Jerome Martin

Southwest Airline Case Analysis

1. How does Southwest make money when other airlines dont?

a. Southwest has been in the airline business for 30 years. During those 30
years they run into troubles, near bankruptcy, yet they were still able to
sustain growth. During the economic downturn, terrorist attacks, and other
events that affect the airline industry Southwest was able to turn a profit
when others could not. One of the reasons is their point-to-point route
system. Unlike the Hub-and-spoke systems, P2P enabled Southwest to
speed the turnaround and increase its airtime of their aircrafts. This also
resulted in a greater utilization from their Boeing 737 fleet. Cutting the
average turnaround time to 24 minutes set new standards for the airline

industry, which saw 55-minute turnarounds on average. In addition they

dont assign seats, which eliminated the time in reconciliation of double
assignments of seats. Secondly, they didnt spread themselves thin over an
extensive system. Their strategy was to open markets was to limit markets
served and provide high-frequency departures daily. Thirdly, they paid $1
bookings to the SABRE system in addition to having lower-priced tickets.
This saved the airline an excess of $30 million per year in booking fees.
Lastly, Southwest frequent flier program was the easiest to understand and
use in he entire industry. If you fly eight flights, you get one free. This
resulted in colossal customer loyalty no other airline had, nor could
compete with. It is also important to note that Southwest negotiates their
fuel prices years in advanced, which turns what most companies see as a
variable cost into a fixed cost.
2. How should management respond to the fact that Southwest Airlines has fallen
next to-last place among major airlines in on-time performance as of September,
2002?
a. After the September 11th terrorist attacks, airports implemented heightened
security measures. This affected Southwests core way of business. One
way was that Southwest passengers carried a high percentage of their
baggage on board, which was limited by the FAA. It resulted in more
work and size of their baggage handling crews. Many of the 200 directives
issued by the FAA were security directives. These directives put
Southwest at a competitive disadvantage. Many directives dealt with
tracking passengers from the curb to their seat; SABRE was not designed

to provide these types of detailed reports. In turn they had to extinguish

the use of their reusable plastic boarding passes in favor of paper passes,
which had information about the selected passenger. Southwest used to
have the motto, You are now free to move about the Country. This was
created and directed towards travelers who would walk onto the plane
minutes before takeoff, since they kept their doors open till then. Since
their passengers were used to arrive later than other airline passengers,
they were subject to security searches more than any other airline
passenger. Managers should have reviewed the directives and came up
with solutions to keep constant the way business is done. With these new
security directives in play, managers should have told passengers about
them and the delays that will be caused. Since security at the gate slows
down their boarding time, maybe they should hire more people to help get
through this process. Any services they can offer their passengers as an
additional benefit would be greatly appreciated and increase customer
loyalty and attract new customers.
3. Would you recommend to the management of the airline that it resume its historic
growth rate of 10% to 15% per year? Why? Why not?
a. Yes I would recommend management of the airline to resume its historic
growth rate. Maintain growth would allow Southwest to maintain a strong
balance sheet. One of their senior managers often said, manage in the
good times in order to service in the bad times. A growth rate of 10-15%
is not significant enough to be considered growing too fast, I would say
that it is a powerful growth rate that allows the company to create strategic

advantages based on size, with their focus on quality. This slow

sustainable growth will allow Southwest to move into new areas in the
country and not spread their numbers too thin. Also, by growing at a
sustainable rate they wont lose focus on their core competencies.
4. What are the implications for Southwest of the actual or threatened bankruptcies
of other major U.S. airlines?
a. Southwest is unlike any of their competitors. Because they focus on
sustainable growth, Southwest is able to maintain a strong balance sheet
and continue to make a profit. Their competitiors are barely skimming by,
which is a serious problem from Southwest. The airlines are viewed like
banks by the government. If they fail, they will be bailed out because they
are too big to fail. It would hurt the economy much more if an airline went
bankrupt, the to just hand them to money to climb out of the hole. If this
happened, Southwests competitors would be handed a large sum of cash
to help them get back on their feet. This would allow them to have
expendable cash to use in an economy of scale situation. But unless their
competitors change their ways, they will find themselves in the whole
again. So really Southwest may be hindered short-term by bailouts in the
industry, but overall they will beat them out time and time again.
5. Additional Information:
a. SWOT Analysis
i. Strengths: Point-to-point system, rewards programs, low priced
tickets, strong values, imprinting culture, high frequency
departures, low turnaround time, low cost carrier, and no assigned
seats.
ii. Weaknesses: No international coverage, and no assigned seats.

iii. Opportunities: Increased domestic coverage, un/related

diversification, international coverage, and vertical integration
iv. Threats: Terrorism, government bailouts, and operation costs.
b. Marketing Mix
i. Price: Lowest out of their competitors
ii. Product: Flights
iii. Place: Strong southern prensense in the United States
iv. Promotion: Rapid rewards program.
c. Thoughts:
i. If I were the CEO of Southwest airline, I would keep on track with
what I am doing. I would definitely create contingency plans
incase certain events happened, either good or bad, but keep
business moving forward with the same thought process that has
kept it winning. Sustainable growth is a serious competitive
advantage they need to keep in their mind, because it will keep
them winning in the good times and the bad.