Southwest Airlines Co. incorporated in 1967, is a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2010, the company had 548 Boeing 737 aircraft serving 69 cities in 35 states (Southwest Airlines Company profile, 2011). Key officers include: Herbert D. Kelleher – Founder and Chairman Emeritus. Colleen C. Barrett – President Emeritus. Gary C. Kelly – Chairman, President & Chief Executive Officer. The Company functions primarily on point-to-point service rather than focusing on hub and spoke service.
About 78% of the passengers of the airline travel on non-stop flights and the Company predominantly serve short-haul routes with flights operating highly frequent. (Southwest Airlines Company profile, 2011) SWOT ANALYSIS: Strengths: By far the biggest strength of Southwest Airlines is the ability of the company to offer reliable low-cost prices; they are also able to maintain lower operating cost which enhances its profitability. They were the first to introduce online booking, ticket less traveling, and no reserved seating, thus making it easier to turn around flights.
The teamwork and efficiency within the company’s employees is widely recognized as one of the reasons for Southwest’s high ticket sales. Weaknesses: At this time only domestic flight are being offered with no direct flight away from the United States. The airline does not offer some of the services that the other airlines offer such as, first class cabins, lounges, in-flight entertainment, or reserved seats. The labor force is highly unionized with different union associations across pilots, technicians and service providers.
They only use Boeing 737 aircraft, which can cause conflicts in connecting flights or airports. (Tim Smith, 2011) Opportunities: The acquisition of AirTran will enable the company to enter into international flights. (Southwest Airlines, 2011) Longer flight are being introduced, with business class preferred seating now available. Threats: Competitors are now offering low cost online booking fares only, and sites such as Hotwire, Expedia, and Travelocity are partnering with these airlines. The political atmosphere in Washington D. C. ill most likely force ticket prices higher. Gas and oil prices continue to be volatile which will contribute to already rising operating cost. PORTER’S FIVE FORCES MODEL: Threat of new entrants: In the airline industry there are high entry barriers; one of the major factors is the substantial capital costs involved. But however this has not deterred new firms entering the industry. Other threats of entrants can come in the form of major carriers already in the business forming regional and low cost alternatives such as Jet blue airways.
Bargaining Power of Buyers: The bargaining power of the consumers has definitely increased with the availability of more information though internet which acts as a shopping and distribution alternative for the consumers. One of the reasons for the increased bargaining power of consumers is that the individual buyers incur virtually no switching costs when they decide to purchase from one manufacturer rather than another. Bargaining Power of Suppliers: The bargaining power of suppliers is relatively low; there are only two major suppliers of aircraft in Boeing and Airbus.
Fuel cost are regulated by changes in gas and oil prices. Airport charges and government fees are both regulated by the FAA. (Tim Smith, 2011) Substitute Products/Services: The availability of substitute products is quite high. The internet has provided the consumer with many different options with little effort required on the buyers end to stay loyal to one company. It is simply a question of price and consumer satisfaction that drives sales. Intense Rivalry: There is an intense competitive rivalry between competitors like United, Alaska, American, Delta and other major airline companies.
Airline service has become a commodity in that the price variable is a primary source of competition among the industry participants. Southwest Airlines operates at such a low cost structure which provides the company the most competitive advantage. Southwest uses the cost as a distinct competitive edge although it has other sources of differentiation that can be used as competitive advantage. The airline is praised for consistently high level of service which is an additional source of competitive edge. (Lazaro, 2011) STRATEGY USED:
Southwest Airlines has succeeded because of its quick turnaround strategy which is found to be fundamentally different from that of other major US airlines. Having a point-to-point network enables the airlines to have quicker turnarounds than other players in the industry. Clearly its low price point has Southwest positioned to bring many consumers who would travel by ground into the market. (Werner Haas,, 2007) The innovative use of the internet to book travel and print boarding passes were both strategies that forced competition to react accordingly.
For example, not assigning seats allows Southwest to turn flights at the gate quicker. More flights turned equals more flights a day which equal more revenue. Focusing on the flight itself and eliminating the “frills” such as in flight entertainment, first class cabins and food, enables the company to keep operating cost low. When major airlines like United, American, Delta, and Northwest try to match Southwest’s cut-rate fares, they cannot do so without incurring substantial losses. Clearly, by having the lowest operating cost among the major carriers, Southwest can profitably offer lower fare where others cannot. Tim Smith, 2011) ISSUES AND CHALLENGES FACING THIS COMPANY: Some of the challenges facing Southwest Airlines are twofold. First, other airlines are stepping up and offering fares that are comparable, even though these may be limited to internet booking only, they are a step towards the pricing structure that could bite into Southwest’s market. Second, there is a growing market of travelers that prefer some of the perks that Southwest does not offer. These amenities include preferred seating, boarding preference, and other types of things that today’s frequent flyers look for.
As competition for customers increases and fares become more comparable, travelers will be willing to pay the extra for these type of services that Southwest does not offer. The bags fly free program was a very effective response to the major airlines charging for this service. COURSE OF ACTION RECOMMENDED: I have flown Southwest Airlines many times; they are a very reliable form of transportation up and down the west coast. Even when my schedule calls for a last minute trip, I can usually get on the internet and find a very good fare, and not have to worry about sitting in a middle seat.
This would be Southwest core business strategy and they should always hold onto to it. Southwest continues to be the leader in cost savings and operational strategies that keep the fares affordable for a larger market segment. Having said that though, I do believe that there are significant opportunities to reach other markets. Certainly the acquisition of AirTrans should open the door to international flights to Mexico and the Caribbean. I do think that by offering services that are beyond what they are known for on certain flights will attract more frequent flyers, and those who prefer those amenities.
OPINION: In my opinion Southwest has most certainly carved out a great low cost niche market. I enjoyed this case because I travel frequently and at times have used Southwest’s low fare when I have to book at the last minute. I do enjoy the fact that I can get on a flight easily, and not worry about where I will be sitting. However, when I have my choice, I do not choose Southwest Airlines. I fly United Airlines whenever I get the opportunity, I get my preference of where I want to sit in advance, I have access to lounges in the larger airports, and can upgrade to business class for a small fee.
These are things that have become important to me as I get older and are worth the extra charge. I do see many younger passengers on Southwest flights, I would be curious to know if they remain loyal as they become more financially secure later in life. Lastly, I do not think you have lived until you have experienced a Southwest flight out of Las Vegas at around 10:00 am on a Sunday morning, it is quite a sight. References Southwest Airlines Company profile. (2011, August 6th). Retrieved August 6th, 2011, from Southwest Airlines: www. southwest. com Andy Serwer Reporter Associate Kate Bonamici. (2004, March 8th).
Southwest Airlines: The Hottest Thing in the Sky Through change at the top, through 9/11, in a lousy industry, it keeps winning Most Admired kudos. How? Retrieved August 6th, 2011, from CNN Money: http://money. cnn. com/magazines/fortune/fortune_archive/2004/03/08/363700/index. htm Lazaro, A. (2011, June 6th). Southwest Airlines Pricing Strategy: Creating a Unique Value Proposition via Upfront Pricing. Retrieved August 6th, 2011, from The Pricing Journal: http://thepricingjournal. com/2011/06/06/southwest-airlines-pricing-strategy-how-bags-fly-free-and-no-change-fees-has-created-a-unique-value-proposition/ Mike Brown. 2011, January 31st). Southwest Airlines Social Media Strategy – Lessons for All Organizations. Retrieved August 6th, 2011, from BrainZooming: http://brainzooming. com/southwest-airlines-social-media-strategy-lessons-for-all-organizations/6267/ MSN. (2011, August 6th). MSN Money. Retrieved August 6th, 2011, from MSN: moneycentral. msn. com/investor/invsub/results/statement. aspx? symbol=luv Southwest Airlines. (2011, May 2nd). Southwest Airlines Closes Acquisition of AirTran Holdings, Inc. Retrieved August 6th, 2011, from PR Newswire : http://www. prnewswire. om/news-releases/southwest-airlines-closes-acquisition-of-airtran-holdings-inc-121090244. html Tim Smith, P. C. (2011, April 1st). 40 Years of Profitable Service: A Case Study on Southwest Airlines and Target Pricing. Retrieved August 7th, 2011, from The Wiglaf journal: http://www. wiglafjournal. com/pricing/2011/04/40-years-of-profitable-service-a-case-study-on-southwest-airlines-and-target-pricing/ Werner Haas,. (2007, February 2nd). How Southwest Airlines Plans for Success. Retrieved August 6th, 2011, from Associated Content By yahoo: http://www. associatedcontent. com/article/134537/how_southwest_airlines_plans_for_success. html