Category: Southwest Airlines

Introduction

Over the past years, Southwest Airlines has recorded a track of good performance. It has revealed strong growth over the last three decades. The company has managed to attract and retain a large number of customers. Over the past decade, the company has managed to sustain good returns while its competitors are running through bankruptcy. This has been one of the main factors that have contributed to the company’s competitive advantage.

Discussion

Southwest Airlines is one of those companies in the airline industry that has done very well across the world. In 2008, Southwest Airlines had the largest number of passengers in the United States airlines (Gamble & Thompson, 2011). Therefore, it is one of the most profitable airline companies across the world.

However, many companies has been undergoing through losses from the hard economic times fuelled by high fuel prices. All the same, many companies were able to recover from the losses later after the fall in prices of the crude oil. Despite of the difficulties through which the U.S. airlines have been undergoing, Southwest Airlines has managed to record exceptionally high level of performance.

Although Southwest Airlines was better off during this period, its profits almost went to break even point. Since 1980, the U.S. airlines have recorded a combined profit less than the combined losses (Gamble & Thompson, 2011). This implies that the entire U.S. airline industry has been performing poorly in general.

In the U.S. airline industry, Southwest Airlines has managed to secure the largest fraction of the market share. Furthermore, the company has managed to maintain a high level of consumer growth. Over the last few years, the company’s total number of passengers has increased from 59,053 in 1998 to 101,948 in 2008 (Gamble & Thompson, 2011). This implies that the company has managed to maintain an extremely high level of growth.

The main factor that has helped Southwest Airlines to maintain a high level of performance is its competitive advantage. The company has managed to under price its competitors in the airline industry. This implies that the company is able to provide low prices and still retain its competitiveness.

Another factor that has contributed to the competitive advantage is its ability to retain its employees that has been in the industry for a long time. These employees are experienced and are able to come up with effective measures to save various problems effectively since they has passed very difficult times in its early stages of development

The company employs a unique recruitment procedure that helps the company to win the top performing employees. For instance, the company is led by the principle that it’s better to employ unskilled people with good attitude rather than employing skilled people with bad attitudes. In other words, the company puts more emphasizes on the ability of an employee to contribute creatively to the organization. This strategy has helped the company to absorb innovative employees.

Another factor that has contributed to the company’s success is its ability to remain prepared for any outcome. This has helped the company to maintain competitive advantage. Therefore, shocks like increase in oil prices do not affect the company significantly. As a strategy to expand its market, Southwest Airlines has come up with a strategy of adding freights in areas where its rivals are withdrawing their services.

One of the major problems facing Southwest Airlines is high level of operational costs. The company has been spending a significantly large amount in its operations. For instance, its expenditure on fuels remains extremely high. This has to some extent undermined the profitability of the organisation. The main target of any organization is to minimize costs while maximizing the profits. Over the past years, the company has also been faced by several lawsuits that have threatened the performance of the organization to a greater extent.

Southwest Airlines has also been faced with a number of maintenance problem, which has led to huge losses to the company. For instance, the company has been forced to cancel several freights after its jetliners were found to have small subsurface cracks (IB Times, 2011). The company has also been reported severally to have maintenance problems. Such problems are very critical to the company. For instance, it can destroy the good reputation of the company on the eye of the public.

For instance, customers may be upset by cancellation of their trips due to poor maintenance of the company’s jetliners. One of the incidences that can reveal the maintenance problems at Southwest Airlines is when the company’s Boeing 737-300 ruptured just a few minutes after taking off, which resulted from a loss in pressure (Grubbs, 2005).

The plane was found to have a five foot long crack. This problem forced the pilots to consider an emergency landing at the military base near Yuma. This incident took place while the plane was 35,000 foot high. However, no one was seriously injured during the incidence. Such an incidence threatens the reputation of the company’s reliability in terms of safety. Several other planes in the company have also been found to have cracks.

Southwest Airlines has also faced a problem of legal and regulatory hurdles. These restrictions have posed a major problem to the company as it has led to restrictions and sometimes penalties that have consumed a significant fraction of the company’s finance. For instance, there was a legal battle when the company started to serve smaller cities in Texas (Gamble & Thompson, 2011).

The rival companies argued that the area was already occupied and that entry of any other company could lead to costly overcapacity. Although the company succeeded, this delayed the company’s plans. Southwest Airlines also had been faced with tough opposition from its competitors and the local officials in its effort to expand its services to other places.

The main reason for this opposition is the fear that the company may take all customers from its competitors due to low prices it offers to its customers. Due to poor maintenance, Southwest Airlines has been severally fined by the government (Bundgaard, Bejjani and Helmer 2006). For instance, the Federal Aviation Administration had once fined the company $ 10.2 million as a penalty for failing to inspect fuselage fatigue cracking on time (Lauer, 2010).

Another problem that has faced the Southwest Airlines is competition. The airlines industry has been characterized by numerous sellers who are usually crumbling for limited number of customers. This competition has posed a major challenge to the Southwest Airlines. All the sellers in the industry are engaged in provision of services that has not been differentiated.

Therefore, the customers may not easily be able to know which company provides best products. As a result of low level of differentiation, companies in the airline industry are left with no other alternative than involving tremselves in price wars, an act that has eroded profits in the airline industry. It has also significantly reduced the price-cost margins of the major carriers. In the airline industry, the customers are very sensitive to prices which are triggered by the absence of differentiation.

Any small change in the prices will make a significant number of customers to shift to a less expensive airline. This implies that it is very difficult for Southwest Airlines to increase its prices in order to offset high fuel costs. The company’s charges are currently relatively lower compared with that of its competitors. Any slight change in price may therefore lead to a loss of a large number of customers.

There are various advantages and disadvantages for the Southwest Airlines taking various courses of action. For instance, cutting down prices in order to win more customers can threaten the profitability of the organization. This pressure has led the company to operate almost at its break even point in order to provide low prices.

For example, the company has severally been faced by maintenance problems. Higher prices could help the company to maintain continued check ups and repairs for its planes. However, this process can help the company to increase its market share by attracting a large number of customers.

As already noted, the company has been adding flights in the places where its rivals has been withdrawing their services. This strategy can be risky to the organisation since it can suffer the problems its competitors is withdrawing from. Therefore, it would be necessary for the company to consider conducting a research where their rivals are withdrawing their services before making new investment or adding to its investment in the area.

Southwest Airlines has been emphasizing on the attitude of employees more than the skills the employees have. This can however be dangerous because it may cost the company a lot of resources to train employees.

Recommendations

In order to overcome these problems, there is a need for the Southwest Airlines to come up with appropriate strategies. By solving these problems, Southwest Airlines will be able to maximize its profits by maintaining a large number of customers.

As already noted, Southwest Airlines spends a significantly large fraction of its capital on fuel. Therefore, the company needs to address this issue in order to maintain its long term success. The company has been incurring extremely high costs for its fleets. Therefore, there is a need for the company to take the necessary measures in order to improve the efficiency of its fleet. One way through which this can be done is by purchasing Boeing 737-700s.

By using high capacity planes, the company will be able to reduce the total amount spent on oil. This will significantly reduce the company’s operational expenses. The company will also be able to reduce its inventories on spare parts. The company has been incurring very high costs in maintaining its planes, the fact which has threatened the ability of the organization to meet its organizational goals.

Another strategy through which Southwest can improve on it performance is by expanding its services in the country where the company has a large number of customers. By so doing, the organization will be able to maximize its revenue.

As already noted, another major problem faced by the Southwest Airlines is high level of competition. This usually leads to price wars among the sellers, the fact that may lead a company to huge losses. However, the company can modify and differentiate its products from those provided by its customers; although the company has managed to improve on the services provided by its customers.

In order to overcome the maintenance problem, the company has to adopt better check up procedures in order to avoid such problems in the future. For instance, the company can lose a very large amount of money through penalties due to the failure to observe certain procedures that are necessary to deal with the problem. The company can also consider hiring more competent and experienced people who are able to detect the problem before it deteriorates.

Conclusion

This discussion has clearly revealed that Southwest Airlines has managed to maintain a high level of performance in the U.S. airline industry by under pricing its competitors. Over the past years, the company has managed to record a tremendous growth in its customer base.

The company has also managed to increase the number of its flights. Consequently, the company has managed to maintain a high level of profitability. However, the company has experienced several problems that have threatened its performance. For instance, the company has been faced by safety issues due to poor maintenance of its planes. This has led to cancellation of several freights. This may lead to customer dissatisfaction hence losing them.

Reference List

Bundgaard, T., Bejjani, J., and Helmer, E. (2006). Strategic Report for Southwest Airlines. Web.

Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management: The Quest for Competitive Advantage (2nd ed.). New York: McGraw-Hill Irwin.

Grubbs, L. (2005). Lessons In Loyalty: How Southwest Airlines Does It: An Insider’s View. U.S.A: CornerStone Leadership Inst.

IB Times. (2011). Southwest Airlines Has A History Of Maintenance Problems: Report. Web.

Lauer, C. (2010). Southwest Airlines. California: ABC-CLIO.

Operating Environment

Firm’s Competitive Position

Southwest Airline industry faces rigid and highly unpredictable competition on the part of other airline services, including AirTran. The key competitive factors involve cost structure and pricing, frequent flyer schedules and programs, and customer satisfaction (Morningstar Document Research 19).

Additionally, the company also competes with other types of transports that now face significant technological advancement. Introducing new high-speed rails constitutes the major threat to the company because it provides flights for short destinations only.

Operating environment is closely associated with level of customer service (Pearce and Robinson 87). At this point, the report asserts that company has the lowest ratio of complaint and the decent quality of services, including on-time performance, advanced flight equipment, and level of comfort. Introducing new models of aircrafts ensures lower maintenance costs and better use of fuel (Morningstar Document Research 21).

Relationships with Suppliers and Creditors

Southwest Airlines depend on single engine and aircraft suppliers, as well as on suppliers of other spare parts. In this respect, the company can face significant problems in case some of its suppliers fail to deliver additional equipment on time (Morningstar Document Research 28).

As per creditors, the solvency evaluation of company’s financial ratios indicates’ the capacity to resist long-term creditors. The ratios also reveal the firm’s ability to consider business conditions and minimize net losses (Drake 9).

Nature of Labor Market

Southwest’s success in carrying out business can lead its employees to higher compensation packages. Labor market conditions, therefore, will have to choose a stronger position to take control of lower costs.

Due to the fact that the company has sustained fruitful relationships with its workers, it can convince them to help maintain lower costs. Such a strategy is essential for facing rigid competition (Bundgaard et al. 4).

Remote Environment

Economic Factors

Cost of fuel is the major threat to company’s success, along with the increased taxes. Restricted control of fuel and taxes can create serious consequences for other aspects of company’s development (Morningstar Document Research 26).

Social Factors

Compliance with health regulation is an important factor that Southwest Airlines should consider while attracting new employee base, as well as capturing new customers (Morningstar Document Research 17).

Political Factors

Heavy regulation and high taxes pose the major obstacle to the company’s normal functioning. This is of particular concern to security regulation, environmental regulation, international control, and safety regulation.

To begin with, the Company is largely affected by the Aviation and Transportation Security Act that focuses on various procedures addressing light deck security, airport perimeter availability, training programs for airline crew, and screening of cargo and passengers (Morningstar Document Research 18).

The costs spent on reinforcing these procedures should be introduced to maintain safety and security of passengers, as well as sustain good reputation among other airline companies.

Environmental regulations imply the company should follow federal regulations associated with the environmental protection, including the Clean Air Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act (Morningstar Document Research 19).

There should also be provisions monitoring the company’s policies that regulate climate change and greenhouse challenges. Additionally, the Airport Noise and Capacity Act implies that the company should introduce local noise reduction programs to ensure comfort to the districts near the airport.

Technological Factors

Southwest Airlines largely depend on advances in technology because they have a potent impact on the quality of services and customer satisfaction. More importantly, it also identifies the company’s competitiveness (Morningstar Document Research 26). Therefore, the firm has strongly been committed to exploring new high-tech opportunities to support new operations and strategies.

Industry Environment

Porter’s Five Forces Model Analysis

Currently, the airline industry in the United States is determined by significant competition and high level of volatility. Capital intensity and technology development also influence high level of concentration, which contributes to rivalry among other airline companies.

The concentration derives from the inflow of new entrants. However, the threat is minimal because operational costs situation and intense competition provides new approaches to managing the industry (Hawkins, Misra and Tang 13).

Boundaries of the Industry

The main boundaries of the industry refer to technological advancement, narrow-focused orientation in terms of services provided, and lack of mobility and flexibility in industry (Morningstar Document Research 25). External environment is constantly changing and, as a result, most of global concerns can have unpredictable consequences for its development.

Structure of the Industry

Pricing is considered a significant factor in shaping the airline industry infrastructure. Expanding route structure is also a priority for the company because it can enhance the company’s competitive stance.

Competitors and Major Determinants of Competition

The major determinants of competition involve heavy regulation procedures focusing on quality standards and environmental procedures, rapid development of new high-speed rails that can substitute major short-routes flights provided by the company, and constant technological advancement.

All these issues hamper the successful operational and industrial development. Additionally, increased costs and high taxes imposed by the federal government have made the company’s managers to reconsider their financial policies, as well as define which areas should be less financed.

Recommendations for Improvement

The analysis of the above-presented initiatives, as well as company’s analysis of external capabilities reveals a number of challenges that should be tackled to overcome the rigid competition and sustain stead growth and development. First of all, the airline company should reconsider its low-cost policy that restricts its possibility to enter the global environment and comply with the established requirements.

Specific attention should be given to minimal differentiation that creates low profit margins, leading to serious price competition. Therefore, budgeting considerations are vital to make shifts to product diversity.

Second, the company should develop new destination points that can exclude the possibility of substitution the flights by less expensive kinds of transport, including high-speed rails, car, and bus. At this point, Southwest Airlines should conduct an independent research to define which destinations will be in high demand among clients to predict future costs and profits.

Third, greater control of technological development should also be taken into consideration because it can present alternative solutions in terms of supply of new spare parts. In particular, the aircraft quality can also reduce the costs on maintenance and ensure extra spending on customer services.

In such a manner, it will be possible to handle social challenge and develop a new corporate responsibility framework that can promote higher level of competitiveness of the company over other airline industries.

Finally, adhering the to environmental protection principles is another important approach to improving the company’s capacity and introducing new moral and ethical framework to act in a global setting. Employee’s awareness will also be increased due to strict regulations.

Works Cited

Bundgaard Tycen, Bejjani John, and Edmund Helmer. Strategic Report for Southwest Airlines. PDF File. 2006. 1-34. Web.

Drake, Wayne. “A Financial Analysis of Southwest Airlines Co.”, Accounting for Financial Decisions. PDF File, 1998. Web.

Hawkins Owen, Misra Rahul, and Hao Tang. “Southwest Airlines Co.” Griffin Consulting Group. PDF File. 2012. 1-30. Web.

Morningstar Document Research. Southwest Airlines CO-LUV. US: Security and Exchange Commission. 2013. Print.

Pearce, John and Richard Robinson. Strategic Management. US: McGraw-Hill/Irwin. 2012. Print.

A short description about the Southwest Airlines

Southwest Airlines (initially known as Air Southwest) launched its first flight in 1971. Its founders were Herb Kelleher and Rollin King. By then, the company only served three cities within US (Houston, San Antonio, and Dallas) and had not expanded its operations beyond the country. Unfortunately, it incurred remarkable losses in the first two years of its operation. This forced it to vend one of its four aircrafts instead of sacking some of its employees.

After enacting viable business strategies, Southwest Airline managed to overcome such obstacles. It announced its first profits in 1973. By 1977, the company had expanded its operations. It served other additional cities like El Paso, Lubbock, and Corpus Christi among others. It later launched interstate destinations within US indicating its prospective growth.

Later in 1986, the firm established a training program to equip its flight crews with viable business etiquettes. This enabled it to enhance its competitiveness in the realms of customer services. It later won a monthly Triple Crown prize due to its exemplary services. Upon its rapid expansion, the company acquired Moris Air in 1994 and consequently enhanced its flights to other cities within US.

It introduced Ticketless Travel in various cities, a move that augmented its business’ prowess. As at 2006, Southwest Airlines had advanced both technologically, revenue acquisition, and business wise. It acquired ATA Airlines allowing it to attain boarding slots in LaGuardia Airport, New York. This move enabled it to handle international flights after partnering with WestJet Airlines (a prominent low-cost carrier).

The company had to increase its charges for both domestic and international services in order to survive in the industry. In order to overcome current challenges facing the airline industry, Southwest Airlines has embraced technological innovations, price adjustments, protocol reforms, and viable acquisitions and mergers.

Main Issues/Problems of the case

Southwest Airlines is facing numerous problems within the aviation industry. Firstly, there is a constant increase in fuel prices. This leads to increased business costs and other relevant challenges engulfing the entire industry. Another problem is the increase in operational costs mentioned earlier. An airline business is costly to establish, ratify, and operate due to massive logistical issues involved in the entire context.

Southwest Airlines is also experiencing such problems despite the witnessed success. There is a considerable need to reduce costs and increase profits in numerous occasions. It is from this context that the entire problems facing the industry lie. Additionally, it is important to consider that some airline business slump due to higher operational costs and reduced profits. Another problem is the current security threats that face the company and other players in the airline industry.

Such security problems might force the company to cancel some of its flights leading to reduced revenues and consequent losses. The global economic crisis has equally contributed to the mentioned problems. Economic catastrophe affects market trends, travelling schedules, and reduces the influx of customers since most organizations and individuals strive to minimize expenditures. Fluctuating fuel prices is another problem facing the company due to unpredictability of fuel costs mentioned earlier.

The company is equally unsure whether its point-to-point business strategy will apply as it tries to expand its domestic operations. Another problem is the stringent competition within the industry. International expansion strategies, union walkouts, and environmental uncertainties are some of the problems faced by the organization.

Situational Analysis

SWOT analysis, PEST analysis, & internal analysis (strengths & weaknesses)

When subjected to SWOT analysis, Southwest Airlines has numerous strengths in its business endeavors. The company has several competitive advantages compared to its rivals in the aviation industry. Additionally, it has established right products for its clients. This is evident in the travel arrangements, reliability, and variability in the destinations it covers. Additionally, it embraces technology and innovation to ensure that it remains competitive.

Concurrently, the company has trained competent human capitals hence capable of achieving customer satisfaction. Southwest Airlines has equally enhanced its customer services and changed business processes in order to attain the desired competitiveness. Conversely, the company possesses some weaknesses when analyzed critically.

Some of its customer services still need to meet international standards. The aspects of technology have not been fully enacted in the company despite the stringent competitions experienced. Additionally, it has limited international flights compared to other prominent competitors in the very industry.

Southwest Airlines has numerous opportunities it can cease in order to enhance its competitiveness, revenues, and customer value when scrutinized critically. The demand for aviation services is rapidly growing despite the recent economic challenges. This indicates that the company might perform well in future due to increased flight demands. Another opportunity is the merger it makes with other international airlines like WestJet Airlines. Additionally, the fact that it has a competent, innovative, and creative workforce is crucial.

This provides another considerable opportunity in the entire scenario. There are various opportunities in the aviation industry, which the company can harness in order to remain competitive in the market. Conversely, there are business threats that might hinder the wellbeing of Southwest Airlines. The fluctuating fuel prices, global fiscal crisis, stringent competition, security threats, high operational costs, and adverse international regulations form critical threats to the company.

There are also some issues that emerge when Southwest Airlines is subjected to PEST analysis. Political issues can affect the company massively. This is possible with regard to political trends, legislations, international policies, political wrangles, and other prominent business aspects in the entire scenario.

Economic factors incorporate the current global financial challenges and other considerable factors. Additionally, there are other specific economic factors in the aviation industry that have affected Southwest Airlines. This incorporates high operational costs within the industry, fluctuating fuel costs, and other potential fiscal problems facing the industry.

On social factors, the company enjoys changing lifestyles that have promoted the use of aircrafts as a means of travelling and sending important cargos. The use of flights is embraced by people of different ages. Additionally, the company has embraced technology in its various operations. Southwest Airlines has been innovative in its business approaches, a fact aided by technological advancements within the business.

Value Chain Analysis

Southwest Airlines has attained considerable competitive advantages in the business realms having enacted and embraced stringent and viable value chains in its endeavors. Airline industry is quite competitive hence demanding its players to embrace considerable value chain provisions as evident in the provided case. The entire business activities that Southwest Airlines assumes in its daily operations have contributed to the aspects of the alleged value chain.

Things done in every department or sectors of the company contribute to the demanded value chain. This is quite important in various aspects. The management of the company, employees, suppliers, affiliates, and other considerable stakeholders have endeavored to add value to the service provision granted by the company.

The ultimate competitive advantages noticeable within the company result from considerable contributions made by the entire stakeholders. It is from this observation that Southwest Airlines attains its ultimate value chain. This has enabled it to grow tremendously in the past years despite the challenges.

Customers have also trusted the services given by the company as evident in the case. Due to these provisions, the company has managed to grasp a considerable market share as evident by its continuous business growth. Additionally, the use of appropriate business approaches and staying customer-focused has allowed the business to augment its competitiveness in the airline industry despite the noticeable challenges.

Industry (Porter’s 5 forces analysis)

Porter’s 5 forces are applicable in the airline industry with respects to the provided Southwest Airlines’ case. This is an important observation following its relevancy in the entire context. For example, threat from new entrants into the industry is applicable in this context. Southwest Airlines and other existing airline firms are threatened by the entrance of other competitive rivals. However, since the industry is costly to establish and operate, such chances are limited.

Additionally, there is a considerable rivalry from the existing firms within the American market and beyond. Other international airlines like Emirates Airlines and Qatar Airlines among others have fronted stringent competition to Southwest Airlines with regard to its international markets. Additionally, the bargaining power of buyers is evident in the industry due to competition. Customers go for cheap and reliable airline companies.

This has forced other industry players to strategize properly and cut prices. Additionally, suppliers operating in the industry have equally fronted their bargaining power. The jet fuel suppliers usually change the cost of fuels to suit their business interests. This is a massive challenge to the industry and beyond.

Another apparent force evident in the case is the availability of substitute products/services. Airline customers can seek the services of other companies if such needs arise. This factor forces numerous businesses to establish their competitive advantages and other relevant business strategies.

Competitor

Southwest Airlines experience competition from various firms. This occurs both locally and internationally. Since the company started as local airline business, all the local airlines in US as at then provided considerable competition provisions. On the international flights, Southwest Airlines experiences competition from well-established airline companies globally.

Answering the questions

Evidently, Southwest Airlines can still maintain 36-year streak profitability despite the challenges mentioned in the case. This is possible since the industry is growing rapidly while the company has numerous strengths and opportunities to cease this opportunity. Additionally, the company can still depend on fuel hedging to control cost despite the fluctuating oil prices. This is possible through proper management and other characterizing factors.

Concurrently, the point-to-point methodology will still be useful as the company enhances its domestic flights. This is possible since it adds massive competitive advantages to the company against other rivals. Major traditional airlines will threaten Southwest Airlines when they become low-cost counterparts.

Additionally, the company will be able to expand internationally, maintain its positive relations with employees, and avoid future union walkouts and bargains. Despite the probable persistence of the current financial crisis, Southwest Airlines will still expand if it enacts its business strategies evident in the case. The company can embrace viable business strategies to curb environmental uncertainties. This will help it maintain its loyalty to customers.

Executive Summary

This report entails an analysis of how Southwest Airlines should adjust its current business strategy, viz. the low-cost strategy to remain competitive. Currently, the airline industry is undergoing remarkable transformation due to different market forces such as intense competition and an increase in the intensity of competition.

Therefore, it is not feasible for the airline to continue relying on the low-cost strategy as a source of competitive advantage. On the contrary, the airline should evaluate the most effective strategy to adopt to sustain its long-term competitiveness. The report identifies three main strategies, which include market development, product development, and market penetration. However, the report recommends Southwest Airlines to adopt the market penetration strategy.

The rationale for this strategy arises from the fact that its adoption will enable the airline to stimulate its profitability in the long term. The report specifically identifies the Latin American airline market as the most feasible markets for the firm to consider. The report further outlines the specific aspects issues that the airline should take into account to penetrate the identified Brazilian market successfully.

Introduction

Background information

Southwest Airlines Company was established in 1967 in Dallas, Texas. The airline offers scheduled air transport services in the US and near-international markets. Southwest Airlines mission entails providing Americans freedom to fly. The airline has been in operation in the US market for over 44 years and has succeeded in developing its infrastructure.

By the end of 2014, a fleet of 12 Boeing 717 aircraft’s and 665 Boeing 737 aircrafts facilitated the airline’s operations. Southwest Airline principally offers point-to-point transport as opposed to hub-and-spoke service. This approach has enabled the airline to optimize its resource utilization such as employees and aircrafts.

Thus, the airline has succeeded in minimizing occurrence of flight delays. Subsequently, the airline has developed adequate competitiveness due to increased level of convenience (“United States Securities and Exchange Commission” par.2).

Despite the economic fluctuations, the airline has managed to attain a relatively high level of profitability. The airline’s level of profitability was highest in 2013 where it amounted to $754 million from a low of US$99 in 2009. In addition to profitability, Southwest Airlines has a relatively strong balance sheet. At the first half of 2014, the airline had generated US$ 1.6 billion in free cash flow (“International Air Transport Association” par. 3).

Over the past four decades that the Southwest Airlines has been in operation in the US airline industry, the firm has managed to develop position itself as an iconic brand. This scenario has arisen from the adoption of aggressive marketing campaigns such as sponsoring sporting events and online advertising. Thus, the airline was ranked amongst the top five traveled brands by the American Brand Excellence Awards (“International Air Transport Association” par. 5).

The airline commenced near-international operations in 2014 by establishing routes into five Latin America countries such as the Dominican Republic, Mexico, The Bahamas, Jamaica, and Aruba to maximize profitability. Another strategy that the company has employed entails acquisition.

In 2011, the airline acquired AirTran Airways hence expanding and diversifying its route network. Moreover, the acquisition has increased the chances of Southwest Airlines attaining near-term growth. In its operation, AirTran Airways has adopted the hub-and-spoke system hence improving Southwest Airlines’ competitiveness.

Southwest Airline faces intense competition from three main airline companies, which include JetBlue Airways Corporation, Americana Airlines Group Incorporation, and Delta Airlines Incorporation.

The three companies have been in operation in the US airline industry for a considerable duration and have established a strong market presence. For example, Delta Airline accounts for 22% of the market share while the American Airlines and JetBlue airlines market share are estimated to be 12.7% and 1.9% respectively (“International Air Transport Association” par. 9).

Critical analysis of the company’s current strategy

Over the past four decades, Southwest Airlines has largely leveraged on the low-cost strategy. Through this strategy, Southwest Airlines has been in a position to develop an adequate competitive advantage in the domestic market due to the low-cost leadership that it has achieved.

According to Thompson, “an organization must be the cost leader and unchallenged in this position to implement the low-cost leadership strategy” (201). The objective of adopting the low-cost structure is to provide the airline an opportunity to maximize profitability by charging low fares. Currently, Southwest airline ranks amongst the carriers with the lowest unit costs in the US.

One of the factors that have made the airline succeed under the low-cost structure entails the usage of the Boeing 737 as the company’s aircraft type. Boeing 737s aircrafts are considered very efficient regarding the operation of point-to-point route structure.

By using a single aircraft type, the airline has simplified other operational activities such as training its workforce, flight maintenance, and flight operations. The airports in which the airline operates are not congested and optimally located, which increases the airlines’ asset utilization hence its operational efficiency. Moreover, the airline is characterized by a highly productive workforce (“United States Securities and Exchange Commission” par. 8).

The implementation of the low-cost strategy is based on identifying a distinct customer group characterized by consumption needs that can be described as slightly below average. In its operation, Southwest Airlines targeted tourists in the domestic market who were largely concerned about the price of airfares.

Subsequently, the company offered these customers air travel services at a lower price point compared to its competitors. It is imperative for an organization to integrate superior management practice to benefit from the low-cost strategy. One of the ways through which this goal is achieved is by eliminating including aspects that customers may consider unimportant in its product offering (Thompson 201).

Problem Statement

Since its inception, Southwest Airline has largely focused on the domestic market. Thus, the airline has not fully exploited its profitability potential by expanding its market into the international market. This aspect increases the economic risk that the firm might encounter due to changes in the domestic market.

For example, heightened competition in the domestic market might arise from the increase in the number of local and international carriers operating in the US domestic market. Furthermore, the industry players may imitate the low-cost structure adopted by the firm hence limiting Southwest Airlines ability to maximize its profitability using the low-cost model. Therefore, the airline must consider feasible approaches to sustain its profitability.

Due to the adoption of the low-cost structure, Southwest Airlines can be described as a production-oriented entity. Thompson defines a production-oriented firm as an entity that is concerned with reducing the cost of production through mass production to maximize its profitability (202). This phenomenon is evidenced by Southwest Airlines decision to operate a massive fleet of aircrafts. Despite its efforts to implement the low-cost strategy, Southwest Airlines can no longer be termed as a low-cost carrier.

Over the past decades, the airline has succeeded in attracting large customers based on the low-cost model. However, Smith emphasizes that low prices alone cannot amount to a sustainable competitive advantage (par. 1).

Moreover, the global airline industry has changed significantly over the past few years. One of the major sources of change relates to the increasing cost of jet fuel. Wensveen cites jet fuel as one of the major determinant in airfares (320). Furthermore, the cost of fuel is very unpredictable because they are subject to external factors.

Wensveen further affirms that fuel consumption “varies considerably from route to route depending on the stage lengths, aircraft weight, and wind conditions” (320). By the end of 2014, the cost of jet fuel at Southwest airline had increased from $1.80 per gallon to $3.16 per gallon between 2007 and 2014.

Moreover, fuel costs account for approximately 35% of the company’s total spending, which is an increase from the low level of 29% in 2014 (Bachmana par. 3). Due to these changes, Southwest Airline is no longer considered as the low-cost leader in the US airline industry. On the contrary, the airline’s operating cost is close to its major rivals, viz. Delta Airlines, the American Airlines, and JetBlue.

In addition to the increasing cost of operations, Southwest Airlines is also facing a challenge arising from the elusive nature of the once robust profitable industry. Over the past decades, the industry’s growth has been facilitated by the low-cost carriers, which account for 25% of the total market share.

However, the influence of different exogenous factors has made it a challenge for airline companies to maximize their profitability. Subsequently, the industry players must integrate other strategies that will enhance their profitability despite the changing industry performance. Another challenge that the airline is facing relates to the increase in consumer expectations.

Percy argues that a production-oriented company should be cautious to avoid production inefficiencies, which might affect the quality of the final product (233). Besides, customer disaffection has become a major concern for airline carriers. Therefore, the changing customer expectations coupled with the increase in fuel cost poses a risk to the company’s profitability and competitiveness. Consequently, the firm should not understate the importance of adjusting its business strategy.

This aspect means that the effectiveness of the airline’s low-cost strategy in promoting the company’s future sustainability in the contemporary business environment is considerably low. Thus, failure of the company to adjust its business strategy might limit its future competitiveness.

Recommended strategic alternatives

Despite the challenges that the firm faces due to change in industry trends such as high fuel cost, change in customer expectations and decline in the level of profitability, Southwest Airlines has an opportunity to achieve market leadership. The firm can achieve this goal by adjusting its strategic approaches.

Hill and Jones opine that a company should utilize its distinctive strengths to capture a high market share in an industry characterized by declining performance (220). Some of the strategic alternatives that the company can integrate are market penetration, market orientation, and product orientation.

Product development

Kumar defines a product to include the promise that a company makes to the target market in exchange for their money (10). The promise is comprised of different aspects such as emotional overtones, attributes, and status appeal amongst other benefits. Kumar asserts that a product-oriented company believes that a superior product attracts a considerably large number of customers hence increasing the likelihood of maximizing profits (10).

A company can focus on six different product development strategic orientations in implementing the product orientation strategy. They include low product cost, product performance, quality, reliability and robustness, and time-to-market (Saqib 65). Some companies have succeeded in leveraging on product orientation as a source of competitive advantage. Examples of such companies include Mercedes, a well-established automobile company. The company is renowned for its engineering excellence and status appeal (Kumar 10).

Therefore, to improve its competitiveness, the company should consider improving the quality of the product that it offers its customers, viz. air transport. This move will play a fundamental role in ensuring that customers develop a strong association with the firm.

Currently, most customers are attracted to Southwest Airlines because of its low pricing. However, changes in industry dynamics such as increase the price of jet fuel are challenges for the company to sustain its low pricing strategy. This situation is well illustrated by the company’s decision to adjust its prices.

Despite the effectiveness of the product development strategy for enhancing the company’s competitiveness, the strategy is not free from challenges. One of the notable challenges entails an increase in the cost structure. This aspect means that the strategy might result in the company engaging in vicious price wars (Hill and Jones 214).

Market development

The second strategic alternative that Southwest Airlines should consider entails position itself as a market-oriented entity. Hill and Jones affirm that a market-oriented entity is largely concerned with developing and utilizing market intelligence (212). This assertion means that Southwest Airlines will be concerned with understanding the customers’ wants and needs.

Thus, the market-oriented strategy is based on the concept of the customer being the king. Failure to position itself as a market-oriented entity will significantly reduce the company’s ability to satisfy its customers’ needs and wants.

One of the advantages that Southwest Airlines can gain by adopting the market-oriented approach entails an increase in the likelihood of the firm transforming itself into a customer-centric entity.

This assertion arises from the view that the firm leverages on the market intelligence gathered from the market research that the firm undertakes. Secondly, the market orientation strategy will enable the airline to develop a strong business culture that appreciates the customers’ behavior hence increasing its likelihood to deliver superior value to its target customers.

For example, in its product development process, the airline will be concerned with understanding the customers’ opinion regarding its products. Subsequently, the firm will provide insight on the areas in which product improvements are necessary. By adopting the market orientation strategy, Southwest Airlines will be in a position to undertake continuous product development.

Market penetration

Considering the saturated nature of the airline industry in the US, Southwest Airlines should consider integrating the concept of market penetration. If the company fails to penetrate new markets and only focuses its operation in the domestic market, Southwest Airlines will not maximize its profitability because of the intense competition.

Under this strategy, the airline should consider expanding its provision of air transportation services into new markets. One of the ways through which the airline can implement the market penetration strategy entails internationalization. In its internationalization strategy, the airline should avoid markets that are close to reaching the maturity level. On the contrary, the firm should identify airline markets that are characterized by a high rate of growth.

Hill and Jones affirm that market penetration is based on investing in extensive marketing communication to ensure that the product being introduced into the new market is effectively differentiated (213). For example, in its quest to penetrate the technology industry Intel adopted an aggressive marketing campaign to influence the target customers brand choice.

By investing in extensive market penetration, the likelihood of a firm increasing its market share is considerably high because of the positive influence created on the rival customers mind. For example, the aggressive market campaign might entrench the brand in the customer’s mind hence increasing the chances of charging a premium on its prices.

The intensity of competition in the global airline industry has increased the need for the industry players to increase their market share. The adoption of the market penetration strategy can increase the likelihood of the firm achieving the desired market share in addition to reducing the financial risk associated with intense competition (Geppert 35).

This view arises from the fact that the market penetration strategy provides an opportunity for companies to extend the lifecycle of their products. Therefore, by adopting this strategy, the probability of Southwest Airlines increasing its market share in the new markets will be increased substantially. The firm will achieve this goal by marketing its products into new market segments.

Despite the benefits associated with market penetration, implementation of the strategy is time intensive (Geppert 35). This aspect means that Southwest Airlines will consume a substantial amount of time in making its air transport services know in the new market. Moreover, the firm faces the risk of product imitation in the new market. This aspect might occur if the competitors in the new market entered starts offering air travel services similar to the firm.

Choice of strategic alternative

Market penetration

It is imperative for Southwest Airlines to consider adopting the market penetration strategy to survive in the changing airline industry. In its market penetration, the firm should target the international market. The choice of international market arises from the need to exploit opportunities available in the international market. Some of the markets that Southwest Airlines should consider entering include the Latin America and the Caribbean markets.

The Latin American countries are characterized by a relatively high rate of economic growth. This move will increase the likelihood of maximizing profitability. Neelankavil and Rai emphasize that operating in multiple countries enable an organization to smooth out their sales revenue flow (161).

This view arises from the fact that a company compensates for the decline in sales growth in countries characterized by a slow rate of market growth. One of the markets that the airline should consider entering includes Brazil. A study conducted by IATA in 2011 identified Brazil as the fastest-growing airline markets.

Decision criteria

One of the decision criteria considered in selecting the international market penetration strategy arises from the need to increase sales revenue by tapping international market opportunities. According to Thompson, the market penetration strategy enables an organization to concentrate on areas that it has developed competencies (329). Subsequently, market penetration amounts to an improvement in brand identity.

By adopting the market penetration strategy, Southwest Airlines will be in a position to achieve sustainable growth as opposed to explosive growth. Therefore, the likelihood of the firm attaining long-term growth will be improved substantially. The airline industry in Latin America is characterized by a relatively high rate of growth. Latin American countries have experienced a considerable increment in demand for air travel over the past few years.

According to the “International Air Transport Association”, it is expected that passengers in the air transport industry will increase to 7.3 billion by 2034, which represents an average annual growth rate of 4.1% (par. 7). The Latin American markets are projected to grow at a rate of 4.7%. Therefore, 607 million passengers are expected to be using air transport by 2034. Therefore, the likelihood of the airline increasing its sales revenue will be substantially high.

In the process of entering the international market, it is assumed that Southwest Airlines will not incur legal restrictions in the target market. For example, it is assumed that Southwest Airlines will not be required to partner with other domestic firms operating in the target market to access the market.

On the contrary, the airline will obtain a license to operate in the target international market immediately. It is also assumed that Southwest Airlines will successfully utilize its strengths regarding human and financial capital in exploiting the opportunities available in the international market.

The choice to enter the Latin America air transport industry such as Brazil is further informed by the favorable market conditions. Neelankavil and Rai assert that Latin American countries are characterized by a relatively lower labor costs compared to the US (161). Subsequently, Southwest Airlines will be in a position to maximize its profitability in the international market due to the relatively low labor cost.

In addition to the above aspects, the adoption of this strategy will enable the firm to avoid the market risk associated with an increase in competition in the domestic market. Companies enter into collaborative agreements with local firms in the international market to gain a relatively stronger competitive position (Neelankavil and Rai 160).

Moreover, international market penetration enables an organization to spread its investments. This aspect minimizes the negative effects of different risks such as political unrest. Through international market penetration, Southwest Airline will exploit the market opportunities available in the international market.

Recommended course of action

In its international market penetration, Southwest Airlines should consider adopting the concept of direct entry strategy. Therefore, the airline will adopt the concept of foreign direct investment. The choice of the direct entry strategy arises from the recognition of the high rate at which Latin American countries are adopting the concept of liberalization to open up air transport.

One of the notable efforts to liberalize air transport in Latin America is illustrated by the enactment of the establishment of regional initiatives such as the Mercosur Sub-region Agreement on Air Transport Services. Through direct entry, the organization will be in a position to penetrate the Latin America market successfully.

The direct market entry strategy will enable Southwest Airline to gain enough understanding of the air transport industry in Latin America. Neelankavil and Rai cite the lack of knowledge as one of the major challenges that organizations that seek to enter the international market face (160). Therefore, prior to entering the Latin America market such as Brazil, Southwest Airlines should conduct a comprehensive study to understand the prevailing market conditions.

Reasons why international market penetration is the best alternative

The choice of international market penetration as the best business strategy over product and market development strategies has arisen from the recognition of the value associated with the strategy. First, adopting the market development and product development strategies while still limiting its operations in its US domestic market might limit the firm’s ability to achieve and sustain a high level of profitability.

Considering the intensity of competition in the US low-cost airline market segment, Southwest Airline might not increase its sales revenue by solely relying on the local market. Moreover, the firm might experience product failure after adopting the product development strategy. This issue may arise if the competitors identify gaps in the product offered by the firm. By leveraging on such gaps, the company might not exploit the expected goal.

Thompson asserts that market development involves modification of the existing products to improve the attractiveness of the product in new or existing market niches (330). On the other hand, the product development strategy is customer driven. Therefore, the chances of encountering product failure are relatively high.

This situation may occur if the team charged with the responsibility of undertaking the product development processes fails to take into account all the necessary aspects that would amount to the satisfaction of the customers’ needs. This situation may further arise from a change in customer tastes and preferences. For example, customers may change their tastes and preferences regarding air travel before the completion of the product development process. Therefore, the value of the product development process to the firm might be limited.

Goals and objectives of the recommendation

In its pursuit of international market penetration strategy, Southwest Airlines should be guided by the following objectives.

1. To stimulate the company’s annual sales growth rate by 15%.
2. To establish international operations in the Brazilian air transport industry within the next one year.
3. To acquire a market share of over 15% in the Brazilian air transport industry within a period of one year.
4. To ensure that the firm succeeds in entering the target market within the allocated market entry budget

Methodological approach

Southwest Airlines should consider several aspects to succeed in entering the air transport industry in Brazil. One of the fundamental aspects entails conducting a comprehensive market research. The rationale for undertaking the market research is to gather sufficient knowledge on the prevailing trends.

Subsequently, the company will be in a position to gather and utilize market intelligence hence increasing the likelihood of achieving the stipulated goals and objectives. This section highlights the methodological aspects considered in gathering conducting market research. These methodological aspects will aid in gathering relevant market intelligence that the firm will rely on implementing its strategy.

Research design

This report explores how Southwest Airlines can adjust its business strategy by implementing the international market penetration strategy. The report recommends the airline to consider entering the Brazilian market to maximize its profitability. The adoption of the market penetration strategy will enable the airline to overcome the challenge arising from the increase in competition in its domestic US market.

However, the airline should consider developing a comprehensive understanding of the prevailing industry dynamics. The market intelligence will enable the firm to undertake market penetration successfully by considering the fundamental aspects identified from the market research.

This study has integrated the concept of qualitative research design to achieve this goal. The rationale for adopting this design is to increase the company’s level of understanding regarding the prevailing market environment. By incorporating qualitative research design, the study has gathered a substantial amount of data from the field.

Therefore, the research design can be described as descriptive. The implementation of the descriptive research design will be achieved by incorporating the survey research approach. The survey research approach will enable the researcher to gather relevant data regarding the target customers’ attitude and opinion regarding air travel. Subsequently, the airline will be in a position to understand their tastes, preferences and expectations regarding air travel.

Data collection

The study has relied on extensive data collection to understand the customers’ attitudes, tastes, preferences, and expectations regarding air transport. The data used in the study has been sourced from primary sources. The choice of primary sources has arisen from the need to gather data that the organization can rely on in its international market entry. The survey was conducted by identifying consumers in Brazil who have integrated air travel in their transportation consumption patterns.

Identification of these customers was made possible by seeking information from air travel agents in Brazil. The air travel agents in Brazil have developed a database containing information on customers that seek air travel services from the respective agents. In addition to customers, the survey also entailed seeking information from industry experts.

The process of data collection was further enhanced by integrating different data collection instruments. Questionnaires were used in gathering information from the customers. The questionnaires were comprised of open and close-ended questionnaires. Subsequently, the two types of questionnaires enabled the researcher to gather facts and the respondents’ opinions regarding the air transport industry in Brazil. The questionnaires were designed optimally to eliminate ambiguity because of grammatical mistakes.

Due to the dispersion of the research respondents in the Brazilian market, the study has adopted the self-administration technique. Subsequently, the questionnaires were distributed to the target audience through online mechanisms such as e-mail. Moreover, the choice of this form of administration was informed by the need to minimize the cost of conducting the survey.

Consequently, the risk of a low rate of response due to the lack of understanding the questionnaires was reduced considerably. Moreover, the data collection process further involved conduction of a focus group interview with industry experts. The rationale for integrating the focus group interview was informed by the need to gather expert opinion regarding the air transport industry in Brazil. Integrating the two instruments significantly enriched the study’s findings.

Sampling design

The study has targeted customers in the air travel industry in Brazil. However, it is not feasible to conduct the survey on all the customers because of the high costs involved. The study has integrated the sampling technique to overcome this challenge. Subsequently, the study adopted the purposive sampling technique. Through this technique, the study has gathered relevant data from the field hence enriching the data.

The study only considered customers who consume air travel services to operationalize the purposive sampling technique. Moreover, the concept of sampling was further enhanced by integrating the concept of simple random sampling. The simple random sampling technique enabled the researcher to eliminate bias in constructing the research respondents. Subsequently, different customers in the air transport industry in Brazil were provided equal chances of being included in the study.

Based on the simple random sampling, a sample of 120 respondents was constructed. One hundred [100] of the respondents were comprised of ordinary air transport customers while 20 of the respondents included experts on air transport selected from the Brazilian market.

Thompson stresses that a “small sample size diminishes the power of a study while a large sample size increases the degree to which the research findings of a study are statistically significant” (23). Thus, the study is based on the assumption that the sample size of 120 respondents is sufficient and hence the findings of the study can be generalized.

Data analysis and presentation

The study is aimed at using the data collected from the field in making a decision on the recommended business strategy. Subsequently, the data collected has been analyzed to increase its value. Considering that the study is qualitative in nature, the study has integrated descriptive data analysis technique. Subsequently, the study has employed Microsoft Excel as the core data analysis and presentation tool.

The choice of the Microsoft Excel tool is informed by the need to ensure that the data collected is well presented using tables and graphs hence increasing the ease of understanding the data. Moreover, Microsoft Excel has enabled the researcher to integrate descriptive statistics.

Analysis of findings

The study identified different aspects. First, the study showed the existence of a substantial market opportunity in the air transport industry in Brazil. Ninety-five percent (95%) of the customers considered in the study were of the opinion that they still consider air transport as their preferred mode of transport.

The respondents were of the opinion that air transport is relatively convenient and safe compared to other modes of transport. On the other hand, only 5% of the respondents were of the opinion that they are not certain of their continued usage of air mode of transport.

All the respondents interviewed through the focus group interview cited Brazil as the most attractive airline market in Latin America. In their opinion, the respondents cited the growth in the number of domestic and international passengers. This response corresponds with a recent report released by IATA. The report cites Brazil as the largest market as illustrated by table 1 below.

Table 1

Despite the relatively low rate of growth regarding different passengers in Brazil compared to Mexico and Colombia, the size of the market in Brazil is considerably high.

In addition to the above aspects, the respondents in the focus group interview argued that the Brazilian airline industry is characterized by a relatively high market opportunity. In their opinion, the respondents cited the high rate at which the low-cost carriers operating in Brazil are considering expanding into the international market.

When asked why, 80% of the respondents in the focus group interview said that the market is considerably high because of increase in the number of international customers. This assertion corresponds with IATA’s findings on the growth of international passenger traffic in Brazil by 5.7% between 2013 and 2013.

The study also sought to understand the customers’ purchase behavior regarding air travel. Subsequently, the study integrated different questions aimed at developing a better understanding of the target customers. First, the study evaluated the reasons why customers have integrated air travel. Twenty percent (20%) of the respondents argued that they use air travel for business purposes while 55% said their air travel is necessitated by personal reasons. On the other hand, 25% of the respondents cited that they use air travel for leisure purposes.

This finding shows that customers are increasingly being concerned with acquiring unique experience in consuming air transport services. The “International Air Transport Association” asserts that airline companies are struggling to acquire a high market share because of the changing business environment (par. 6).

Thus, airline companies are experiencing pressure on how to gain additional market share and to sustain and improve the level of profitability. Therefore, to survive in such a market, the industry players should not ignore the importance of integrating customer relationship as a way of attracting and retaining customers hence optimizing their performance.

Therefore, in its market penetration process, it is imperative for Southwest Airline to consider integrating the concept of customer service as one of its organizational ethics. By integrating customer experience as one of organizational culture elements, Southwest Airlines will be in a position to attract a substantially large number of customers.

This aspect will arise from the fact that the positive customer experience will make the customers develop a high level of loyalty towards the firm. Therefore, the likelihood of the firm developing a high market share will be improved substantially.

This finding further highlights the importance of airline companies developing adequate customer knowledge. By leveraging on customer knowledge, the chance of airline companies generating ancillary revenue is increased considerably because of the high level of loyalty developed.

Moreover, leveraging on delivering unique customer experience will enable the airline to be competitive in the changing airline industry. For example, by taking into account this aspect, Southwest Airlines will be in a position to unbundle its existing services. Consequently, the company will charge a relatively high price based on the unique service being offered to customers.

Therefore, Southwest Airlines will not solely rely on charging customers a specific price. On the contrary, the firm will integrate a premium. This move will improve Southwest Airlines’ competitive edge both in the local and international markets.

Discussion

Implementation and action plan

The above findings illustrate that Southwest Airlines can increase its profitability by entering into the Brazilian airline industry. Through market penetration, Southwest Airlines will benefit from the growth in the rate at which consumers in Brazil are consuming air travel services. However, to succeed in the new market, Southwest Airlines will be required to formulate a comprehensive implementation and action plan.

One of the fundamental actions that the firm should take into account in its entry entails seeking a license or a permit to operate in the identified market from the relevant authorities. During the process of seeking the license, Southwest Airlines should involve a team of experts on legal aspects.

This move will aid in ensuring that the contents of the license are well understood. Subsequently, the firm will ensure that its operations comply with the operational license issues. Southwest Airlines may be awarded a permit to operate in the Brazil market for a specified period.

The issuance of the operating license from the Brazilian government will be based on a number of aspects such as Southwest Airlines operational fitness, commitment to provide the proposed air travel services, financial strength, adherence to operational and safety standards amongst other aspects. In the course of its operation, Southwest Airlines has succeeded in establishing strength regarding adherence to industry standards and optimal financial and human capital strength.

The second action that Southwest Airlines should consider involves searching the most appropriate airport in Brazil to conduct its operations. The selection of the airport should be based on a comprehensive criterion. First, Southwest Airline should assess the efficiency with which the identified airport is managed and is not characterized by cases of congestion.

These aspects are critical in determining whether the airline will encounter delays in its operation. The airport selected should not be congested to sustain the airlines’ short turnaround duration. Secondly, the organization should ensure that the airport selected is strategically located to ensure ease of access.

The third strategic aspect that Southwest Airlines should take into account in implementing the strategy entails product standardization. The rationale for integrating the concept of standardization arises from the fact that the airline is entering a new market. Subsequently, the likelihood of the airline experiencing challenges due to cross-cultural differences is considerably high. Cross-border cultural differences are a major barrier in an organization’s quest to succeed in the international market (Julian118).

Product standardization can aid an organization in managing the negative effects of such cultural differences. This view arises from the fact that the organization will offer unique products in the target market. Julian asserts that cultural specificity in offering a product in the international market is critical in ensuring that the product being offered successfully penetrates the market (118). Cultural specificity refers to the extent to which an organization’s product addresses the specific needs of a particular need for a culture or sub-culture.

In the process of entering the international market, Southwest Airlines will be required to develop a comprehensive understanding of the cultural aspects amongst Brazil consumers. The intelligence gained from the cultural analysis should form the basis of designing the product that it intends to introduce in the market.

One of the critical aspects that the organization should take into account entail training its employees who will serve as expatriates in Brazil on the cultural aspects that they should observe in serving customers in the Brazilian market. Moreover, the firm will be required to source additional employees from the local market.

Training employees on cultural aspects will play a fundamental role in improving the efficiency and effectiveness with which they serve customers. Subsequently, the likelihood of the employees delivering exemplary customer service will be improved significantly. The outcome will be an increase in the level of customer satisfaction. Therefore, through product standardization, Southwest Airlines will be in a position to satisfy the target market.

In addition to the above aspects, Southwest Airlines will be required to standardize other aspects such as promotional aspects to gain an optimal market position. Julian asserts that international market penetration should ensure that its promotional activities are customized with the prevailing cultural idiosyncrasies in the international market (119).

Southwest Airlines will be venturing into a new territory. Thus, the level of familiarity with the services offered by Southwest Airlines is relatively low in the Brazilian market. Consequently, the organization will be required to engage in extensive promotional activities. According to Julian, a firm introducing a product that is not known in the market requires a firm to undertake extensive product familiarization (119).

The objective of the promotion is to create a high level of familiarity regarding the product that it intends to offer in the foreign market. Creating a high level of familiarity increases the ease with which a product or a brand enters the international market.

Julian specifies that creating “varying levels of awareness, knowledge, familiarity and experience with a product or brand may result in differential attitudes towards similar products” (119). Therefore, the airline must focus on ensuring that the product information created in the target market is universal.

One of the fundamental aspects that Southwest Airline should take into account in its international market penetration entails communicating the value that the organization intends to introduce in the market. The organization should communicate how customers will acquire unique customer experience by consuming the services that it offers. Market communication will aid the customer to identify Southwest Airlines’ point of difference against its competitors.

For example, despite the fluctuation in fuel price, Southwest Airlines has continued to exempt its customers from additional fees for first or second checked bags. This aspect has been made possible due to the integration of the ‘Bags Fly Free’ concept.

Moreover, communicating this point of difference will play a fundamental role in ensuring that customers develop a positive perception regarding the level of customer service. Other product features that the organization should communicate to the target customers entail its exemption of additional fees on aspects such as telephone reservations, curbside check-in, and seat selection.

The marketing communication process should further ensure that customers understand other in-flight services that customers can access by traveling using the airline. Currently, consumers are increasingly being concerned about the quality of in-flight services offered by customers.

One of the in-flight services that the airline should communicate entails its in-flight internet connectivity. Southwest Airlines has over the past few years commenced on implementing its aircrafts with internet connectivity. Creating such awareness will aid the airline in attracting customers.

Assignation of responsibilities

Southwest Airlines will be required to ensure that the activities outlined in the action plan are implemented successfully to penetrate the target market successfully. Therefore, to achieve this goal, the organization will be required to assign responsibilities to specific parties. The table below illustrates how the responsibilities will be conducted.

Table 2: Assignment of responsibility

Budget

Southwest Airlines will incur substantial costs in implementing the above activities. Therefore, the organizations will be required to allocate a substantial amount of money in its budget. The table below illustrates the projected budget that the firm will incur.

Table 4: implementation budget

Timeframe

Southwest Airline intends to enter and establish its operations in the Brazilian market within one year. Subsequently, the organization will ensure that the activities identified are executed within a specific timeframe. Southwest Airline will undertake some of the activities concurrently as illustrated by the Gantt chart below to optimize on the available time.

Table 5: Gantt chart illustrating implementation timeframe

Measures of success/failure for each activity

Southwest Airlines will ensure that the activities identified are implemented effectively. Subsequently, the airline’s management team should progressively evaluate the success with which the activities are implemented. The organization should use different metrics depending on the nature of the activity.

First, the success with which the firm undertakes market research should be evaluated by gauging the extent to which the data gathered from the market research contribute to the development of market intelligence. One of the issues that the organization should assess entails its level of understanding of consumer and competitor behavior in the target market.

Secondly, the level of success regarding marketing communication should be measured by assessing the degree of brand knowledge in the Brazilian market. Conversely, the organization should also assess the ease of penetrating the target market by examining the possible challenges that might be encountered in the process of seeking operating license from the relevant authorities.

The study identifies the development of unique customer experience as one of the core pillars in succeeding in the target market. One of the strategies that the firm intends to achieve this goal entails training its workforce on the fundamental customer service aspects.

Consequently, the airline will examine the degree to which its employees understand the cultural issues that they should observe in the new market. Moreover, the organization will further examine the degree to which employees have developed customer-centric skills in serving customers. The last activity entails actual commencement of the company’s operations. Thus, the organization will assess whether it commences actual business operation within the stipulated time.

Possible coordination issues

Effective coordination of the above activities is paramount in the organization’s quest to penetrate the foreign market successfully. However, considering that different departments will undertake the activities, the firm should not ignore the likelihood of encountering coordination issues. This situation might arise if the respective departments have developed a comprehensive understanding of the firm’s mission.

Therefore, to overcome this aspect, the airline’s management team should communicate its intended strategic decision prior to its implementation. Moreover, the organization should ensure that the employees understand that the attainment of the intended goals and objectives is dependent on the input of all the employees. By developing such understanding, employees in the respective departments will ensure that their actions are in the best interest of the organization.

Possible barriers

Southwest Airlines might encounter a challenge in its market entry due to the reluctance of some employees to serve as expatriates in the international market. Some of the employees might perceive serving as expatriates as a challenge because of the cultural differences. Considering that both the expatriates and local employees will facilitate the firm’s operations in Brazil, coordination of business activities might be hampered by differences regarding national culture.

Therefore, to overcome this challenge, Southwest Airlines will undertake comprehensive human resource training. The purpose of the training will be to ensure that all the employees appreciate the importance of diversity. Through this approach, the airline will successfully establish a collaborative working environment. Therefore, the level of customer service will be improved substantially.

Conclusion

Southwest Airlines has gained significant dominance in the US airline industry. One of the factors that have contributed to its market dominance entails the adoption of the low-cost structure. Through this strategy, the airline has succeeded in developing a point of difference hence improving its competitiveness.

Furthermore, the strategy has made the airline attractive to a large number of customers. However, the global airline industry is currently experiencing a challenge arising from external forces. One of the market forces entails increment in the intensity of competition from other airline companies. Moreover, the cost of operation due to factors such as the increase in fuel prices has changed considerably. Consequently, the efficacy of the low-cost strategy in sustaining the firm’s high level of sales revenue and profitability is relatively low.

In the wake of these industry changes, it is imperative for the industry players such as Southwest Airlines to consider adjusting its business strategy. Some of the alternatives that the airline should consider include market development, market penetration, and product development. One of most effective strategy that the airline should consider entails market penetration. The justification of this strategy arises from the fact the organization will tap the market opportunities available in the emerging economies.

On the contrary, the product development and market development strategies might not contribute to an increase in the firm’s sales revenue because they will be concentrated in the local market, which is currently shrinking. In its initial phase, the airline should consider entering the Brazilian market. Available literature and market research conducted identifies Brazil as one of the largest airline markets. Therefore, Southwest Airlines should exploit the Brazilian market.

It is imperative for the organization’s management team conduct an extensive market research to enter the Brazilian market successfully. This aspect will aid in gathering market intelligence to be used in the entry process. Moreover, the organization should ensure that the product being introduced in the international market is aligned with the customers’ needs and wants.

Therefore, the firm will be in a position to customize its product offering. The market entry process should be conducted effectively by ensuring that all the necessary activities are duly completed within the set timeframe. This goal can be achieved by assigning responsibilities to different stakeholders.

Works Cited

Bachmana, J. Southwest hangs up its low-cost jersey, 2014. Web.

Geppert, N. Success factors for market penetration in CIS countries; using the investment business model, New Delhi: Pearson Education, 2008. Print.

Hill, C., and Gareth J. Strategic management theory; an integrated approach, New York: Cengage Learning, 2012. Print.

International Air Transport Association: New IATA passenger forecast reveals fast-growing markets of the future, 2014. Web.

Julian, C. International joint venture performance in South East Asia, New York: Edward Elgar Publishing, 2009. Print.

Kumar, D. Enterprise growth strategy; vision, planning, and execution, Farnham: Gower, 2010. Print.

Neelankavil, J, and Anoop R. Basics of international business, New York: Routledge, 2014. Print.

Percy, L. Strategy integrated marketing communication; Theory and practice, New York: Routledge, 2011. Print.

Saqib, S. Business strategies and approaches for effective engineering management, Hershey: Business Science Reference, 2013. Print.

Smith, T. 40 years of profitable service; a case study on Southwest Airlines and target Pricing, 2011. Web.

Thompson, J. Understanding corporate strategy, London: Thompson Learning, 2007. Print.

United States Securities and Exchange Commission: Southwest Airlines Company, 2011. Web.

Wensveen, J. Air transportation: a management perspective, New York: Ashgate Publishing, 2012. Print.

Executive summary

Southwest Airlines was established in 1967 and incorporated in 1971 in Dallas, Texas as a low cost airline company. The firm has developed an optimal market position over the past decades. By the end of 2012, Southwest Airlines had a fleet of 576 aircrafts and operated in 89 destinations. The firm is committed in providing customers with unique experience.

One of the ways through which it achieves this is by nurturing a warm and friendly working environment. Furthermore, the firm ensures that its customers are provided with high quality services. This has played a critical role in developing a high level of customer loyalty.

In an effort to maximize its level of profitability, the firm intends to launch a new service which will entail establishing a new route. The new route will entail travelling between Atlanta, GA to New York LaGuardia.

The firm intends to dominate the new route by offering high quality services. The route will be characterized by short turnaround duration. This will ensure that consumers achieve a high level of flexibility with regard to air travel.

Southwest Airlines intend to achieve the following objectives by launching the new route.

1. To offer competitive low cost carrier services to consumers in the US airline industry.
2. To increase the firm’s sales revenue by 20% within one year after launching the new route.
3. To increase the firm’s market share by 15% within one year after launching the new route.

Situational analysis

According to Hitt, Ireland and Hoskisson (65), it is critical of firms to analyze the environment in which it operates by taking into account the internal, customer and the external environments. Therefore, firms should consider conducting a comprehensive environmental analysis by integrating the Porters five forces, PESTLE analysis and the SWOT models.

The Porters’ five forces

Rivalry

The US airline industry is experiencing an increment in the intensity of competition. This has made the industry very volatile. The firm faces intense competition from a number of low-cost carriers such as JetBlue, Easyjet, United Airlines and the American Airlines. These firms have adopted similar operational strategies to those of Southwest Airlines.

Threat of entry

The low- cost carrier airline market in the US is experiencing an increment in the number of new entrants as a result of its high profitability potential. New firms are venturing the industry in an effort to exploit the prevailing market potential.

Consequently, the degree of industry concentration is increasing at an alarming rate. Moreover, the Deregulation Act of 1978 has made it easier for foreign low-cost carriers to enter the industry.

The threat of new entrant has made it difficult for Southwest Airlines to successfully differentiate its services. This arises from the fact that most of the entrants are focusing on price as their market competitive variable. As a result of the high threat of new entrant, the industry is experiencing a decline in its profitability.

However, the threat of new entrant is likely to decline as a result of the high cost of operation and high start-up cost (Hawkins, Misra & Tang 13).

Threat of substitute-low

The transport industry in the US is experiencing an increment in the intensity of competition arising from emergence of alternative means of transport such as railway and road. Consumers are increasingly using these modes of transport when travelling over short distances (Hitt, Ireland & Hoskisson 65).

Furthermore, increment in baggage fee and the high fuel cost in the US airline industry are motivating consumers to consider rail transport as a viable substitute to their travelling needs. Despite this, these modes of transport cannot rival the airline.

Supplier power-high

Previous studies show that “the primary sources of supplier bargaining power in the airline industry include labor, jet-fuel and aircrafts” (Hawkins, Misra &Tang 15). Jet-fuel and aircrafts are considered to be the main source of supplier bargaining power in the US airline industry.

Southwest Airline depends on Boeing for the supply of its aircrafts. This gives Boeing substantial supplier power. Thus, the firm may increase the price of the aircrafts.

Buyer bargaining power-low

The large number of low-cost carriers in the US airline industry has led to a significant decline in buyer power. Most low-cost carriers in the industry depend on price as the core source of competitive advantage. Thus, the consumers have the capacity to push the prices down.

Below is summary of the Porters’ five forces with reference to Southwest Airlines.

Source: (Hitt, Ireland & Hoskisson 65).

PESTLE model

Firms operations are affected by changes in the external business environment such as the economic, social, legal, environmental, technological and political environments. Below is a PESTLE analysis of the US airline industry.

SWOT analysis

Below is a summary of the firm’s strengths, weaknesses, opportunities and threats.

Target market

Southwest Airline will target different customer groups. The first group will be comprised of business travelers and middle income consumers. The second group will be comprised of price conscious consumers and the travelers who are dissatisfied with the full-service airlines in the US.

The third customer group will include the leisure family travelers. The firm projects that the target market will enable the firm achieve the desired level of profitability.

Marketing strategy

Southwest Airlines is committed towards attaining an optimal market position despite the intense competition from other low cost carriers such as EasyJet and Jetlink. To attain the desired market position, the firm will focus on providing customers with high quality services (Stevens par. 3).

Marketing mix

Product strategy

Southwest Airlines will ensure that the targeted customers achieve a high level of satisfaction. This will be achieved by offering customers optimal in-flight services. Some of the services that will be integrated include offering free Wi-Fi services. Moreover, the firm will design an effective flight schedule so as to accommodate different customer groups.

Pricing strategy

To successfully penetrate the new market, Southwest Airlines will adopt penetration pricing strategy. The firm will set the price of air tickets at a lower point compared to other low-cost carriers serving the same route. This will enable the firm to attract the price conscious travelers.

Promotion

Southwest Airlines will ensure that customers are aware of its operation in the new route. This will be attained by adopting the Integrated Marketing Communication strategy. Different methods of marketing communication, which include advertising, sales promotion, direct marketing and public relations will be adopted.

Moreover, the firm will utilize both traditional and emerging marketing communication mediums such as print media and online mediums. This will contribute towards creation of an adequate level of market awareness.

Distribution

The firm will partner with renowned travel agents in order to ensure that a large number of travelers are aware of the new route.

People and process

In line with its commitment to provide customers with high quality services, the firm will train its employees on customer service. This will enable the employees to offer personalized services hence increasing the level of customer satisfaction.

Marketing budget

Southwest Airlines projects that it will incur substantial cost in its quest to achieve market the new service. The marketing budget below illustrates the projected cost.

Action program

To successfully launch the new service, Southwest Airlines will engage in a number of activities as illustrated below.

December 2013; the firm will conduct a comprehensive market research in order to understand the prevailing market conditions and trends. The research will be focused on two market variables, which include the consumers and the competitors.

January 2014: Launching a comprehensive marketing campaign. The campaign will be conducted on different mediums in order to create sufficient level of awareness to potential customers on the firm’s operations in the new route.

February 2014: Conducting a pilot study by launching few airplanes to ply the new route. This will aid in gauging the prevailing market potential.

March 2014: Official launch of the new route. This will be achieved by holding an effective event in Atlanta.

Implementation and control

The firm will conduct a continuous evaluation on its performance in the new route. Some of the elements that the marketing manager will evaluate include the firm’s market share, the size of its customer base and the change in its sales revenue.

These elements will aid the firm in determining the extent to it has gained market acceptance in the new route. Furthermore, undertaking such a review will enable the firm’s marketing department to identify areas that require adjustment. Consequently, the firm will be able to develop its marketing strategies.

Works Cited

FierceWireless: Southwest Airlines and Row 44 announce milestones in Wi-Fi partnership 2013. Web.

Hawkins, Owen, Misra, Rahul and Tang, Hao 2012, Southwest Airline Company. PDF file. Web.

Hitt, Michael, I. Duane and R. Hoskisson. Strategic management: competitiveness and globalization, Mason, OH: Cengage Learning, 2007. Print.

Stevens, Suzanne. Alaska, Southwest Airlines rank high in quality. 2012. Web.

Executive Summary

Background

The main problem facing Southwest airline is mismanagement, economic and rival competition in the airline industry. The case study reflects back on the formation of Southwest Company in late 1966 by Rollin king who was then a San Antonio entrepreneur. The company grew after its incorporation with Lamar Muse in 1967 as its first CEO.

Through initial public offering of stock in 1971, the company was able to raise 7million US dollars, which was used to purchase planes and airline equipment. Since then the company has grown to become one of the biggest airline in the U.S. with a record of 96.3 million passengers to use the flight since its initiation. By 2007, the airline had a profit margin of 9.9 billion dollars annually with 34,000 employees and its flights in 64 cities in 32 states.

Political and legal impacts on the company came out as one of the key challenges of the airline during its initial stages of operation. Some of the legal predicaments were evident in 1970’s. One of the legal hurdles during this period was when local officials from Dallas –Fort Worth regional airport filed a case that challenged Southwest Air lines decision for not moving its flights from Dallas love field out to newly opened Dallas –Fort Worth regional airport.

This was due to loss of revenue to service the debt incurred during the construction of the airport. Another legal challenge involved the rival airlines that protested against the services offered by the airline to several smaller cities in Texas. The rival airlines argued that they served these markets well served and that the entry of Southwest Airlines resulted in costly overcapacity. Other regulatory issue involves congress passing the airline deregulation act in 1978.

Leadership aspect in the airline is also one of the factors that were established as an important issue that needed addressing. The paper illustrates leadership incompetence illustrated by management of southwest company. When Kelleher took the leadership of the firm, he portrayed a more social approach in the management of the airline.

He observed listened and encouraged employees. He believed as a leader that one needed to treat his employees as customers so that they would treat customer even better. Southwest Airline’s strategic objectives and their implementation plan have been widely discussed in the case study. These strategic objectives involve customer service and satisfaction, marketing and promotion, gradual expansion into new geographic markets, addition of flights, emphasis on safety, reliable operation and high quality maintenance.

Southwest organizational culture and management practices value employees and customers hence forming the foundations for the company’s culture. The firm’s mission is to make air travel affordable and ensure job security for its employees while maintaining good service quality.

The management practice involves recruiting, screening and hiring new employees into the company while ensuring sound employee relations. Other practices include training, compensation and promotion. Rivalry in the airline industry is displayed in the form of competition for the market share that has resulted to legal suits from rival firms. During the establishment of the company, there were massive efforts by rival firms to block the entrance of Southwest Airline in the market.

One practical course of actions by the company is to execute low fare as one of its strategy. The company has decided to deemphasize flights to congested airports and instead operate in airports adjacent to the metropolitans. This will reduce costs of the company and hence lead to fares for the customer. Another course of action involves gradual expansion into new market by the airline (Makishima and Paul, 2009).

In implementing this strategy, the company has ensured that flight personnel are have a good communication and interpersonal skills that are vital in ensuring good service to customers. They flight attendants have been encouraged to display outgoing characteristics and engage passengers in conversation in order to make them feel at home during the flight. This would be possible through training of personnel as the company has the financial capability to develop their employees.

Case Study Report

Summary of the case study

Rollin King and his co founder Herb Kellerher instituted southwest airline in the late 1966. The Company was incorporated in 1967 into Texas aeronautics commission. After the incorporation, it began serving Dallas, Houston and San Antonio during its earlier flights. During these early stages of the airlines, competitors in the airline industry had tried to block the new company from operation.

In 1971, the company acquired new planes by raising 7 million dollar in an initial public offer. Since then, the airline has struggled to gain market share. In the process, the company has overcome regulatory hurdles brought about by the rival competitors. Southwest company strategy objectives include a good customer service, marketing, promotion, and low fair for its customers.

Analysis of report

The problems that are predominant in the case study relate to industrial forces acting on the southwest airline. These industrial forces are best-illustrated using porters five forces theory.

Porter’s 5 Industrial Forces

Threats of new entrants

The entry of a new company into a market attracts opposition from existing operatives and players due to the potential threat that the new company poses on the market shares.

The existing firms will retaliate in a way that creates barriers for the new firm. These barriers may include economies of scale, cost switching and government policies and legal retaliations. For example, Southwest Company met an unprecedented rivalry in its attempt to gain entry into the Texas market.

During the airline incorporation in 1967, rival airlines in Texas made efforts to block the new airline to operate including a legal and regulatory proceeding in Texas Supreme Court.

Substitute product or service

Threats of substitute’s products and services will results to buyer inclination to substitute products and switching of cost strategies. Southwest-introduced twenty-dollar one-way fare that was below the twenty-eight and seven-dollar fare charged by rivals and it attracted a small number of passengers. However, the ability of the company to change its products and services (recruiting new air hostesses, changing new uniform of their crew and offering alcoholic beverages during day time flights) attracted more business for the airline and enabled the company acquire a powerful brand name.

Bargaining power of buyers

This is the impact and influence customers have on the firm’s products and services. When the market has powerful buyers, they can influence the kind of product or services provided by individual firms. The introduction of twenty-dollar fare strategy resulted to small number of customers attracted to the airline. In eighteen flights, there were less than 250 passengers on board. In efforts to regain the market share, Southwest airlines had to develop its products and services in a way that satisfied the needs of customers (Wong and Nicole, 2009).

Bargaining Power of Suppliers

An industry requires raw materials, labor and other vital supplies to manage its daily operations. This is the reason it is important for a firm to develop a good relationship with its suppliers to ensure consistency in operations. As the company grew, in 1971 Southwest airline needed to purchase three new 737 planes. Boeing agreed to supply the company with these planes at a discounted cost price from 5 million dollars to 4 million dollars. The supplier also agreed to finance 90% of 12 million dollars deal.

Rivalry among existing competitors

Rivalry among firms operating within the same environment results from brand identity, market share, product differences, threat of new entrants and intermittent over capacity among other factors. Southwest Corporation was involved in rival encounter with rival airline that resulted to court case suits. Rival airlines in Texas were against Southwest airlines operating in the market and they filed a legal suit to Texas Supreme Court.

During the 1970s, rival airlines protested southwest airline serving smaller cities in Texas. Reaction by competitor is because of threat to their market share and so they will try any methods to keep other competing firm away from its area of influence.

SWOT Analysis

In this analysis, both internal and external environment surrounding a firm are analyzed. Strengths and weaknesses represent the internal analysis of a firm while opportunities and threats are used to analyze the external environment under which the firm operates.

Strengths

• Good financial backing with revenue surpassing 9.9 billion mark in 2007.
• The company has enough human resource advantage because it has a workforce of 3,400 employees.
• The airline boats of an expanded geographical coverage has flights to 64 cities in 32 states.
• Southwest airline has enough Material assets comprising of 527 jets that fly 3,400 flights.
• Southwest airline has a strong brand name given that it is one of the largest airlines in America.
• Strong company culture

Weakness

• Volume of passenger traffic.
• Low revenue associated with low fares.
• New flight routes that are congested.

Opportunities

• Expansion to new geographical areas.
• New flight routes.

Threats

• Stiff competition from competitors.
• Government policies on airline regulation.
• Terrorism threats.
• Natural disasters.
• Economic instabilities such as recession.

Alternative Course of Action

Cost leadership is an important strategy to be considered by the airline. Cost leadership does not refer to low revenue but rather a cost price great than the price at breakeven point where there is realization of profit and at the same time significant volume of customer is realized.

Extensive advertisement of the airline is also important in reaching vast market. E-marketing is cost effective and yet efficient method to advertise the airline. The company can sell the airline brand name through the web advertisements. Online bookings and reservation can also be done through the company’s website.

Training and development of employees of the company would help improve service delivery to customers. Short courses on the latest best ways in customer service should be introduced in the employees’ training program. The company may also sponsor its crews to pursue courses that will help sharpen their skill in service management (Wong and Nicole, 2009).

The airline needs to be innovative in its operations in order to compete effectively in the competitive airline industry. Product and service development are key areas. Technology incorporation in airline services such as free internet facilities and entertainment provisions for passenger during the flight is an important step in the airline positioning itself.

Recommendation

The best course of action by the company is to initiate strategies that will ensure customer satisfaction. These strategies include product and service development. Any service or process that does not add up to customer satisfaction does not add value to the company since it is through the customer that the company earns revenue (Makishima and Paul, 2009).

Implementation

Proper employee training and development in service delivery skill and methods can implement the above recommendation. Product and service development is also a means in which this objective can be achieved. The strategies can be implemented over a given period such as three years or five years depending on the implementation plan established by the organization.

References

Makishima, P. (2009). Southwest will Start Logan run in august. Web.

Wong, N. (2009). Southwest to serve Logan by fall. Web.

Introduction

Over the past years, Southwest Airlines has recorded a track of good performance. It has revealed strong growth over the last three decades. The company has managed to attract and retain a large number of customers. Over the past decade, the company has managed to sustain good returns while its competitors are running through bankruptcy. This has been one of the main factors that have contributed to the company’s competitive advantage.

Discussion

Southwest Airlines is one of those companies in the airline industry that has done very well across the world. In 2008, Southwest Airlines had the largest number of passengers in the United States airlines (Gamble & Thompson, 2011). Therefore, it is one of the most profitable airline companies across the world.

However, many companies has been undergoing through losses from the hard economic times fuelled by high fuel prices. All the same, many companies were able to recover from the losses later after the fall in prices of the crude oil. Despite of the difficulties through which the U.S. airlines have been undergoing, Southwest Airlines has managed to record exceptionally high level of performance.

Although Southwest Airlines was better off during this period, its profits almost went to break even point. Since 1980, the U.S. airlines have recorded a combined profit less than the combined losses (Gamble & Thompson, 2011). This implies that the entire U.S. airline industry has been performing poorly in general.

In the U.S. airline industry, Southwest Airlines has managed to secure the largest fraction of the market share. Furthermore, the company has managed to maintain a high level of consumer growth. Over the last few years, the company’s total number of passengers has increased from 59,053 in 1998 to 101,948 in 2008 (Gamble & Thompson, 2011). This implies that the company has managed to maintain an extremely high level of growth.

The main factor that has helped Southwest Airlines to maintain a high level of performance is its competitive advantage. The company has managed to under price its competitors in the airline industry. This implies that the company is able to provide low prices and still retain its competitiveness.

Another factor that has contributed to the competitive advantage is its ability to retain its employees that has been in the industry for a long time. These employees are experienced and are able to come up with effective measures to save various problems effectively since they has passed very difficult times in its early stages of development

The company employs a unique recruitment procedure that helps the company to win the top performing employees. For instance, the company is led by the principle that it’s better to employ unskilled people with good attitude rather than employing skilled people with bad attitudes. In other words, the company puts more emphasizes on the ability of an employee to contribute creatively to the organization. This strategy has helped the company to absorb innovative employees.

Another factor that has contributed to the company’s success is its ability to remain prepared for any outcome. This has helped the company to maintain competitive advantage. Therefore, shocks like increase in oil prices do not affect the company significantly. As a strategy to expand its market, Southwest Airlines has come up with a strategy of adding freights in areas where its rivals are withdrawing their services.

One of the major problems facing Southwest Airlines is high level of operational costs. The company has been spending a significantly large amount in its operations. For instance, its expenditure on fuels remains extremely high. This has to some extent undermined the profitability of the organisation. The main target of any organization is to minimize costs while maximizing the profits. Over the past years, the company has also been faced by several lawsuits that have threatened the performance of the organization to a greater extent.

Southwest Airlines has also been faced with a number of maintenance problem, which has led to huge losses to the company. For instance, the company has been forced to cancel several freights after its jetliners were found to have small subsurface cracks (IB Times, 2011). The company has also been reported severally to have maintenance problems. Such problems are very critical to the company. For instance, it can destroy the good reputation of the company on the eye of the public.

For instance, customers may be upset by cancellation of their trips due to poor maintenance of the company’s jetliners. One of the incidences that can reveal the maintenance problems at Southwest Airlines is when the company’s Boeing 737-300 ruptured just a few minutes after taking off, which resulted from a loss in pressure (Grubbs, 2005).

The plane was found to have a five foot long crack. This problem forced the pilots to consider an emergency landing at the military base near Yuma. This incident took place while the plane was 35,000 foot high. However, no one was seriously injured during the incidence. Such an incidence threatens the reputation of the company’s reliability in terms of safety. Several other planes in the company have also been found to have cracks.

Southwest Airlines has also faced a problem of legal and regulatory hurdles. These restrictions have posed a major problem to the company as it has led to restrictions and sometimes penalties that have consumed a significant fraction of the company’s finance. For instance, there was a legal battle when the company started to serve smaller cities in Texas (Gamble & Thompson, 2011).

The rival companies argued that the area was already occupied and that entry of any other company could lead to costly overcapacity. Although the company succeeded, this delayed the company’s plans. Southwest Airlines also had been faced with tough opposition from its competitors and the local officials in its effort to expand its services to other places.

The main reason for this opposition is the fear that the company may take all customers from its competitors due to low prices it offers to its customers. Due to poor maintenance, Southwest Airlines has been severally fined by the government (Bundgaard, Bejjani and Helmer 2006). For instance, the Federal Aviation Administration had once fined the company $ 10.2 million as a penalty for failing to inspect fuselage fatigue cracking on time (Lauer, 2010).

Another problem that has faced the Southwest Airlines is competition. The airlines industry has been characterized by numerous sellers who are usually crumbling for limited number of customers. This competition has posed a major challenge to the Southwest Airlines. All the sellers in the industry are engaged in provision of services that has not been differentiated.

Therefore, the customers may not easily be able to know which company provides best products. As a result of low level of differentiation, companies in the airline industry are left with no other alternative than involving tremselves in price wars, an act that has eroded profits in the airline industry. It has also significantly reduced the price-cost margins of the major carriers. In the airline industry, the customers are very sensitive to prices which are triggered by the absence of differentiation.

Any small change in the prices will make a significant number of customers to shift to a less expensive airline. This implies that it is very difficult for Southwest Airlines to increase its prices in order to offset high fuel costs. The company’s charges are currently relatively lower compared with that of its competitors. Any slight change in price may therefore lead to a loss of a large number of customers.

There are various advantages and disadvantages for the Southwest Airlines taking various courses of action. For instance, cutting down prices in order to win more customers can threaten the profitability of the organization. This pressure has led the company to operate almost at its break even point in order to provide low prices.

For example, the company has severally been faced by maintenance problems. Higher prices could help the company to maintain continued check ups and repairs for its planes. However, this process can help the company to increase its market share by attracting a large number of customers.

As already noted, the company has been adding flights in the places where its rivals has been withdrawing their services. This strategy can be risky to the organisation since it can suffer the problems its competitors is withdrawing from. Therefore, it would be necessary for the company to consider conducting a research where their rivals are withdrawing their services before making new investment or adding to its investment in the area.

Southwest Airlines has been emphasizing on the attitude of employees more than the skills the employees have. This can however be dangerous because it may cost the company a lot of resources to train employees.

Recommendations

In order to overcome these problems, there is a need for the Southwest Airlines to come up with appropriate strategies. By solving these problems, Southwest Airlines will be able to maximize its profits by maintaining a large number of customers.

As already noted, Southwest Airlines spends a significantly large fraction of its capital on fuel. Therefore, the company needs to address this issue in order to maintain its long term success. The company has been incurring extremely high costs for its fleets. Therefore, there is a need for the company to take the necessary measures in order to improve the efficiency of its fleet. One way through which this can be done is by purchasing Boeing 737-700s.

By using high capacity planes, the company will be able to reduce the total amount spent on oil. This will significantly reduce the company’s operational expenses. The company will also be able to reduce its inventories on spare parts. The company has been incurring very high costs in maintaining its planes, the fact which has threatened the ability of the organization to meet its organizational goals.

Another strategy through which Southwest can improve on it performance is by expanding its services in the country where the company has a large number of customers. By so doing, the organization will be able to maximize its revenue.

As already noted, another major problem faced by the Southwest Airlines is high level of competition. This usually leads to price wars among the sellers, the fact that may lead a company to huge losses. However, the company can modify and differentiate its products from those provided by its customers; although the company has managed to improve on the services provided by its customers.

In order to overcome the maintenance problem, the company has to adopt better check up procedures in order to avoid such problems in the future. For instance, the company can lose a very large amount of money through penalties due to the failure to observe certain procedures that are necessary to deal with the problem. The company can also consider hiring more competent and experienced people who are able to detect the problem before it deteriorates.

Conclusion

This discussion has clearly revealed that Southwest Airlines has managed to maintain a high level of performance in the U.S. airline industry by under pricing its competitors. Over the past years, the company has managed to record a tremendous growth in its customer base.

The company has also managed to increase the number of its flights. Consequently, the company has managed to maintain a high level of profitability. However, the company has experienced several problems that have threatened its performance. For instance, the company has been faced by safety issues due to poor maintenance of its planes. This has led to cancellation of several freights. This may lead to customer dissatisfaction hence losing them.

Reference List

Bundgaard, T., Bejjani, J., and Helmer, E. (2006). Strategic Report for Southwest Airlines. Web.

Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management: The Quest for Competitive Advantage (2nd ed.). New York: McGraw-Hill Irwin.

Grubbs, L. (2005). Lessons In Loyalty: How Southwest Airlines Does It: An Insider’s View. U.S.A: CornerStone Leadership Inst.

IB Times. (2011). Southwest Airlines Has A History Of Maintenance Problems: Report. Web.

Lauer, C. (2010). Southwest Airlines. California: ABC-CLIO.

Operating Environment

Firm’s Competitive Position

Southwest Airline industry faces rigid and highly unpredictable competition on the part of other airline services, including AirTran. The key competitive factors involve cost structure and pricing, frequent flyer schedules and programs, and customer satisfaction (Morningstar Document Research 19).

Additionally, the company also competes with other types of transports that now face significant technological advancement. Introducing new high-speed rails constitutes the major threat to the company because it provides flights for short destinations only.

Operating environment is closely associated with level of customer service (Pearce and Robinson 87). At this point, the report asserts that company has the lowest ratio of complaint and the decent quality of services, including on-time performance, advanced flight equipment, and level of comfort. Introducing new models of aircrafts ensures lower maintenance costs and better use of fuel (Morningstar Document Research 21).

Relationships with Suppliers and Creditors

Southwest Airlines depend on single engine and aircraft suppliers, as well as on suppliers of other spare parts. In this respect, the company can face significant problems in case some of its suppliers fail to deliver additional equipment on time (Morningstar Document Research 28).

As per creditors, the solvency evaluation of company’s financial ratios indicates’ the capacity to resist long-term creditors. The ratios also reveal the firm’s ability to consider business conditions and minimize net losses (Drake 9).

Nature of Labor Market

Southwest’s success in carrying out business can lead its employees to higher compensation packages. Labor market conditions, therefore, will have to choose a stronger position to take control of lower costs.

Due to the fact that the company has sustained fruitful relationships with its workers, it can convince them to help maintain lower costs. Such a strategy is essential for facing rigid competition (Bundgaard et al. 4).

Remote Environment

Economic Factors

Cost of fuel is the major threat to company’s success, along with the increased taxes. Restricted control of fuel and taxes can create serious consequences for other aspects of company’s development (Morningstar Document Research 26).

Social Factors

Compliance with health regulation is an important factor that Southwest Airlines should consider while attracting new employee base, as well as capturing new customers (Morningstar Document Research 17).

Political Factors

Heavy regulation and high taxes pose the major obstacle to the company’s normal functioning. This is of particular concern to security regulation, environmental regulation, international control, and safety regulation.

To begin with, the Company is largely affected by the Aviation and Transportation Security Act that focuses on various procedures addressing light deck security, airport perimeter availability, training programs for airline crew, and screening of cargo and passengers (Morningstar Document Research 18).

The costs spent on reinforcing these procedures should be introduced to maintain safety and security of passengers, as well as sustain good reputation among other airline companies.

Environmental regulations imply the company should follow federal regulations associated with the environmental protection, including the Clean Air Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act (Morningstar Document Research 19).

There should also be provisions monitoring the company’s policies that regulate climate change and greenhouse challenges. Additionally, the Airport Noise and Capacity Act implies that the company should introduce local noise reduction programs to ensure comfort to the districts near the airport.

Technological Factors

Southwest Airlines largely depend on advances in technology because they have a potent impact on the quality of services and customer satisfaction. More importantly, it also identifies the company’s competitiveness (Morningstar Document Research 26). Therefore, the firm has strongly been committed to exploring new high-tech opportunities to support new operations and strategies.

Industry Environment

Porter’s Five Forces Model Analysis

Currently, the airline industry in the United States is determined by significant competition and high level of volatility. Capital intensity and technology development also influence high level of concentration, which contributes to rivalry among other airline companies.

The concentration derives from the inflow of new entrants. However, the threat is minimal because operational costs situation and intense competition provides new approaches to managing the industry (Hawkins, Misra and Tang 13).

Boundaries of the Industry

The main boundaries of the industry refer to technological advancement, narrow-focused orientation in terms of services provided, and lack of mobility and flexibility in industry (Morningstar Document Research 25). External environment is constantly changing and, as a result, most of global concerns can have unpredictable consequences for its development.

Structure of the Industry

Pricing is considered a significant factor in shaping the airline industry infrastructure. Expanding route structure is also a priority for the company because it can enhance the company’s competitive stance.

Competitors and Major Determinants of Competition

The major determinants of competition involve heavy regulation procedures focusing on quality standards and environmental procedures, rapid development of new high-speed rails that can substitute major short-routes flights provided by the company, and constant technological advancement.

All these issues hamper the successful operational and industrial development. Additionally, increased costs and high taxes imposed by the federal government have made the company’s managers to reconsider their financial policies, as well as define which areas should be less financed.

Recommendations for Improvement

The analysis of the above-presented initiatives, as well as company’s analysis of external capabilities reveals a number of challenges that should be tackled to overcome the rigid competition and sustain stead growth and development. First of all, the airline company should reconsider its low-cost policy that restricts its possibility to enter the global environment and comply with the established requirements.

Specific attention should be given to minimal differentiation that creates low profit margins, leading to serious price competition. Therefore, budgeting considerations are vital to make shifts to product diversity.

Second, the company should develop new destination points that can exclude the possibility of substitution the flights by less expensive kinds of transport, including high-speed rails, car, and bus. At this point, Southwest Airlines should conduct an independent research to define which destinations will be in high demand among clients to predict future costs and profits.

Third, greater control of technological development should also be taken into consideration because it can present alternative solutions in terms of supply of new spare parts. In particular, the aircraft quality can also reduce the costs on maintenance and ensure extra spending on customer services.

In such a manner, it will be possible to handle social challenge and develop a new corporate responsibility framework that can promote higher level of competitiveness of the company over other airline industries.

Finally, adhering the to environmental protection principles is another important approach to improving the company’s capacity and introducing new moral and ethical framework to act in a global setting. Employee’s awareness will also be increased due to strict regulations.

Works Cited

Bundgaard Tycen, Bejjani John, and Edmund Helmer. Strategic Report for Southwest Airlines. PDF File. 2006. 1-34. Web.

Drake, Wayne. “A Financial Analysis of Southwest Airlines Co.”, Accounting for Financial Decisions. PDF File, 1998. Web.

Hawkins Owen, Misra Rahul, and Hao Tang. “Southwest Airlines Co.” Griffin Consulting Group. PDF File. 2012. 1-30. Web.

Morningstar Document Research. Southwest Airlines CO-LUV. US: Security and Exchange Commission. 2013. Print.

Pearce, John and Richard Robinson. Strategic Management. US: McGraw-Hill/Irwin. 2012. Print.

A short description about the Southwest Airlines

Southwest Airlines (initially known as Air Southwest) launched its first flight in 1971. Its founders were Herb Kelleher and Rollin King. By then, the company only served three cities within US (Houston, San Antonio, and Dallas) and had not expanded its operations beyond the country. Unfortunately, it incurred remarkable losses in the first two years of its operation. This forced it to vend one of its four aircrafts instead of sacking some of its employees.

After enacting viable business strategies, Southwest Airline managed to overcome such obstacles. It announced its first profits in 1973. By 1977, the company had expanded its operations. It served other additional cities like El Paso, Lubbock, and Corpus Christi among others. It later launched interstate destinations within US indicating its prospective growth.

Later in 1986, the firm established a training program to equip its flight crews with viable business etiquettes. This enabled it to enhance its competitiveness in the realms of customer services. It later won a monthly Triple Crown prize due to its exemplary services. Upon its rapid expansion, the company acquired Moris Air in 1994 and consequently enhanced its flights to other cities within US.

It introduced Ticketless Travel in various cities, a move that augmented its business’ prowess. As at 2006, Southwest Airlines had advanced both technologically, revenue acquisition, and business wise. It acquired ATA Airlines allowing it to attain boarding slots in LaGuardia Airport, New York. This move enabled it to handle international flights after partnering with WestJet Airlines (a prominent low-cost carrier).

The company had to increase its charges for both domestic and international services in order to survive in the industry. In order to overcome current challenges facing the airline industry, Southwest Airlines has embraced technological innovations, price adjustments, protocol reforms, and viable acquisitions and mergers.

Main Issues/Problems of the case

Southwest Airlines is facing numerous problems within the aviation industry. Firstly, there is a constant increase in fuel prices. This leads to increased business costs and other relevant challenges engulfing the entire industry. Another problem is the increase in operational costs mentioned earlier. An airline business is costly to establish, ratify, and operate due to massive logistical issues involved in the entire context.

Southwest Airlines is also experiencing such problems despite the witnessed success. There is a considerable need to reduce costs and increase profits in numerous occasions. It is from this context that the entire problems facing the industry lie. Additionally, it is important to consider that some airline business slump due to higher operational costs and reduced profits. Another problem is the current security threats that face the company and other players in the airline industry.

Such security problems might force the company to cancel some of its flights leading to reduced revenues and consequent losses. The global economic crisis has equally contributed to the mentioned problems. Economic catastrophe affects market trends, travelling schedules, and reduces the influx of customers since most organizations and individuals strive to minimize expenditures. Fluctuating fuel prices is another problem facing the company due to unpredictability of fuel costs mentioned earlier.

The company is equally unsure whether its point-to-point business strategy will apply as it tries to expand its domestic operations. Another problem is the stringent competition within the industry. International expansion strategies, union walkouts, and environmental uncertainties are some of the problems faced by the organization.

Situational Analysis

SWOT analysis, PEST analysis, & internal analysis (strengths & weaknesses)

When subjected to SWOT analysis, Southwest Airlines has numerous strengths in its business endeavors. The company has several competitive advantages compared to its rivals in the aviation industry. Additionally, it has established right products for its clients. This is evident in the travel arrangements, reliability, and variability in the destinations it covers. Additionally, it embraces technology and innovation to ensure that it remains competitive.

Concurrently, the company has trained competent human capitals hence capable of achieving customer satisfaction. Southwest Airlines has equally enhanced its customer services and changed business processes in order to attain the desired competitiveness. Conversely, the company possesses some weaknesses when analyzed critically.

Some of its customer services still need to meet international standards. The aspects of technology have not been fully enacted in the company despite the stringent competitions experienced. Additionally, it has limited international flights compared to other prominent competitors in the very industry.

Southwest Airlines has numerous opportunities it can cease in order to enhance its competitiveness, revenues, and customer value when scrutinized critically. The demand for aviation services is rapidly growing despite the recent economic challenges. This indicates that the company might perform well in future due to increased flight demands. Another opportunity is the merger it makes with other international airlines like WestJet Airlines. Additionally, the fact that it has a competent, innovative, and creative workforce is crucial.

This provides another considerable opportunity in the entire scenario. There are various opportunities in the aviation industry, which the company can harness in order to remain competitive in the market. Conversely, there are business threats that might hinder the wellbeing of Southwest Airlines. The fluctuating fuel prices, global fiscal crisis, stringent competition, security threats, high operational costs, and adverse international regulations form critical threats to the company.

There are also some issues that emerge when Southwest Airlines is subjected to PEST analysis. Political issues can affect the company massively. This is possible with regard to political trends, legislations, international policies, political wrangles, and other prominent business aspects in the entire scenario.

Economic factors incorporate the current global financial challenges and other considerable factors. Additionally, there are other specific economic factors in the aviation industry that have affected Southwest Airlines. This incorporates high operational costs within the industry, fluctuating fuel costs, and other potential fiscal problems facing the industry.

On social factors, the company enjoys changing lifestyles that have promoted the use of aircrafts as a means of travelling and sending important cargos. The use of flights is embraced by people of different ages. Additionally, the company has embraced technology in its various operations. Southwest Airlines has been innovative in its business approaches, a fact aided by technological advancements within the business.

Value Chain Analysis

Southwest Airlines has attained considerable competitive advantages in the business realms having enacted and embraced stringent and viable value chains in its endeavors. Airline industry is quite competitive hence demanding its players to embrace considerable value chain provisions as evident in the provided case. The entire business activities that Southwest Airlines assumes in its daily operations have contributed to the aspects of the alleged value chain.

Things done in every department or sectors of the company contribute to the demanded value chain. This is quite important in various aspects. The management of the company, employees, suppliers, affiliates, and other considerable stakeholders have endeavored to add value to the service provision granted by the company.

The ultimate competitive advantages noticeable within the company result from considerable contributions made by the entire stakeholders. It is from this observation that Southwest Airlines attains its ultimate value chain. This has enabled it to grow tremendously in the past years despite the challenges.

Customers have also trusted the services given by the company as evident in the case. Due to these provisions, the company has managed to grasp a considerable market share as evident by its continuous business growth. Additionally, the use of appropriate business approaches and staying customer-focused has allowed the business to augment its competitiveness in the airline industry despite the noticeable challenges.

Industry (Porter’s 5 forces analysis)

Porter’s 5 forces are applicable in the airline industry with respects to the provided Southwest Airlines’ case. This is an important observation following its relevancy in the entire context. For example, threat from new entrants into the industry is applicable in this context. Southwest Airlines and other existing airline firms are threatened by the entrance of other competitive rivals. However, since the industry is costly to establish and operate, such chances are limited.

Additionally, there is a considerable rivalry from the existing firms within the American market and beyond. Other international airlines like Emirates Airlines and Qatar Airlines among others have fronted stringent competition to Southwest Airlines with regard to its international markets. Additionally, the bargaining power of buyers is evident in the industry due to competition. Customers go for cheap and reliable airline companies.

This has forced other industry players to strategize properly and cut prices. Additionally, suppliers operating in the industry have equally fronted their bargaining power. The jet fuel suppliers usually change the cost of fuels to suit their business interests. This is a massive challenge to the industry and beyond.

Another apparent force evident in the case is the availability of substitute products/services. Airline customers can seek the services of other companies if such needs arise. This factor forces numerous businesses to establish their competitive advantages and other relevant business strategies.

Competitor

Southwest Airlines experience competition from various firms. This occurs both locally and internationally. Since the company started as local airline business, all the local airlines in US as at then provided considerable competition provisions. On the international flights, Southwest Airlines experiences competition from well-established airline companies globally.

Answering the questions

Evidently, Southwest Airlines can still maintain 36-year streak profitability despite the challenges mentioned in the case. This is possible since the industry is growing rapidly while the company has numerous strengths and opportunities to cease this opportunity. Additionally, the company can still depend on fuel hedging to control cost despite the fluctuating oil prices. This is possible through proper management and other characterizing factors.

Concurrently, the point-to-point methodology will still be useful as the company enhances its domestic flights. This is possible since it adds massive competitive advantages to the company against other rivals. Major traditional airlines will threaten Southwest Airlines when they become low-cost counterparts.

Additionally, the company will be able to expand internationally, maintain its positive relations with employees, and avoid future union walkouts and bargains. Despite the probable persistence of the current financial crisis, Southwest Airlines will still expand if it enacts its business strategies evident in the case. The company can embrace viable business strategies to curb environmental uncertainties. This will help it maintain its loyalty to customers.

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 organization’s 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 government’s 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 Airline’s 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 organization’s 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 organization’s 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 Airline’s 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 company’s 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 Airline’s 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 author’s 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 Jet’s 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 web’s favorite airline”, then “come on, let’s 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 Britain’s 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.

Sumberg, J 2011, Easyjet Paint Job Makes Fuel Bills Less of a Drag. Web.