, appears to make success elusive.
Airlines are in part service businesses. To be successful, an airline must be effective in four general areas:
- Attracting customers.
- Managing its fleet.
- Managing its people.
- Managing its finances.
Attracting Customers
Two factors of measurement are used concerning customers: 1) the attractiveness of the airline’s service and 2) the success of the airline’s promotional expenditures.
Managing the Fleet
Airplane utilization in hours per day deals with how well the companies’ major assets (airplanes) are used as a group. The load factor relative to the industry average indicates how well the average individual airplane is used. Simply stated, the load factor is the proportion of an airplane’s seats that are sold and actually filled at departure.
Managing People
Productivity in airline capacity per employee is a measure of how efficiently the employees work together in providing the physical service of getting passengers from one place to another. Morale is a measure of how dedicated employees are to providing good service to the airline’s customers. Productivity is measured in available seat miles per employee. Morale is measured using proxies since the original morale model is complex and requires information not currently available for the airlines being examined.
Managing Finances
Funding for growth is an important factor for an organization’s long-term success. Most successful organizations choose to grow over time. In the case of the airlines, growth is measured in terms of capacity growth. Moreover, to grow, an airline needs adequate funds. To be attractive for most equity investors, an airline must grow its equity over time. Moreover, to be attractive to most debt investors, a reasonable debt-to-assets ratio is desirable.
The Analysis
The second direct use of key success factors frequently happens in the construction of a competitive strength assessment of the business units to be compared, the rivals within the industry. The first step in this assessment is analyzing the data. The second step is presenting the analysis in a comparative manner.
Summary of the Analysis
Table 2. Provides a ranked score for each airline regarding the airlines’ abilities to prosper in the marketplace.
American Airlines (AA) score average, below average, or poor on all but one factor. American can probably survive over the next several years, however, the airline will have to improve in several factors to be considered successful by the definition.
America West (HP) (now part of US Airways Group) performs well (average or better) in all but three factors. The biggest issue for America West will be to successfully integrate US Airways with America West. US Airways Group (the combination of the two) may already be experiencing merger disorder.
Continental Airlines (CO) is better than American Airlines by these measures and is likely to continue to be so, although CO’s below average and poor factors may prove to be challenging.
Delta Air Lines (DL) has three poor scores. It is expected that Delta sought Chapter 11 bankruptcy protection.
Northwest Airlines (NW) has five poor scores. As found with the Delta data, it is true that Northwest sought Chapter 11 protection.
Southwest Airlines (WN) has recently been an example of a successful U.S. airline. It ranks good or above average in more factors than do any of the other airlines. Southwest’s faults are its low unit revenue and its low load factor. Careful growth has been one of the hallmarks of Southwest’s success. It would appear that Southwest might want to slow its growth over the next couple of years and trade that growth for somewhat improved unit revenues and load factors to ensure the airline’s continued success.
United Airlines (UA), which had been restructuring under Chapter 11 protection for over three years and had shed major pension liabilities, is still not in a good position to succeed over the next several years.
US Airways (US), (now merged with America West), was by the definition a failure as an independent airline. The assessment points out that just about a year under Chapter 11 protection was not enough to make US Airways a striking investment opportunity. Six poor factors and four below-average factors do not suggest a path to success.
Conclusions
The reasons for Southwest’s success are well documented: It focuses on short-haul industries with an average distance of 425 miles. Thorough away meals, designated seats, membership, central airports, and a hub and spoke system-all the above assume that are closely relevant.
In addition, with plastic cards, small or smaller airports and a 10-minute turnaround succeed the inevitable. Southwest understood that short-haul destinations instead of surface transport (car) were a substitute for flying. By concentrating on the factors that lead people to choose one of these forms of transport over the other, and eliminating or reducing anything else, the southwest era was created.
The key was to consider, why people are flying over driving for short destinations; because they want, luxury, multiple seating, meals, drinks, etc… The answer is, no. There is only one reason that makes people fly over driving: speed. People fly to save time. There is also and the opposite direction, on why the people are choosing the southwest instead of the car; because they can take it and leave whenever they want.
That’s why southwest delivers high frequent flights to give this opportunity to her customers. Besides, regardless of the rivalry Southwest gain the biggest market share; even though other markets offered opportunities on alternate markets; The fact is that southwest concentrate on price-sensitive and time-oriented customers that there were consisting the biggest percentage of the environment.
At the same time as the economists follow their theories, it would seem to be suitable for more airlines to imitate Southwest and its few other successful airlines—if not strictly, at least in terms of the competitive strengths of the key success factors.
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