Southwest Airlines Case Study

Southwest Airlines is an American low cost Airline. The company was founded in 1971, in Texas, by Rollin King and Herb Kelleher with main purpose to provide low cost, efficient and fun flights inside United States. Currently, the company servers 64 cities inside United States by operating a fleet of 500 Boeing 737 aircrafts. It employees around 35,000 people and operates more that 3,300 flights a day. Its common stock is traded under the symbol "LUV" on the NYSE. The financial statistics report a net income of $645 million, 101.9 million passengers carried, total RPMs of 72.3 billion and a total operating revenue of $9.9 billion. Southwest Airlines announced that 2008 was the 36th consecutive year of profitability (Southwest, 2009). This fact ranks Southwest airlines in the most profitable airlines worldwide. The company has succeeded to maintain profitability through difficult times for air transports sector, like after the 11th of September era and the recent rise of the oil price, periods which led competitors to serious loses even to bankruptcy. This brought Southwest airlines in an advanced position against its competitors. The main factor that aid to this success was the ability to keep the ticket price low while not compromising on the efficiently and safety of the flight. Southwest Airlines was able to provide these prices by following successful business practices. Some of them are the fuel pricing strategy that protected company's costs from rising during the raise of the oil price, the "one type aircraft" strategy than reduced the training expenses for the personnel, the reduction of useless to many people amenities during the flight like meals or business class seats and the excellent use of online booking and check-in system. In the following paragraphs I will analyze which factors I consider as strengths and which as weaknesses for the company, I will state what facts I see as opportunities and what as threads and I will describe an implementation and evaluation plan for my proposals.

Strengths

Fuel Pricing Strategy

Currently, one great advantage of Southwest Airlines that can be considered as strength is its fuel pricing strategy. Southwest Airlines was able to lock down fuel prices to $51 for the last year, at the time the competitors where paying $126(Pae, 2008). Although this is a risky strategy because oil prices can also be reduced, it gives the ability to plan effectively since the management can plan company's costs and thereafter the long term strategy without this being affected by periodical price turnarounds.

Online Presence

Southwest has one of the most successful online presences in the airline sector. Its website, Southwest.com, is the number one airline web site for online revenue according to PhoCusWright. Also Nielsen/ Netratings reports that Southwest.com was the largest airline site in terms of unique visitors(Southwest, 2009). Online presence is of great importance in today's business operation as it can generate revenue while reducing the general operating cost. So being a leader on this sector, as Southwest does, is a great advantage for any company.

Human Resources

The human resources effectiveness is one of the key factors of success for any business. The facts show that Southwest faces with respect and appreciates its employees and their rights. Southwest personnel is heavily unionized as the 86% of it is registered in a union (Southwest, 2009). Southwest also presents a good record on layoffs as it has never laid of personnel in its 38 years of operation despite the last rough economic crisis at the time that the competitors have proceeded laying of 29,400 employees since the start of 2008(Schlangenstein, 2009). The feeling of safety, especially in difficult times, is of great importance in the upkeep of the employees morale and their high performance

Weaknesses

Low quality of Amenities

An important weakness I spot in Southwest Airlines is the low quality of amenities. The effort for reducing cost while maximizing profit has led to reduction of amenities offered to customers. Narrow seats, elimination of business class treatment and snacks are measures that keep the price low but at the same time discourage potential demanding customers from using the Airline. Due to the current economic crisis, this weakness in not so obvious but it may result in bad reputation when the financial situation improves and the customers will be more willing on spending a bit more for quality service

Short Range of Operation

Southwest operates only domestic flights and only in 34 states (Southwest, 2009). This a short range of destinations comparing with its main competitors. Additionally,Southwest does not utilize a hub system which would allow it to reach further destinations. These two factors leave a lot of potential market uncovered and delivered to the competitors.

One Type of Aircraft

Southwest's practice of utilizing only one type of aircraft has been beneficial until now but it is a potential risk for the company. Being limited to one type of aircraft leaves the company with little flexibility in case the model receives a bad reputation or a critical flaw is discovered. This would be a costly venture for the company to replace the entire fleet and retrain the staff in order to avoid bad reputation.

Opportunities

Current Economic Situation

The current economic conditions have given to Southwest Airlines a competitive advantage at the time that major competitors are facing difficult times. People are seeking for transportation in the lower cost and Southwest Airlines has the potential to fulfill this expectation. This is the right time for Southwest Airlines to expand its activities to more and cities, even internationally, while the competition is in retreat mode. It is the time to move aggressively and eliminate the competition

Partnerships

Southwest Airlines already has implemented a form of partnerships through the Rapid Rewards program which rewards the customers with points which can later be exchanged with free tickets(Southwest, 2009). This program can be expanded and partnerships can be extended in order to attract more customers to Southwest from partners. For example, travelers that book in specific hotels can get discount if they travel with Southwest Airlines. This way Southwest Airlines will be considered as a choice from a bigger audience that now.

International Activities

Expanding its activities internationally should be seriously considered by Southwest Airlines as part of an aggressive strategy. Europe can become a potential new target as it has the same needs for low-price transportation and the conditions in the airline sector are similar to United States with many airlines facing difficult times.

Fare Search Engines

Southwest must reconsider its strategy and expose its fares in fare search engines (Sardone, 2009). Fare search engines is a great place to promote the price difference from competitors and it is also a place where a lot of travelers develop their whole trip package. Southwest should not be absent.

Threads

Competition-Imitation

Successful business practices are not patents and are not protected from copyright laws. So, upon success, they are always imitated by potential competitors. Southwest's business model has already been applied by other companies outside United States like EasyJet and Quantas and it will not take long for Southwest's competitors to start utilizing it. So Southwest Airlines needs to be aware that it wont be the only low fare company and must keep on innovating continuously.

Economic Comeback

Most probably, the current economic crisis will be over in the next one or two years. This will have as effect a lower demand on low cost trips and an increase in demand for higher quality. Business people will not worry so much about traveling expenses anymore and will seek for business class treatment, facilities and amenities. Travelers and tourist will not have as a priority the cost of their vacations but mostly the comfort, relaxation and well being. If Southwest Airlines fails to meet the above criteria in that time, it will probably face a drop in customer's choice.

Strategy For Successful Growth

Following the brief SWOT analysis I will propose a strategy for the next 5 years, which I believe will keep Southwest Airlines in a successful path.

Extent Quality Range

Southwest Airlines should start providing a small number of seats with business treatment. Demanding customers is an area where the Airlines should focus more. The seats should be less than in a common airline's flight, in the range of 4 to 8 per flight, in order to keep the overall cost low and at the same time provide the choice for the customer.

Extend Range of Operation

Southwest Airlines should extent its operation nationally and also experiment with pilot international flights, in order to reach a wider audience and increase its customer base

Increase Aircraft Types

Southwest Airlines should increase the variety of airplane types by adding another type of airplane. It is important to increase the variety by only one so it keeps the benefits of a few types fleet while eliminating the risk of utilizing a single type. Also it would be good to increase the suppliers by purchasing non Boeing airplanes also. Airbus A320 series would be a good alternative for Boeing 737.

Aggressive short term price policy

In the next couple of years and while the economy is still in recession, Southwest Airlines should take advantage of the bad financial situation of the competitors and follow and aggressive low price policy in order to eliminate competition and gain a bigger market share.

Improve Partnership Schemes

Southwest Airlines should improve the cooperation with the rest of the traveling sector, in order to attract more customer by providing complete traveling packages in very low prices.

Investigate International Activities Potential

Southwest Airlines should investigate the potential of beginning activities outside the United States, in promising markets like Europe and Asia.

Revise Fare Search Engine Policy

Southwest Airlines should revise its policy and start exposing its fares in search engines like Expedia, Orbitz and Travelocity in order to stress the difference in price from

competitors.

Implementation And Evaluation Plan

The following steps should be followed by Southwest Airlines in order to implement and evaluate the proposed strategy.

Pilot Business Class Flights

Three or four major routes should be selected based on a customer evaluation for pilot flights with business class treatment. Response should be recorded and evaluated. If the demand equals or exceeds the average passengers per flight, Southwest should proceed implementing Business Class in all its flights.

New Destinations

New destinations should be selected carefully based on the competitors prices on the candidate roots. If the competitors maintain high prices with an average equal or more that $0.12 per seat mile, which is the competitors average(Miller, 2009), Southwest Airlines should enter aggressively into that market. After entering the market, continuous evaluation should take place by comparing the roots passengers per flight with the total passengers per flight

Lower Prices

In roots with strong competition where the competitors face financial trouble, Southwest Airlines should benefit from its wealthy financial situation and drop even more prices, even with the potential of temporary loses, in order to make it unprofitable for the competitors to operate on the specific roots. The response of the competition should be evaluated periodically and the policy reconsidered based on the current situation.

Purchase New Airplanes

Southwest Airlines should proceed with a deal with Airbus for a small number, less than 10, of A320 airplanes. The new airplane type should be evaluated for a period of 1-2 years and if it proves satisfying, the company should proceed with the purchase of more airplanes as a part of its expansion in new routes

New Partnerships

Southwest should take the initiative to provide discounts to preferred partners as hotels and car rental agencies in order to attract new customers. The response on this should be evaluated and if profitable to be extended.

Cooperation With Search Engines

The policy of not exposing fares in search engines should be immediately revised. Agreements with major search engines must take place and this policy must be evaluated yearly by analyzing the incoming profits through these channels

Research For International Destinations Potential

Southwest should hire consultants to research the potential of expanding to international destinations. Upon completion, the research should be evaluated and action should be taken accordingly.

References

Miller, A. (n.d.). Future Looks Dim For Legacy Carriers, Regardless of Cost-Cutting . Retrieved April 18, 2009, from http://bus.utk.edu/‌cba/‌News_Articles/‌AWST%20Editorial%20Final%20-%20miller.pdf

Pae, P. (2008, July 25). AIRLINES; Southwest is poised to reign as area's busiest; Fuel hedging helps the carrier take advantage of rivals' cutbacks at LAX and three other regional airports. Los Angeles Times,p. C.1. Retrieved April 17, 2009, from Los Angeles Times database. (Document ID: 1516530331).

Sardone, S. B. (n.d.). Get the Most Out of a Southwest Airlines Flight. Retrieved April 18, 2009, from http://honeymoons.about.com/‌od/‌airlinessites/‌qt/‌Southwest_Air.htm

Schlangenstein, M . (2009, April 17). SOUTHWEST SKIDS TO 3RD LOSS IN ROW AIRLINE OFFERS INCENTIVES FOR EMPLOYEES TO LEAVE. South Florida Sun - Sentinel,D.3. Retrieved April 22, 2009, from Sun Sentinel (Ft. Lauderdale) database. (Document ID: 1680333031).

Southwest Airlines Official Website . (n.d.). Retrieved April 18, 2009, from http://www.southwest.com