Southwest Airlines impressive story has made it a great case study for scholars, business practitioners and management students. Indeed, it is safe to argue that the company has achieved many of the critical ingredients required for success in the 21st century workplace (Wright & Mujtaba, 2011).
In sampling some of the impressive stories that have molded Skywest to become a market leader, we cannot forget to highlight how the airline thought outside the box and churned out millions of dollars in profits by flying point-to-point direct routes instead of using the typical hub-and-spoke method, and how it thrashed its competitors by keeping low fares, motivating employees to serve customers better, and employing an aggressive fuel hedging policy to reduce operational costs.
Many companies believe that customers are a critical asset in their quest for profitability and competitiveness, but Skywest strategy underlines the critical importance played by employees in making satisfied customers. This strategy has worked wonders for Skywest as the company is now the largest airline globally by number of passengers carried per year, not mentioning that it boasts of the enviable distinction of being the only major U.S. airline that has maintained consistent profits over the years.
Lastly, it is enviable to see how Skywest minimizes fleet maintenance costs and benefit from acquiring new aircraft at favorable prices by sticking to Boeing 737 models (Thompson et al., 2011). Flowing from the above, Skywests management would get an A+ grade for a job well done, particularly in instituting the low-cost/no frills strategy and merging it with a strong organizational culture that not only treats employees as a royalty, but encourages innovation, creativity and empowerment.
The company has succeeded in attaining a complete fit between its strategic objectives and the organizational culture needed to achieve these objectives, hence its capacity to outperform competitors in the industry. Available literature underlines the importance of aligning an organizations strategic approach with its organizational culture to achieve success (Yarbrough et al., 2011).
Skywest Airlines has been able to achieve this fit, and hence it can only be argued that the company has a long-term, sustainable winning strategy.
Implementing & Executing the Low-Cost/No-Frills Strategy
Skywest is cognizant of the fact that it must undertake a passionate pursuit of low operating costs if it expects to sustain its low-cost/no-grills strategy. To implement and execute this strategy, therefore, the company only uses one type of aircraft (Boeing 737) to keep maintenance costs down and benefit from acquiring the fleet at hugely discounted prices, not mentioning that Skywest was the first to employ the e-ticketing strategy with the view to minimize operational and labor costs (Thompson et al., 2011).
The company was also the first in the history of the U.S. airline industry to introduce a two-tier on-peak/off-peak pricing structure to benefit from customizable fares that serve divergent groups of travelers, but mainly the time-sensitive business travelers and the price-sensitive leisure travelers. Lastly, the companys aggressive fuel hedging strategy has enabled the company to maintain low fares as it is minimally affected by the vagrancies in the oil market (Wright & Mujtaba, 2011).
In operating practices, it can be argued that the companys simple in-flight service and point-to-point convenient flying has enabled it to minimize operating costs to a bare minimum, thus allowing Skywest to pass on the benefits to customers through low fares.
Additionally, owing to the fact that Skywest emphases flights into and out of airports in medium-sized cities and minimally obstructed airfields in key urban areas, the company has been able to maintain a 25-minute average turnaround time and reduced fuel consumption, hence ensuring that it does not use additional resources to put more aircraft on the routes as existing ones are utilized to the maximum.
Lastly, aviation analysts argue that Southwests point-to-point scheduling of flights has been instrumental in ensuring that operational and maintenance costs remain down, hence providing the airline with a competitive advantage over other airlines that continue to use the hub-and spoke systems (Wright & Mujtaba, 2011).
These benefits are passed on to the customers in low fares. In core values, it is clear that Skywests employee training program serves to induce critical values to employees that have enabled the company to implement and execute its low-cost/no-frills strategy.
For instance, the companys flight attendants have been acculturated to clean up trash left by deplaning customers and otherwise getting the plane presentable for passengers to board for the next flight, hence removing labor costs that could have incurred in engaging the services of cleaning crews. Indeed, rival airlines have been forced to borrow this practice as a viable cost-cutting measure (Thompson et al., 2011).
Southwests Culture
Southwests corporate culture is guided by three foremost elements LUV, fun and doing things differently or unconventionally. The companys culture emphasizes the treatment of individuals, employees and customers with utmost dignity, compassion, love and respect, not mentioning that employees are always motivated through loyalty programs to maintain a fun-filled and entertaining behavioral orientation when interacting with customers.
Undoubtedly, Southwest is a strong culture company as it lays much emphasis on employees to adopt the Southwest way, which is guided by three elements, namely &a Warrior Spirit, Servants Heart, and Fun-Loving Attitude (Thompson et al., 2011 p. C304).
Employees who are unable to fulfill these elements are encouraged by management to seek employment elsewhere. However, Gary Kelly may face challenges in recruiting the right kind of personnel to spearhead these three critical elements that inform Skywests strong culture and competitive approach.
Grade & Best Execution Approaches
Southwest deserves grade A for aligning its strategic approaches with its corporate culture and employee concerns to achieve operational excellence.
All the strategy execution approaches and operating practices as discussed in section 2 of this paper have been critical in ensuring that the airline remains a market leader in the industry; however, it can be argued that its aggressive fuel hedging and one-plane-fits-all strategies have been influential in minimizing operational and maintenance costs, hence enabling the company to effectively execute its low-cost/no-frills business strategy.
The companys employee-oriented management style, as well as a relatively happy workforce and strong culture, have also acted to take it to new heights as far as strategy implementation and execution are concerned. However, the company needs to enhance its market share in ever busy terminals to keep in tandem with current trends in the industry.
Weaknesses & Challenges
It is true that some weaknesses and challenges existed as of mid-2010 in terms of unstable global fuel prices, stiff competition, an accident involving a Southwests plane which overshot the runaway, as well as negative media publicity arising from Southwests failure to conduct mandatory inspections on their aircraft (Thompson et al., 2011). If not adequately addressed, such weaknesses may dent the companys competitive advantage and safety record.
Southwests Acquisition of AirTran & Arising Strategic Issues
The acquisition of AirTran makes good strategic sense for Southwest, especially in its attempt to expand its market share by flying into new locations in the United States, Mexico and the Caribbean. This acquisition will assist Southwest Airline to strategically operate from Atlantas Hartsfield-Jackson International Airport, the busiest airport in the United States and the largest domestic hub previously not served by the company, implying more revenues from increased flights.
However, there exist some strategic issues and problems that need to be addressed for this acquisition to be a success. The foremost strategic issue, in my view, revolves around integrating the over 8,000 AirTrans employees into Southwests corporate culture so that these employees could share in the same dreams and aspirations as set out by management.
The second strategic problem is grounded on the fact that Southwest will now have to deal with two types of aircraft models Boeing 737 and 717s. Such a departure from the one-plane-fits-all philosophy may in the long-term elevate aircraft maintenance costs for the company. Southwests management also needs to come up with ways to operate effectively and efficiently in busy, congested airports.
Recommendations for Practice
Consequently, the recommendations arising from this analysis include (1) exposing AirTrans employees to a rigorous employee training program to internalize the culture and high standards set by Southwest, (2) conducting routine aircraft maintenance practices to avoid negative media publicity, (3) modifying the acquired AirTran facilities and aircraft to meet the safety standards set by Southwest, (4) investing more resources into talent management, innovation and creativity, training and development, as well as leadership development, and (5) continuing with the low-cost/no-frills strategy as Southwest Airlines chart its way into the future (Crews, 2010).
References
Crews, D.E. (2010). Strategies for implementing sustainability: Five leadership strategies. SAM Advanced Management Journal, 75(2), 15-21.
Thompson, A., Peteraf, M., Gamble, J., & Strickland, A.J. (2011). Crafting and executing strategy: The quest for competitive advantage: Concept and cases (18th ed.). New York, NY: McGraw-Hill/Irwin.
Yarbrough, L., Morgan, N., & Vorhies, D. (2011). The impact of product market strategy-organizational culture fit on business performance. Journal of the Academy of Marketing Science, 39(4), 555-573.
Southwest Airlines (SWA) has remained a market leader in the airline industry dominating the domestic travel segment. The airlines cost-cutting measures, exceptional customer service, positive organizational culture, and low-fare business model are the key pillars of its success. SWAs measures to contain operational costs include cross-utilization of its workers to maintain low labor costs and improve turnaround time, operating without hub-and-spoke arrangements, e-ticketing, and focusing on short hauls, among others.
The SWAs overall corporate strategy focuses on operational efficiency as a source of distinct advantage. It executes this strategy through innovative management style and unique organizational culture. Its unique organizational culture entails new-hire celebrations, customer service training, advanced training, Red hearts and Luv, and mentorship programs for employees. SWA maintains good relations with its staff and employee unions, which eliminates costly industrial actions. Its unionized employees exhibit enthusiasm and extroverted personalities that characterize the Southwest spirit.
HR practices have played a big part in SWAs business success. Herb Keller, the airlines former CEO (1981-2001) exhibited an engaging management style and commitment to his staff and customer service saw the airline reach new heights in the industry. The SWAs HR practices of training and mentoring of new staff, supporting employee initiatives, e.g., fuel conservation by pilots, and maintaining positive labor relations have been critical to its success.
SWA has recorded steady growth even during turbulent times in the industry. However, challenges related to increasing business rivalry, operational costs, and rising passenger demand threaten its competitive position. It faces stiff competition from low-fare operators like JetBlue and newly merged airlines like Continental/United with may diversify into the low-cost niche (Pisano 11). The airline plans to acquire larger aircrafts (737-800s) to meet rising passenger demand. In my view, SWAs core competencies lie in the measures to contain operational costs, focus on customer service, and innovative HR practices.
The strategies are a source of competitive capabilities for the airline, enabling it to weather shocks in the market. For this reason, I am optimistic that SWA will weather its present challenges to continue recording sustained success in the future. In my opinion, the airlines previous success in achieving operational efficiency is a critical success factor in its future growth. Higher operating costs, including labor and fuel costs, reduce profit margins. Therefore, measures to cut costs will help SWA improve its operational efficiency and profit margins.
Works Cited
Goold, Monroe and Allen Campbell. Strategies and Styles: the Role of the Centre in Managing Diversified Corporations. Oxford: Basil Blackwell, 2007. Print.
Hofstede, Geert. Cultures Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations. Thousand Oaks, CA: Sage Publications, 2001. Print.
Pisano, Gary. Creating an R&D Strategy. Boston, MA: Harvard Business School, 2012. Print.
Sims, Robert and Mike Schraeder. Expatriate Compensation: An Exploratory Review of Salient Contextual Factors and Common Practices. Career Development International 10.2 (2005): 98-110. Print.
Williams, Steve. Making Better Business Decisions: Understanding and Improving Critical Thinking and Problem Solving Skills. Thousand Oaks, CA: Sage Publications, 2008. Print.
Southwest airlines primary business function is the transportation of cargo and passengers. The airline has made use of sustainable and efficient strategic management principles which have given the company good performance records, despite the recession, terrorist threats, and the high fuel prices that shook the airline industry. These were achieved through the companys main principle of low operational costs, high cash flows, and low borrowing from domestic and international markets (Southwest airlines, 2010). These principles are the products of the strategic management plans laid down by their finance office.
All internal and international financial decisions and management plans are directed by the office of finance and chief financial officer (Forbes, 2011). This office is headed by Laura Wright H. who is the senior vice president at southwest airlines and a member of the planning committee and has served in this position since July 2004 (Forbes, 2011). Before this, Laura Wright served as the vice president for finance and the treasurer of the company from June 2001 to July 2004 (Forbes, 2011). This post had been preceded by the post of treasurer from the year1998 to 2001, assistant treasurer from 1995 to 1998, and as the director of corporate finance from 1990 to 1995 (Forbes, 2011). Laura has been with southwest airlines for over two decades, following her employment in 1988 as the director of corporate taxation. This implies that as the vice president in charge of finance, she has a wealth of experience in corporate finance, international financial markets and is familiar with the managerial principles and vision of the company.
Strategic financial management plans have been associated with the ability of the low-cost carrier to enjoy increased profit margins during the turbulent global financial crisis. One of the financial strategies used to maintain the airline in the international financial market is position logic, where the airline successfully linked its resources together to reinforce activity systems (Southwest Airlines, 2011). Southwests management plans of finances involved the use of readily available resources, like the purchase of a single type of plane, the use of less popular airports and gates to increase their market position against competition. This strategy has defined the airline as a model of a low-cost airline.
The finance office has also been very innovative in the creation of financial management tools, which reduced risks to the airline within the domestic and international markets. The finance office had discovered that by 2007, the largest expenditure apart from salaries was fuel cost. To maintain its leverage as a low-cost carrier, the airline finance team adopted financial and derivative instruments in the famous 10-K report (Brooks & Chance, 2010). Under Laura Wright, the company has been using this financial instrument for its long and short-term financial plans. The company uses fuel derivatives to reduce its fuel costs against market fluctuations like the credit crunch. Southwest Airlines financial plan makes use of a combination of financial instruments like purchased call options, fixed price swap agreements, and collar structures, which protect over 70% of its expected fuel requirements (Brooks & Chance, 2010). This percentage is about the price of oil per barrel and any refinery margins. The company had placed fuel derivative contracts, for 55% of expected fuel consumption at $51 per barrel for the year 2009, a further 30% for 2010 at the rate of $63 per barrel. For 2011, the company invested in fuel derivative contracts at over 15% at the price of $64 and over 15% at $63 for 2012 (Brooks & Chance, 2010). This financial plan cushioned the company from the high fuel prices of 2008, which had shot to $140 per barrel (Brooks & Chance, 2010). This price was three times what the company had paid for fuel through its fuel derivative plan. Fuel derivative plans are also referred to as fuel hedging, a concept southwest Airlines has effectively used to reduce the financial risk it would face in the current volatile global financial markets (Southwest Airlines, 2011).
The company has also laid down several risk management strategies that enable it to manage international financial market risks like interest rate, credit and financing, and liquidity risks. To handle these risks, the airline has adopted a capitalization conservative strategy that allows it to grow steadily within the American market. This capital conservative strategy prevents it from seeking resources outside America, and which are readily available in the local market (Brooks & Chance, 2010). To cushion its profit fluctuating interest rates of banks and lending institutions, the airline maintains modest financial leverage and strong business. These are designed to allow it to grow steadily and profitably without huge lending margins. Moreover, this strategy has allowed the company to enjoy their A credit rating with S&P and a high Baa1 with a moody rating for unsecured fixed-rate debt (Brooks & Chance, 2010). The company maintains a very low debt ratio and uses market-sensitive instruments like interest rate swaps to avoid solvency and bankruptcy. They also make use of the redemption of floating-rate debts to maintain their high credit rating (Southwest Airlines, 2011). Lastly, the company has aggressively invested in high money markets, certificates of deposit, and grade commercial paper to reduce the risks of international financial markets.
References
Brooks, R. and Chance, D.M. (2010). Introduction to Derivatives and Risk Management (9th Ed.). NY: Cengage learning.
Forbes.com (2011). Laura H. Wright: Senior Vice President, Finance and Chief Financial Officer. Web.
Southwest airlines (2010). The Mission of Southwest Airlines. Southwest.com. Web.
Southwest Airlines (SA) is not just a market leader in the airline sector but also a fierce rival that should not be disregarded. Worldwide businesses research Southwest Airlines strategic initiatives and how this once-small and distinctive airline become what it is today. Southwest Airlines creative business practices, models and competitive advantages include reduced ticket prices, cutting away pointless services to boast faster airport turnaround times, and instilled a sense of intrinsic value in each employee.
The Link Between Business Model, Strategy, Competitive Advantage, and Profitability
Southwest Airlines has developed a plan that forms the basis of its business model to gain a competitive edge in the airline sector and maintain profitability in the face of rivalry. SA operates only one aircraft, the Boeing 737, to further cut costs and improve dependability (Hill et al., 2020). According to Hill et al. (2020), SA is well known for its fares, which are frequently about 30% less expensive than its main competitors. Additionally, effective methods to lower customer expenses have increased the sale of flights, boosting shareholder earnings. Finally, by facilitating training, maintenance, and inventory costs, SA has increased crew and flight planning efficiency while concentrating on revenue generation. Generally, their operational framework of low fares balances with the reduced structural expenses giving the firm a competitive advantage and enabling them to record greater profit even during an economic downturn.
Southwest Airlines Competencies, Resources and Capabilities
Southwest Airlines has demonstrated its ability to recognize critical strengths, cut operating expenses, increase resource efficiency, and master new capabilities that are not typically seen in other airlines. One of the SAs distinctive competencies is the ability to fly from pointtopoint unlike their competitors, who could need two or three layovers to get to their destination, thus reducing the travel time for clients (Hill et al., 2020). SAs primary resource is the dedicated staff who are committed to working. Beginning with their initial interview, top management at Southwest Airlines instills essential qualities in each worker. SA stresses cooperative behavior and a positive outlook while hiring. There is evidence that teamwork is becoming more crucial in various occupations, and research has examined how the makeup affects outcomes in the workplace (Gander et al., 2020). In essence, SA determines whether the applicant will fit in with the team throughout the hiring process since the airline prides itself on being a customer-focused company. Generally, this reduces the need for technical inspectors, ticket counter agents, and baggage handlers.
Maintaining the Competitive Advantage for the Future
Southwest is devoted to being a safe and secure company, especially during the COVID-19 crisis, to maintain a competitive edge for the future. Passengers are expected to benefit from SAs increased connectivity and quick travel times. Commute periods significantly shorter than the incubation time for infectious diseases are made possible by greater worldwide connection and accelerating globalization (Sun et al., 2021). SA is aspiring to ensure a meager incident rate almost entirely unrelated to pilot performance and adhere to COVID-19 guidelines. Additionally, SA prides itself on partnering to reduce turnover and ensure efficiency in years to come. Essentially, their motivated, flexible workforce increases productivity and decreases the need for additional personnel. Therefore, Southwest Airlines future dedication to its employees is demonstrated by the fact that they prioritized their staff over their aircraft. Generally, this commitment strengthens Southwest workers pride in being a family members rather than just a job.
Conclusion
Reduced ticket pricing, eliminating unnecessary services to boast speedier airport turnaround times, and instilling an inherent sense of value in each employee are just a few of Southwest Airlines innovative business methods, models, and competitive advantages. In essence, it is conceivable that Southwest Airlines will endure for a very long time in the airline sector. Despite the worldwide epidemic that has afflicted the United States, Southwest Airlines is still anticipated to turn a profit. Generally, to keep their personnel, secure their safety, and preserve their competitive edge for the future, one possibility that may present itself soon may include an expansion to overseas alliances.
Southwest Airlines environment industry-specific and firm-specific factors can be analyzed from the context of rivalry in the industry entry threats, threats of substitutes, threats of complements, buyers bargaining powers, and suppliers bargaining power (Porter 2008, p.56).
The degree of competition in any business industry determines the general productivity of firms operating in the production. One of the factors that influence rivalry in the airline industry is the degree of market concentration of each of the firms operating in the environment.
For Southwest Airlines operational environment, no individual airlines dominated the market as at 1989. Nevertheless, the first eight leading airlines controlled 92 percent of the market. Southwest Airlines being one of the eight airlines encountered high degrees of rivalry from other companies in terms of route, hubs, and airports.
To survive in such an industry, airline companies must focus on gaining competitive advantage in the hubs, which are highly profitable. Such hubs are the ones, which possess the highest air travel demand. In the effort to counter rivalry to gain income in these hubs, Southwest Airlines resorted to providing flights, which are time elastic for a number of landing points.
Other industry-specific environment factors that determine the degree of rivalry are fixed costs, price wars, availability of mean of price comparisons, the degree of the carrier capacity of the airlines operating in the industry, the degree of differentiation of the organizations products and services, and the capacity to maintain fuel costs low. The manner in which an organization organizes these factors determines the degree to which it gains a competitive advantage in comparison to its competitor.
In the 10-year period of efforts to reduce governments control of activities, a large number of new partners into the airline sector was experienced. In the Southwest industry market, 22 new airlines had been formed with another 43 entering by1982 (Desai, Patel & Quach 2012, p.3).
This wave suggests that the airline industry had low and weak economies of scale in 1980s so that the industry could support many airlines. However, by 1993, many of these airlines were merged and consolidated to form eight major carriers indicating that the equation for economies of scale had changed so that the threat of new entrants into the airline market by small airlines became narrowed.
As Desai, Patel, and Quach (2012, p.3) point out, Substitutes for air travel include cars, trains, and buses . Over time, the substitute of buses and cars as an alternative mode of travel to air travel has substantially dwindled. Nevertheless, the introduction of high-speed trains has resorted to immense amplification of threats of trains as a substitute to air travel. However, this challenge is not big since Southwest Airlines capitalizes on the low-cost strategy to drive her competitive advantage. When this strategy is combined with the convenience offered by air travel in comparison to rail travel, the threat is minimized.
In case of complements, there are large numbers of companies that uphold the airline sector. They range from hired vehicles and hotel industries among others. In fact, Southwest Airlines will compete with other companies to cooperate with the car rental and hotel firms to offer discounted travel packages (Desai, Patel & Quach 2012, p.4).
Southwest Airlines has gone an extra mile to deploy computer reservation systems to permit its clients to make convenient reservations for support facilities including cars and hotels for its customers via an integrated website. From the context of the suppliers bargaining power, the airline company does not face challenges of shortage of pilots since their supply is in excess. The company has the history of low strikes. Hence, the supply of piloting services is reliable throughout the fiscal year.
The current strategy of Southwest Airlines
Established in 1967, Southwest Airline is the United States major air transport company. It also stands out as one of the largest airline in the world whose main current strategy for success is driven by a low-cost operational strategy. Its head quarters are based in Dallas, Texas (Garrison & Keller 2005, p.1).
As of August 2012, the company employed more than 46000 people. Within the same period, the company recorded about 34000 flights on a daily basis. In fact, by January 2013, Southwest Airlines had a schedule for flights in 79 destinations across 39 States (Desai, Patel & Quach 2012, p.6).
The above success of the company can be attributed to a number of operational strategies, which have turned out to produce positive impacts for the company. Southwest Airlines has established a motto, which acts as the mechanism of shaping the organizational culture of the company.
This motto is keep it cheap, and keep it simple (Desai, Patel & Quach 2012, p.7). The meaning of the motto is that the company differentiates itself from other airline companies operating in the same industry by distancing itself from relying on spoke system and hub approach to drive success. Rather, the company works on frequent point to point flights (Desai, Patel & Quach 2012, p.7).
Typically, the company offers more than 2700 flights on a daily basis in an excess of 55 cities across more than 30 destinations. The short flights essentially last for one hour or even less. Through the short flights, the company utilizes the same plane for 11 hours on average on a daily basis. This rate of utilization of the available couriers is 3 hours well above the average of industry courier utilization capacity. This finding makes it possible for the Southwest Airlines to have an even distribution of its cost on the per-seat basis.
Given that competition for airports is an incredible challenge that faces the airline industry, Southwest Airlines has resorted to landing on small airports in the effort to escape the competition for the large airports within its reach destinations. When the routes are merged with the strategy of point-to-point, it translates to more capitalization on direct routes, reduction of the connections, staying clear off the challenges of trip overlaps, and reduction of flight delays (Desai, Patel & Quach 2012, p.5).
Apart from the strategy of remaining the cheapest and the most simple airline company, Southwest Airlines has some other current auxiliary strategies to drive its success. One of such strategies is the devotion to the employees. This strategy is driven by the perception that, without a motivated workforce, it is impossible to achieve organizational strategic plans.
The CEO of the Southwest Airlines, Herb Keller, has developed an organizational culture, which gives all employees an opportunity to perceive themselves as if they belong to a single extended family. The Charismatic approach to the business of the Southwest airlines adopted by the CEO is also instrumental in the generation of employees loyalty.
In addition, employees are given the opportunity to own 11 percent of shares of the company. This strategy is incredible in ensuring that the interests of the airline are proactively aligned with those of the employees. Arguably, the aspect of human relations is a central pillar of the current strategies for driving success of the Southwest Airlines.
Analysis of Southwest Airlines approach to sustain its competitive advantage
Even though Southwest Airlines pays magnificent efforts to ensure that it out-powers its competitors in the effort to acquire the tag of being the largest and most attractable airlines industry to all classes of travelers, competition is still intense. Nevertheless, the company is still able to retain its competitive advantage. This section discusses and analyses Southwest Airlines approach to sustain its competitive advantage.
In a competitive business environment, maintaining competitive advantage calls for frequent analysis and evaluation of the external environment of an organization.
This move entails scanning, forecasting, and even assessing the strategies that are deployed by the competitors in the context of strategies for success deployed by an organization (Ginter, Swayne & Duncan 1998, p.7). An essential approach for doing this job is by seeking to identify an organizations strengths, opportunities, weaknesses, and threats or in other words, conducting the SWOT analysis of the organization.
This strategy helps to ensure that competitive strategies authorized for exploration are more concentrated towards collective organizational decision to yield optimal benefits from the existing opportunities and strengths while strategically focusing on measures to reduce negative impacts of the organizations weakness and threats. Southwest Airlines is completely aware of its strengths and opportunities in the airline industry.
It has deployed them to drive its competitive advantage. One of these strategies is the capacity to orient its employees to the common goal, mission, and objectives of the company. However, in doing this role, it stipulates the relevance of all efforts made by its well able employees to be consistent with the demands placed on them by the customers (Garrison & Keller 2005). In the absence customers, the company ceases to exist.
Capitalizing on innovation and creativity of its employees who are also partly the owners of Southwest Airlines makes the company a big envy to many competitors.
Driven by stakes to increase their earnings in the form of dividends, the employees inculcate a strong spirit of teamwork, which is an instrumental milestone towards the maintenance of worker morale and consequently increment of the profitability of the organization. Indeed, according to Desai, Patel and Quach (2012), Southwest Airlines employees precisely understand &that they must comply with Southwest Airlines concept of never inconveniencing customer (p.8).
Through strict compliance to this procedure for enhancing quality in delivery of clients attendance that has made the company celebrate 28 years of successive productivity. Many of the factors that have made other companies operating in the same industry suffer from acquiring competitive advantage also seems to have little implication on Southwest Airlines.
For instance, in the wake of variability in the economic environment characterized by depressions and recessions, airline companies have been undergoing intense challenges associated with workers strikes. Such strikes often bring the business of airline companies to a standstill making them encounter hefty losses.
Surprisingly, with 85 percent of its employees registered in unions, Southwest Airlines has encountered only one strike in its history of operation (Desai, Patel & Quach 2012, p.8). Arguably, the history of no-strikes operation has made the companys customers perceive Southwest Airlines as highly reliable. This back up has helped to build an incredible brand loyalty that has been critical in driving the competitive advantage of the company.
Theory or Concept that forms the basis of the strategies of Southwest Airlines
Firms adopt different strategies to drive their competitive advantages. Various theoretical or conceptual frameworks inform these strategies. Southwest Airlines competitive advantage efforts are largely driven by the concept of scale of economies. According to Mazucat (2006), microeconomics theory provides a strong theoretical and empirical basis for evaluating the effect of scale on cost reduction and use of scale as a competitive tool is common in practice (p.336).
The fundamental principle of operation of scales of economies as a concept for driving competitive advantage of an organization is anchored on the paradigms retaliating that firms need to expand in terms of their volumes of output in the effort to benefit from advantages associated with being large.
One of such advantages entails the provision of services and products at low prices in comparison to competitors. Indeed, the success of business operation of Southwest Airlines is propelled by this strategy. This concept is crucial for continued success of Southwest Airlines since large firms are able not only to offer lower prices for their products and services but also the lowering of prices does not affect the efficiency, effectiveness, and the quality of the offered products.
Through the low operating cost strategy, Southwest Airlines provides primarily short-haul, high frequency, point to point, and the lowest and simplest fares (Desai, Patel & Quach 2012, p.6). Apart for focusing on low costs, the company also objects working in the most productive way with immense flexibility coupled with substantive creativity to satisfy both customers and employees.
In this regard, Desai, Patel and Quach (2012) emphasize that, with reference to the mission statement of Southwest Airlines, the company is dedicated to avail the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit (p.6).
This mission underlines the strategy of the company for gaining competitive advantage through inspiration of the concept of economies of scale. The strategy deploys an impeccable attention to transportation of large numbers of clients on short trips at high frequency levels offering low fares to them while not negating provision of a means of enhancing strong employees coupled with clients commitments to the business of the organization through aggressive marketing.
Low-cost marketing position remains a major approach of driving the competitive advantage of the company. Garrison and Keller (2005) support this line of argument by further asserting, Southwest Airlines greatest opportunity is directly related to its greatest strength- to continue to develop its low-cost position in the airlines industry (p.9). Indeed, this brand association has resorted to shaping the competitive advantage of the company until today.
However, capitalizing on this strategy is not adequate if the company must maintain competitive advantage in the future. Several companies, which have been competing with Southwest Airlines vigorously, have been encountering an immense reduction of share price values due to factors associated with poor financials.
Strategic alliance with these companies through acquisitions and mergers can increase the competitive advantage of the company in multifold in the future. In fact, apart from capitalizing on gaining a large customer pool through low-cost strategies in the effort to strategically take advantage of the economies of scale as a central concept for driving the competitive advantage of the Southwest Airlines, economies of scale would be hiked through strategic alliances.
Analysis of Easy Jet Airlines: a national Airlines Company in the authors home country
Easy Jet Airlines is based in Britain. The headquarters of the company is in London-Luton airport. Easy Jet Airlines was inaugurated in 1995. In terms of passengers carriage capacity, both internationally and domestically, the company emerges the biggest airline in the UK. The organization serves 500 routes in 118 European, North Africa and west Asian airports (Millward 2011, p.16). The company had workforce exceeding 8000 people by September 2012.
The main mode of expansion of the company is through acquisitions (Sumberg 2011, Para.5). This strategy has worked so well for the company that Easy Jet Airlines acquisition as a strategy for expansion and gaining competitive advantage may be used to benchmark the Southwest Airlines expansion strategy through its formation of alliances as proposed before. Another essential secret of growth for Easy Jet is capitalization on low-cost air transport demand.
This strategy measures up to Southwest Airlines strategy for maintaining competitive advantage. It gives an indication that the companies operate under similar market dynamics since the application of the strategy in the two companies has resulted in enormous success.
In this regard, according to Easy Jet plc (2011), the airline, along with subsidiary airline Easy Jet Switzerland, now operates over 200 aircraft, mostly Airbus A319 (p.13). Easy Jet comes second to Ryan Airlines in terms of cost of travel. With regard to Easy Jet plc (2011), in the fiscal year 2011, the company flew more than 55 million people (p.8).
Similar to Southwest Airlines, Easy Jet is susceptible to operational challenges such as increasing the cost of fuel. To help cut on fuel costs, Easy Jet announced a decision to build her own airliner with the brand Ecojet. With prop fan engine features, Ecojet is aimed at hiking fuel efficiency.
In need of enhancing competitiveness in comparison with other competing airlines, in February 2011, the company painted eight of its aircraft with a lightweight, thin revolutionary nano technology coating polymer (Sumberg 2011, Para.4). This coating reduces debris drag across the planes surfaces. Hence, the amount of power required for propelling aircrafts is also reduced significantly.
This strategy has the implication of reduction of fuel bills (Sumberg 2011, Para.5). According to Easy Jet plc (2011), through this strategy, the company saved about 1 to 2 percent of the total fuel costs (p.10). This saving amounts to about 14 million Euros. This effort is a replica of the Southwest Airlines endeavor to reduce operational costs in order to enhance the competitiveness of the organization in highly competitive market.
Analogous to Southwest Airlines, Easy Jet has adopted a myriad of strategies to place its brand in the market. Easy Jet specializes in service delivery. The place for the service offering is dependent on the preferred destination of its clients.
This argument means that, in the derivation of the marketing mix for the company, place is an essential factor for the company to consider since, for the success of the company, it has to choose the destination that will attract clients who are willing to pay all costs for delivery of such services without making the company encounter losses. Upon selection of the destination with potential of clientele growth, Easy Jet chooses the appropriate promotional techniques that would enable it to out-power its competitors
Over the years of operation, Easy Jet Airlines has developed a number of ways of effectively communicating with clients to ensure the retaining of the existing ones and attracting new ones. One of the tactics of doing this is by promoting Easy Jets product through making flying as affordable as a pair of jeans (Jones 2007, p.34) coupled with requesting its customers to cut out the travel agent (Jones 2007, p.35).
Arguably, this strategy is a more innovative promotion technique since, in a decade ago, the company only advertised through a work of art of the booking handset contact on the surfaces of all its airplanes.
The filming of airline TV series (1999 -2007) had the impact of making Easy Jet appear like a household name within the UK. Although this film never portrayed the name of the company in a positive way all the time, the company was highly promoted. Additionally, as part of its promotional strategies, the company has changed from one business slogan to another. First it was the webs favorite airline , then come on, lets fly and later to to fly, to save (Jones 2007, p.47).
Another slogan is Europe by easy jet (Jones 2007, p.47). The most popular one is business by easy jet (Jones 2007, p.47). In relation to price, the airline offers low travel costs. The central focus on low cost as a mechanism of enhancing competitive advantage of Easy Jet implies that the cost of travel is an impeccable factor that determines the capacity of airlines to woe clients not only in the European markets where Easy Jet is based but also in the American market where Southwest airlines is based.
References
Desai, K, Patel, V, & Quach, D 2012, South West Airlines. Web.
Easy Jet plc 2011, Annual report and accounts 2011. Web.
Garrison, N & Keller, R 2005, Case Study: Southwest Airlines, OH, Cincinnati.
Ginter, P, Swayne, L, & Duncan, J 1998, Competitive Advantage and Internal Organizational Assessment, Academy of Management Executives, vol. 12 no. 3, pp. 1-12.
Jones, L 2007, Easyjet: the Story of Britains Biggest Low-Cost Airline, Aurum Press, London.
Mazucat, M 2006, Strategy for Business, London Thousand Oaks, New Delhi.
Millward, D 2011, Easy jet to open new base at Southend, The Daily Telegraph, vol. 1 no. 1, p.16.
Porter, M 2008, The five forces that shape strategy, Harvard business review, vol.3 no.1, pp. 56-63.
This case analysis explains how Southwest Airlines Company culture and intellectual assets adapt, changes and grows as the environment of the airline industry changes. Southwest Airlines Co. was established on March 15, 1967, by Herb Kelleher. The company was originally named Air Southwest Co. but was changed in 1971. According to the Southwest Airline Co website their culture purpose and vision is to provide a friendly, reliable and low-cost travel while becoming the World’s most loved, flown and profitable airline. The airlines’ industry as mentioned by Porter the creator of the Five Forces Model is not profitable so why is Southwest Airlines still in business?
Who is Southwest Airlines?
Southwest Airlines Co. has grown from a small airline carrier in the state of Texas back in 1971 to the third largest airline in the United States as of 2018. Southwest Airlines Co has since its beginnings has become a leader in low fare cost and employee and customer friendliness. The airline has been known for having a higher turnaround of planes thus reducing the cost to increase the profit. Culture of fun people creating an environment where employee loyalty is high even though the pay is low as compared to other airlines.
Adaptation, Changes, and Growth
Southwest Airlines Co has experienced leadership changes, culture changes and cost of fuel and wage changes. The case study discusses the leadership changes from Kelleher to two of his close aides (Dess, 2019). While Kelleher was the leader, he kept a close relationship with its employees but when management changed, the increase in the number of employees made it harder for new management to carry-on Kelleher’s bond with all of the employees. Employees were not happy with new management and Unions were introduced. Unions created a higher tension in the relationship between management and the employees, therefore, creating a challenge to keep the original culture of the company intact (Bailey, 2019). An increase in fuel and wages also affected the company. In 2006, the average seat mile (ASM) went up from 7.07 cents in 1995 to 8.8 cents.
Southwest Airlines Co encounter all the above-mentioned changes but was able to adapt and recognize at all times what their market focus was in the airline industry. Their market focus was smaller airports, point-to-point between cities trips, and maximizing their profits rather than expanding into a bigger city or to international flights. The airline was dedicated to searching for ways to lower their costs so productivity and quality could be increased. The company started to cut costs by putting an end to meal service and instead of serving beverages and snacks to passengers during the flight. The cut of costs allowed Southwest Airlines Co to strategized and generate the shortest turnaround time of flight thus allowing longer fly hours used in a better efficient way.
Online services have been a huge success in the growth of the company as the industry changes. “It’s 10 times cheaper to deliver to customers through the online service than through a travel agent, Kelly said, and costs 5 times less than using Southwest’s own reservation staff” (Essay, 2018). Southwest has invested its funds in the training of its employees with the belief that by satisfying its employees they will, in turn, satisfy its customers. The offering to customers of “a free bag” has been a game-changer for most consumers as this will benefit the customer’s pockets and it is a competitive advantage from the competitors.
Recommendations
Southwest Airlines Co’s priority should be to treat the passengers as best as they can because this will increase the number of passengers. An increase in the number of passengers will increase the liquidity, therefore, increasing the profits. Management should come forward to work in a team as that will give motivation to the employees and this would lead to the growth of the company. At last, the airline should research for help from its financial team to make a better capital structure for the company.
References
Southwest Airlines, 2019. Culture Southwest. Retrieved from https://careers.southwestair.com/culture
Dess, G. G., McNamara, G., & Eisner, A. B. (2016). Strategic management: text and cases (8th ed., pp. 428-429). New York: McGraw-Hill Education.
Sawe, Benjamin Elisha. (2018, January 31). The Largest Airlines in the US. Retrieved from https://www.worldatlas.com/articles/the-largest-airlines-in-the-united-states.html
McGee, W. (2017). How to Get the Cheapest Airfares When Booking Flights for Several People. Retrieved from https://www.consumerreports.org/air-travel/get-cheapest-airfares-when-booking-flights-for-several-people/
Evans, L. (2019). Strategic Analysis of Southwest Airlines Case Study Management Essay. Retrieved from https://www.panmore.com/southwest-airlines-generic=strategy/
Bailey, J. (2019). How Southwest Pioneered the Low-Cost Carrier Model. Retrieved from http://simpleflying.com/southwest-lcc-model/
Southwest Airlines is a major American based airline headquartered in Dallas, Texas. It started out as a low-cost airline which has seen tremendous success year after year. Since its establishment as Southwest Airlines by Herb Kelleher Rollin King in 1967, the company has survived many ups and downs, including a recession and every airline industry downturn without having to layoff a single employee. SWA has stayed and is here to stay in the coming years, but in order to weather today’s market demands that stay is not going to happen without change and adaptation to the new ways.
1. What is impressive about Southwest Airlines?
The most impressive thing for me at Southwest Airlines is its culture and the reputation that is has created and maintained. Herb Kelleher, SWA’s founder has quoted on several occasions that “competitors can buy tangible assets but they can’t buy culture”. At SWA the culture code put’s it’s employees first, which is rare to find in companies. I mean companies always talk about culture and its employees because they are almost required to if they want to hire talent, but it isn’t always practiced the way it is preached. It was also impressive to read that the airline has never laid off employees since its creation in 1971. There are very few companies that are this solid. As far as its proven strategy is concerned, which is clearly spelled out on Southwest Airline’s website under Our Company, SWA continues to focus on its robust route networks, compelling brand appeal and brags about its superior financial position. All in all, a true win.
2. Key policies, procedures, operating practices, and core values
Southwest Airline’s Mission, Vision, and Triple-Bottom-Line Commitment to Performance, People, and Planet is very compelling to begin with. They pledge to using cost-effective and environmentally beneficial operating procedures (including facilities and equipment), which allowed them to reduce the amount of materials they used and, when combined with their ability to reuse and recycle material, at the same time preserve environmental resources (Thompson, Gamble, Peteraf, & Strickland, pg. 321). Additionally, they only used a single aircraft type for a very long time, specifically the Boeing 737, which enabled them to keep their inventory in check for parts and other materials and gave them overall many cost savings benefits. Inventory is usually is a headache for most companies, and keeping it in check is a daunting task, especially without a crystal ball. Southwest’s Point-to-Point Route Structure Strategy proved to be a winner as scheduling of flights was more cost-efficient than the hub-and-spoke systems used by most all rival airlines. And above all, Southwest always directed its operational teams to find wats to cut costs, which is a winning approach to keep funds available to offset rising costs.
3. Key elements of Southwest’s culture & foreseeable problems
As answered in question number 1, above, Southwest Airlines had and continues to have a corporate culture that is unlike any other. While others chose to focus on their customers, SWA chose to focus on their employees first, with the mindset that happy employees led to superior service which led to happy customers. This was Herb Kelleher’s mantra, and since becoming the company’s CEO, Gary Kelly also continuously echoed the views of his predecessors: “Our People are our single greatest strength and our most enduring long-term competitive advantage.” (About Southwest Airlines, SWA Webpage). And even though Herb Kelleher stepped down from the CEO role in 2001, he continued to stay on with the company until his retirement in 2016, which then provided a guiding force for James Parker and eventually Gary Kelly. The only problem I foresee that could arise in future is the different styles of leadership, especially now that Herb is no longer with the company, which to think of if haven’t come up as yet, they likely won’t in the future, however, other than that Gary has pretty much followed on the same path as his predecessor Herb, as he has forged ahead.
4. Southwest’s strategy execution approaches and operating practices
Strategies such as expansion of operations in terms of added locations, and added flights contributed to the continued success of SWA. Other factors such as hiring exceptional talent, and offering them packages and growth to retain them has been one of their superior strategies. Apart from that, offering stellar customer service and maintaining its low-cost strategy has also proven to be a winner for the company. As mentioned above, the company only utilizes a single aircraft type which helped reduce its expenses for parts and overall inventory. Southwest also always operated with a safety net plan, which has worked for them over the years in keeping them profitable with a strong balance sheet. As a matter of fact, one of Gary’s goal was to “stay prepared for bad times with a strong balance sheet, lots of cash, and a stout fuel hedge” (Thompson, Gamble, Peteraf, & Strickland, pg. 320).
The strategic objectives that focused around quality workplace, safety, stellar customer service, and offerings which included convenient flight schedules and great travel experiences were and are at the helm of SWA’s strategy.
5. Southwest Airlines performance for its shareholders over the past several decades.
According to the financial details presented in our text by Thompson et el, the June 2016 dividend payment marked the 159th consecutive quarter Southwest had paid a dividend to shareholders (Thompson, Gamble, Peteraf, & Strickland, pg. 311). Southwest earned record after-tax profits of $2.2 billion on revenues of $19.8 billion, easily surpassing the 2014 record after-tax profits of $1.2 billion on revenues of $18.6 billion. At the end of 2017, Southwest Airlines also reported in their investor’s relations section on their website, that was the 45th consecutive year of profitability (SWA Webpage). Also, according to the financial data presented in the case, SWA showed a YOY growth in operating revenues from 2011 to 2015, along with a drop in operating expenses in 2015 when compared to 2014, their operating profit surged 85 percent (SWA 2015 Annual Report). Their net income was a record $2.2 billion, or $3.27 per diluted share, easily surpassing the previous record, set a year ago. SWA was able to return $1.4 billion to Shareholders in 2015 in the form of dividends and share repurchases. And, we were able to maintain strong liquidity with $3.1 billion of cash and short-term investments at year-end 2015, along with a $1 billion, fully-available, bank line-of-credit. Over the past several decades they have continued to see growth in the bottom line. Overall, Southwest has a history of remarkable financial strength and a reputation for a solid balance sheet. Southwest’s fundamentals, consistent performance, and low P/E ratio that is about half of the S&P 500 make it a premier value stock.
6. Strategic issues and problems Gary Kelly and Southwest executives need to address & recommendations beyond 2017.
It is true that Southwest Airlines have many things that have worked in their favor. Their strategies have more than paid off, however, Gary Kelly could face issues as times are changing, and technology is changing. Millennials who think very differently entering the workforce at Southwest may not like the old methods, and therefore it would be advisable to Mr. Kelly and Southwest executives to change their code of conduct to accommodate the younger generations. For example, work from home policies, giving them chances to make a difference, provide personal engagement opportunities and above all give them the opportunities to learn and grow. The millennials are at a different pace altogether.
I would also suggest Southwest airlines to re-think their statement when they categorize themselves as a “low-cost” airline. The truth is that they are not low cost at all. “Southwest was once synonymous with budget air travel, but in light of newer business models Southwest appears more of a hybrid” (Harper, 2019). Southwest can offer very limited low fares during its advertised fare sales, however, otherwise much of its fares are pretty high and up to par with the other major airlines such as Delta, United and American. Because they offer flexibility and have a simple business model, they have developed a cult of business travelers who prefer the airline over others.
References:
Harper, J., 2019. Is Southwest Airlines a Low-Cost or Budget airline? Retrieved from: https://pointmetotheplane.boardingarea.com/is-southwest-airlines-a-low-cost-budget-airline/
Southwest Airlines, 2020. Proven Business Strategy. Retrieved from: http://investors.southwest.com/our-company/proven-business-strategy
Southwest Airlines, 2020. About Us Retrieved from: https://www.southwest.com/html/about-southwest/index.html?clk=GFOOTER-ABOUT-ABOUT&irgwc=1&clickid=0RkXWJ3MJxyOT6owUx0Mo3cjUknSqZTAQ0eySU0
The success of Southwest Airlines is no secret in the flying industry. Southwest Airlines is a brand notorious for its affordable prices, non-stop flights, and online ease of use. Beyond that, what makes Southwest success so strong? The company has taken nearly every precaution to rid excess use of valuable funds. These precautions include but are not limited to, using the same aircraft inside the company, non-stop flights, and short and sweet services inside their flights. The company uses only one aircraft model, the Boeing 727 series. The use of the same aircraft means if one plane is down, another can take its place no problem. The non-stop flights are not only appealing to customers but also efficient for the company. No longer is there wasted time stopping for layovers. Avoiding the prone to delay hubs keeps people moving and making more money. Lastly, the service is the same through, and through each time one flies. Seats are not competitive, only boarding passes are. All seats are the same, so each flight customers are sure of what they are receiving. Snacks, drinks, and smiles are always given each flight, ensuring that customers feel comfortable and assisted while still cutting back unnecessary costs such as movies, headphones, blankets, or pillows.
How Economic Condition of U.S. Airlines Effect Southwest
The economic status of the world positively effects Southwest Airlines. The trade issues between the U.S. and China are raising prices of airfare, though it hasn’t made a major dent yet. International flights seem to be slowing, though fortunately for Southwest, they have not expanded their company to flying internationally. Several economists believe that there will be a recession in 2020 due to the trade issues with China. Any form of economic recession in the country will have an impact on airlines, as people will likely not have the funds for leisure flights as they previously did.
Operational Issues of Southwest Airlines
Around March of this year, Southwest began having operational issues that forced them to take a massive hit. Maintenance issues caused hundreds of flights to be canceled. In respect to other airlines, Southwest canceled 89 flights in a day versus Jetblue having twelve canceled flight, and United having only eight that same day. The issues with maintenance have caused Southwest to sue their maintenance company. Southwest claimed members were encouraged to write up issues that were minor to keep jets being worked on longer. These issues make the maintenance crew money but cost Southwest when dissatisfied customers go to other airlines, and the flight crew is unable to perform their jobs.
How Southwest will still be competitive in the future
Southwest Airlines offers many small but significant perks that make them stand out from the rest. Free checked bags and carry-on is enormous for an airline. Forget spending a hundred dollars on luggage. If a customer has changed their minds about a flight, there is no cancellation fee, and the cost of their ticket becomes a credit redeemable at any time. The companion pass is lucrative and a little challenging to receive. What exactly is a companion pass? Well, if one receives a companion pass, their companion gets to fly for free! What other airlines can match that? The list does not stop there. Fly three times round trip, or six one way trips, in ninety days with Southwest, and a customer will receive ‘A list status.’ This status includes: ‘priority boarding, a dedicated phone line, free same-day standby flights, earn 25% more Rapid Rewards points on paid flights, and priority check-in and security lane access’.
Due to the fluctuating demand and uncertainty in oil prices, the profitability of the airline industry was far outpaced by other industries such as banks and healthcare (Inkpen, 2013). Southwest Airlines Co., the largest low-cost carrier in the world, has developed a new business model with a low-cost strategy which helps the company to achieve 46 consecutive years of profitability in the tough industry environment (Southwest Airlines Co., 2019). Although the low-cost strategy plays an essential role in the success of Southwest Airlines, it is not enough to maintain the company’s competitive advantages for a long time. What is more important is that they insist on the work with people-oriented development, including “a sense of warmth, friendliness, individual pride and company spirit”. This mission greatly guarantees the company’s smooth implementation of the low-cost strategy. In this paper, it would like to analyze how low-cost strategy and people-oriented development work together to help the company to reach high capacity utilization.
2. Operation Cost Management
The purpose of Southwest Airlines is to provide reliable and low-cost air travel. To achieve the goal, the company implements the no-frills approach to make everything as simple as possible to lower operating costs in an effective way.
2.1 Adoption of A Single-Model Aircraft
Unlike most of airlines, especially those that provide premium services, Southwest Airlines has strict control on aircraft purchases wisely and efficiently and they only use the Boeing 737 aircraft. The benefit of the adoption of the only type of aircraft can reduce the training cost and time of crews and maintenance staff and reduce the supply cost of components of the aircraft. According to the latest one report of Southwest Airlines Co. (2019), there are 753 Boeing 737 aircraft in its fleet and all of them have installed split-scimitar winglets that can reduce air resistance to reduce fuel expenditure.
2.2 Short-haul, Point-to-point, and High-frequency Flights
Southwest Airlines aims to provide short-haul (less than 800 miles) and point-to-point flights instead of using the hub-and-spoke approach. Point-to-point services seem too costly during the insufficient demand time. To ensure operational efficiency, most airlines adopt the hub-and-spoke arrangement as a way of cost-saving. From the viewpoint of Southwest Airlines, the hub-and-spoke approach resulted in spending more time waiting for customers to board on the ground. The turnaround time of Southwest Airlines only needed 15 minutes which is half an hour faster than the industry average (Inkpen, 2013). Besides saving in turnaround time, Southwest Airlines’ point-to-point services are appreciated by customers as it maximizes convenience for passengers to fly between 2 destinations.
Moreover, the short-haul routes help the company to realize high-frequency flights. In 2018, the aircraft flew just over five flights or more than eleven hours and the trip length was 757 miles on average every day (Southwest Airlines Co., 2019). Frequent flight movements enhance the ability to attract more passengers on selected air routes (Huang& Huang, 2016). Therefore, Southwest Airlines is able to offer low-price tickets as one of its advantages.
3. The Power behind the low-cost strategy- “Employees come first”
Besides saving cost and time by the above policies, Southwest Airlines also has a no-frills approach for customer services that no reserved seating, meals and entertainment provided. Although there is a trade-off on services’ comfortability to realize low pricing, most of the customers think the flight was satisfactory because of the memorable experiences provided by the staff that Southwest Airlines is ranked first in marketing carrier in customer satisfaction in 2018 (U.S. Department of Transportation, 2018). The major reason for this remarkable achievement is Southwest Airlines values its employees even more than its customers.
3.1 High-Motivated Profit-Sharing System
Southwest Airlines believes that happier employees rarely complain about heavy workloads and overtime work and make for happy customers. Therefore, the company always does more than the regular paycheck to satisfy its employees. Other than the basic welfare that is offered in most companies, Southwest Airlines motivates the employees by sharing the company’s success with the profit-sharing scheme, which reward and match their contributions dollar-for-dollar (Southwest Airlines Co., 2019). High motivation can realize self-volunteering to achieve the organization’s goals. For example, to shorten the turnaround time and ensure on-time take-off, the crews sometimes help unload bags when the schedules are tight (Inkpen, 2013).
3.2 Culture Services Department
Southwest Airlines has created a Culture Services Department which is in charge of making sure every employee recognizes they are important and promoting an interesting and healthy working environment (Southwest Airlines Co., 2019). As employees are respected, they would recognize themselves as members of the Southwest family and establish their belongings to the company. It can explain why Southwest Airlines has only a 4% voluntary turnover when there are nearly 60000 employees (Robertson, 2018; Southwest Airlines, 2019). The low voluntary turnover means there is less demand for new recruitment which can further save the training cost and the quality of services and skills on tackling emergency problems of the current crews would be better due to experience.
4. Conclusion: The Lesson We Learnt
Southwest Airlines has tried to use a low pricing strategy to realize the high capacity utilization in this demand-fluctuation industry. In order to set the ticket price as low as possible, Southwest Airlines has developed a low-cost strategy to reduce operating costs as much as possible, that around 80% of operating costs generally seems to be fixed cost in the industry before (Inkpen, 2013). However, the low-cost strategy decreases the competitive advantage of the comfortability of airplanes than other premium airlines. To encounter this problem, Southwest Airlines sharpen its competitive edge on providing high-quality customer services with care and love. Southwest Airlines has tried to create a culture that emphasizes hard work and dedication, which helps the company to support the low-cost advantage. In the company, productivity is achieved through the employees’ initiative, because employees are aware that customers’ satisfaction is based on their own work (Burton, 2012). Thus, they are passionate and self-volunteering to achieve the organizational goal and maintain high efficiency.
Due to the success of Southwest Airlines, it enlightens the survival of low-cost carriers in the keen competition with premium airlines. Besides, the case of Southwest Airlines indicates that efficient cost control is indispensable in a successful business. As every policy has its own benefits and harms, only effective cost control would not be the only key for a business to success.
References
Burton, K. (2012). A study of motivation: How to get your employees moving. Management, 3(2), 232-234.
HUANG, H. P., & HUANG, H. M. (2016). Southwest Airlines Low-Cost Strategy of the United States and the Enlightenment to China. DEStech Transactions on Engineering and Technology Research, (imeia).
Inkpen, A. (2013). Southwest Airlines. United States: Thunderbird School of Global Management.
Robertson, K. (2018, May 29). Southwest Airlines Reveals 5 Culture Lessons. Retrieved from https://www.humansynergistics.com/blog/culture-university/details/culture-university/2018/05/29/southwest-airlines-reveals-5-culture-lessons
Southwest Airlines Co. (2019). 2018 Corporate Fact. Retrieved from https://www.swamedia.com/pages/corporate-fact-sheet#2018stats
Southwest Airlines Co. (2019). 2018 Southwest Airlines One Report. Retrieved from https://southwestonereport.com
U.S. Department of Transportation. (2018). Air Travel Consumer Reports. United States: Department of Transportation.
There are some basic concepts of marketing which are key for any organization to succeed in the business world or environment and those basic concepts can be classified into the 4 marketing P’s, which are Product, Price, Place and Promotion.
Southwest Airline is a great business example who utilizes the 4 marketing P’s to great effect in growing the company’s customer base, profit, and business while facing intense competitions from other Airline carriers.
Furthermore, in a highly competitive service industry like the Airline industry, companies with innovative marketing strategy with reference to price, place, promotions, product/services are the firms that will stand out and be successful.
This paper objective is to outline the growth, challenges, and strategies that sets Southwest Airlines from the competition and how the airline keeps been profitable in the face of stiff competition.
SOUTHWEST HISTORY AND BACKGROUND
Southwest began operating in 1971 out of Dallas’ Love Field airport after a legal battle that lasted for 4 years with its local competitors (Braniff and Texas International Airlines). Arguing before a Texas court that that there was not enough demand for airline travel to sustain having 3 intrastate airlines, the now defunct Braniff Airline and Texas International Airlines slowed Southwest’s entry into the industry but also strengthened its resolve.
Battling them in court and later in a price-bruising competition, forced Southwest Airline to build an operating model that could survive the challenges and competition of the industry, and it did survive with aggressive marketing strategies implemented from the low fares to playful advertising built around a “Luv” theme, Southwest developed a reputation for fun and value.
Furthermore, Southwest Airline was envisioned as a commuter air service between Dallas, Houston and San Antonio, however it was unable to begin commercial flights until 1971 due to several legal battles brought by other Texas based airlines like Braniff, Continental and Trans Texas.
The airline had 3 aircraft and 25 employees when Southwest began flying to three Texas cities, initial flights were out of Dallas older love field airport and Houston’s Hobby airport both of which were closer to downtown compared to the major international airports. Furthermore, the airline began to expand slowly following the federal deregulation of the airline industry in 1978, expanding its services into neighboring southern western states and expanding its services into California, Midwest, the East and Southeast. (James. H 2002).
Furthermore in 1993 Southwest Airline acquired Morris Air, which led to the increase in number of operating stations. The company’s strategy was to limit it’s served market and provide high frequency departures each day to a given destination. Southwest Airline created an intense schedule for its flights routes which helped reduced the consequences of a missed flight and enabled the company to retain tardy passengers. Southwest’s strategy, “fly eight flights, get one free” was the simplest in the industry.
However, the primary Business issue facing Southwest Airline today is the growing stiff competition from other airlines like Jet Blue which has a lower cost than Southwest Airline and are pressuring Southwest cost advantage and low fare focus, Delta/Northwest and Continental/United who are becoming more efficient in operations (Bart. J. 2016).
INDUSTRY COMPETITION
Southwest Airline been one of the original low fare carriers has numerous competition in the industry and has competed successfully with major rivals like American Airline, Delta, and United Airlines, however with the growth of a new set of Airline discounters like Spirit Airways, Frontier and JetBlue airline, Southwest has a new front of competition to face for its low fares routes and services.
STRENGHTS OF SOUTHWEST AIRLINES
Southwest Airline has many positive strengths that sets it apart from its competitors in their Airline industry, However, there are two major strengths the company has that are productive and essential for any business to succeed and standout namely: a) Human resource/Staffing and b) Marketing Management/strategy.
Human Resource/ Staffing: Southwest Airline takes great stride in recruiting staffs/employees who emboldens the Southwest Spirit, The South west spirit is all about the ways the company offers customer service to its customers which is one of the best in the airline industry and in offering great customer service the company and its staffs help market themselves to customers as a company that cares about them which in turn increases the customer base of the company’s products. Also, the company encourages Employee initiative at all levels, and the company placed great emphasis on maintaining cooperative labor relations, all this initiative taking by the company to improve their staffs helps Southwest to offer a good customer service to their customers.
Marketing Management/Strategy: Southwest Airline built a marketing strategy or management that is unique to his business and the airline industry and one of their most important marketing strategies is the low fare prices that the company offers to all its travelers.
Southwest management discovered that there were two types of travelers, the convenience, time-oriented business travelers and the price-sensitive leisure travelers. The company developed a two-tiered pricing structure to cater for both group of travelers.
However, in as much as the company has some tremendous internal strength that sets them apart from their competitors, Southwest Airlines still has some internal marketing challenges that the company needs to address.
Furthermore, the most important internal marketing challenge facing Southwest Airline is incorporating AirTran Airways lower cost structure, operations and culture because this could cause some difficulty in the company’s marketing strategy. In terms of the marketing challenge faced by southwest in the acquisition of Air Tran Airways, Southwest Airline has no or limited experience in international routes which Air Trans Airline had and First-class seats, thereby posing a challenge to southwest airline on how to incorporate those new features into the companies marketing strategy without losing its appeal to its customers.
GROWTH OPPORTUNITIES
Southwest Airline has ben growing steadily over the years prior to 2011 but the growth was highly controlled by the company. However, there are still opportunities for growth that the company can take.
Southwest Airlines currently serve 98 destinations and 87 of the destinations are in the United States, there are more opportunities for the company to open more route’s destination in the United States and North America.
The company launched its International routes in 2014 and currently serves about 11 foreign markets, with the focus mainly on Mexico, Caribbean and Central America, the company has a lot of opportunities to grow its International routes to some other part of the world like South America, Europe, Asia.
Furthermore, the opportunities for growth and expansion for Southwest airlines are there is left for the company to decide if doing away with the strategy of highly controlled expansion is the right decision to make in order to expand its reach and fight off more competition.
However more growth opportunities for the company also means more challenges that the company will have to face in terms of its strategy and competition from other Airline carriers.
CHALLENGES
Southwest Airline has been profitable and been in a strong final position for a while but there are challenges that the company needs to prepare and plan for. There will be stiff competitions from the newly merged carriers (Delta/Northwest and Continental/United) which will lead this Airline companies to be more efficient in their operations and services thereby posing a challenge to Southwest Airline (J. Paul & J. Donnely, 2013).
Furthermore, with the emergence of new low fare Airlines like JetBlue, Allegiant and Spirit Airlines and are operating at a lower cost than Southwest Airline, this will be a challenge for Southwest Airline to keep its competitive edge without increasing is prices for routes.
Also, another challenge Southwest Airlines could face is consumers/customers having more options of flying at a cheaper price and more luxurious style that other Airlines are offering.
RECOMMENDED STRATEGIES AND TACTICS
Market Penetration Strategies: This strategy will help Southwest Airline increase its sale for its services to its present customers by offering low fare prices and free entertainment on each flight, providing free snacks for flights routes that takes more than hour etc.
Market Development Strategy: This strategy will enable Southwest Airlines to pursue growth and opportunities through market development by reaching out to new customers and tailoring your services to their needs and establishing new routes market that will attract new customers to the services of Southwest Airline.
In conclusion I believe implementing this strategy will help Southwest Airline retain its customers and also attract new customers to their services, Also I believe Southwest should incorporate short international vacation flights to their operations because it will help attract new customers that fly internationally for vacations, while keeping the operating cost down and making profit.
REFERENCES
Jansen, B. (Ed.). (2016, October 26).
James L. Heskett, 2002 Southwest Airlines: An Industry Under Siege.
James H. Donnelly, & J. Paul Peter, Marketing management: Knowledge and Skills, 11th ed.