Case Study On Southwest Airline 2010

2010
CASE STUDY ON SOUTHWEST AIRLINE
CHUOP Theot Therith
TABLE OF CONTENT
Table of Content
1. Case Abstract .......................................................................................................................................................... 1
2. Propose a Vision Statement............................................................................................................................ 2
3. The company mission statement and mission statement proposed .................................................. 2
4. List the corresponding Mission Statement components ......................................................................... 2
5. Perform an External Audit.............................................................................................................................. 3
6. Competitive Profile Matrix (CPM) ............................................................................................................... 5
7. The EFE Matrix .................................................................................................................................................... 5
8. Perform an Internal Audit ............................................................................................................................... 7
9. The IFE Matrix ..................................................................................................................................................... 8
10. TOWS Analysis ................................................................................................................................................. 10
11. The SPACE Matrix ............................................................................................................................................11
12. The Grand Strategy Matrix ...........................................................................................................................12
13. The IE Matrix...................................................................................................................................................... 13
14. The Matrix Analysis and TOWS summary ...............................................................................................14
15. The QSPM ...........................................................................................................................................................14
16. The EBIT/EPS Analysis .................................................................................................................................... 18
17. The Recommendation .................................................................................................................................. 20
REFERENCES
REFERENCES
1. Fred R. David, Strategic Management, 9/e, 2003 by Prentice-Hall, Inc., A Pearson
Education Company, Upper Saddle River, New Jersey 07458
2. Dr. V.V.R. Seshu Babu, Strategic Management hand out, 2010, BBU, Phnom Penh
3. Strategic Management Club Online www.strategyclub.com
4. Shahzad Trading & Consulting FZE: www.shahzadtc.com
5. MindTools: www.Mindtools.com/subscribe.htm
6. Web site: www.maxi-pedia.com
7. Southwest Airlines: http://www.southwest.com/
8. Web site: www.iflyswa.com
9. Wikinvest: www.wikinvest.com/stock/Southwest_Airlines_Company_ (LUV)/Data/EBIT
Strategic Management
1. CASE ABSTRACT
Southwest is an Airline Company, based in Dallas, Texas
Herbert D. Kelleher, Chairman, President, and CEO
Since 1987, when the Department of Transportation began tracking Customer Satisfaction
statistics, Southwest has consistently led the entire airline industry with the lowest ratio of
complaints per passengers boarded. Many airlines have tried to copy Southwests business model,
and the Culture of Southwest is admired and emulated by corporations and organizations in all
walks of life. Always the innovator, Southwest pioneered Senior Fares, a same-day air freight
delivery service, and Ticketless Travel. Southwest led the way with the first airline web page
southwest.com, DING! the first-ever direct link to Customers computer desktops that delivers live
updates on the hottest deals, and the first airline corporate blog, Nuts About Southwest. Our
Share the Spirit community programs make Southwest the hometown airline of every city we
serve.
In 2007, Southwest Airlines signs a ten-year contract with Galileo to make low fares
available to all Galileo-connected travel agencies in North America. We returned to San
Francisco International Airport in the Summer and expanded to have an eighth crew base
located in Las Vegas. In keeping with customer demands, we kept our open seating policy but
adopted a new boarding procedure to make the process quicker. Our gate areas are also
undergoing makeovers and weve added a new Business Select fare for our most frequent
business fliers.
Southwest's current strategy is to position itself as a cost leader with a focus strategy. The
companys management and employees aim to cost-effectively and reliably fly large number of
customers on short, non-stop flights, and to have fun doing it. They are devoted to making flying
available to everyone. The company has been successful in implementing this strategy, having
experienced strong growth and profitability. Southwest is now the largest carrier in the U.S. in
total customers. It has operated profitably for 32 consecutive years in an industry with a volatile
earnings history. The main strategic issue facing Southwest at this time is to evaluate this strategy
and determine its future course of action.
CHUOP Theot Therith: Southwest Airlines (2010)
2. PROPOSE A VISION STATEMENT FOR SOUTHWEST AIRLINES

Southwest Airlines Vision (proposed) is to be the famous mature and new generation
Airlines Company that provides the most affordable, reliable and comfortable flight
transportation in both domestic and oversees.
3. THE COMPANYS MISSION STATEMENT
. The currently mission statement
The mission (existing) of Southwest Airlines is dedication to the highest quality of Customer
Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
. The mission statement proposed
A better Mission Statement proposed is to provide quality service for the everyday person.
Southwest services air travel to cities all around the U.S with the latest technology and the most
luxurious planes. Through the search for the greatest advantage in todays busy world, we
competitively provide the lowest air-fare price with ensuring high company sprit and long term
financial prosperity. Southwest is committed to offers the highest standards of safety/integrity for
all our customers at an affordable/reasonable price. We ensure all processing is respect to the
governmental regulations and we also have the policy for annual donation regularly to various
charities throughout the United States. Since the first flight of Southwest in 1971, our employees
have been the vital asset in making Southwest the most recognized airline today.
4. LIST THE CORRESPONDING MISSION STATEMENT COMPONENTS
The mission statement is the most public and visible part of the strategy management
process, it must include the 9 elements: Customers, Products or Services, Markets, Technology,
Survival growth and Profitability, Philosophy, Self-concept, Concern for public image and
Concern for employees. Therefore, the corresponding mission statement components to the mission
statement proposed for Southwest are shown below:
1.
Customer: the Southwests customer is the everyday person, to provide quality
service for the everyday person

2. Products or Services: the major service of the Southwest is air travel, Southwest
services air travel

3. Markets: the geographically where the Southwest compete is cities all around the
U.S, Southwest services air travel to cities all around the U.S
4. Technology: the technologically current of Southwest is the latest technology,

with the latest technology and the most luxurious planes
5. Concern for survival, growth, profitability: the Southwest committed to growth

and financial soundness is the lowest air-fare price, we competitively provide the
lowest air-fare price with ensuring high company sprit and long term financial
prosperity
6. Philosophy: it is, Southwest is committed to offers the highest standards of
safety/integrity for all our customers
7. Self-concept: the distinctive competence or major competitive advantage is
reasonable price, all our customers at an affordable/reasonable price
8. Concern for public image: the Southwest responsive to social is governmental
regulation and annual donation, We ensure all processing is respect to the
governmental regulations and we also have the policy for annual donation regularly
to various charities throughout the United States
9. Concern for employees: it is, our employees have been the vital asset in making
Southwest the most recognized airline today

5. PERFORMANCE OF AN EXTERNAL AUDIT (RESULT)
An evaluation of the external opportunities and threats based on the case study
(Southwest Airlines, 2002) and additional references (by 2009) is as follows:
Opportunities:
There are opportunities for growth markets share, and expansion to new markets
1. More than 100 new cities have encouraged Southwest to offer flight service (2003)
2. There is an increased demand for international travel
3. Increased demand for cities that are currently (by 2009) without Southwest airline
flights such as New York, Atlanta
4. With an increase of nearly 3 million people in the US there is an expansion of
developing cities across the United States
5. Increased amount of upper level business travelers has led to greater demand for
better seats.
Technological competency and its popularity of Southwest

6. First airline on the web
7. Booked online 13.6% more than American Airlines (in 2004)
8. Top-ranked web site in customer satisfaction among travel sites (by 2004)
9. Increase popularity of internet leads to an expected rise of 22 percent from 2006 in
flight booked online
There are barriers to entry for other competitors in the airline industry, the bankruptcy,
and decline.
10. There is a decline of 11 percent in airline companies with funding leading to used
planes being able to be purchased
11. Each year, airline companies (such as Delta and Northwest in 2006) are declaring
bankruptcy leaving more cities existing allowing more airlines to fly to
12. Decline of 11 percent in airline companies with funding leading to experienced
workers being laid off.
Threats:
Jet Blue Airline

1. Specialization expertise of Jet Blue using one plane model allows them to provide less
expensive mechanics to maintain planes.
2. Jet Blue is the only airline to carry satellite televisions on planes.
Southwest's ability to hold the line on costs will impact its cost leadership position.
3. The largest cost component (36.9% of expenses) is labor. This cost could be impacted
by union actions, which cover 84% of Southwest's workforce.
4. The second largest cost component is fuel (11.2%), which could be negatively
impacted by economic or political events, high cost of fuel leads to increase in ticket
prices
Other threats
5. New tax system, higher ticket taxes.
6. Increase in airport security due to possible terrorism, terrorists attacks
7. Many companies such as AirTran Airways are offering a business class in their B717
jet.
8. Competing airlines offer satellite radio in their passenger jets, newer and more
technologically advanced jets with luxury items and some of competitors offer inflight meals adding luxury
9. Alternative forms of transportation, such as a high-speed railway, could weaken
demand for air travel. Also, if the economy weakens, people may choose to drive
rather than fly
10. Southwest would be hurt if the public perception were that low price equates to
low quality. An incident like the ValuJet crash could reinforce this perception.
6. COMPETITIVE PROFILE MATRIX (CPM)

Based on the case study and some extra information, it enables to prepare a Competitive
Profile Matrix (CPM) as following:
South West
Critical Success Factors
Weighted
American
United
Weighted
Rating
Advertising
0.14
0.42
0.42
0.28
Global Expansion
0.07
0.07
0.21
0.21
Market Share
0.12
0.24
0.48
0.36
Price competitiveness
0.09
0.36
0.27
0.27
Financial Position
0.11
0.33
0.11
0.11
Consumer Loyalty
0.09
0.36
0.18
0.18
Management
0.09
0.36
0.27
0.27
Security Precautions
0.09
0.27
0.27
0.18
Customer Service
0.14
0.48
0.28
0.14
Organizational Structure
0.06
0.18
0.18
0.12
Total
1.00
Score
3.07
Rating
Score
Rating
Weighted
Weight
2.67
Score
2.12
7. EXTERNAL FACTOR EVALUATION (EFE) MATRIX

According to the result of performance an external audit above, the EFE matrix is
presented as below:
Key External Factors (KEF)
Weights
Rating
Weighted
0.0 to 1.0
1 to 4
Score
0.04
0.16
0.09
0.09
0.09
0.09
0.01
0.02
Opportunities
1. More than 100 new cities have encouraged Southwest
to offer flight service (2003)
2. There is an increased demand for international travel
3. Increased demand for cities that are currently (by
2009) without Southwest airline flights such as New
York, Atlanta
4. With an increase of nearly 3 million people in the US
there is an expansion of developing cities across the
United States
5. Increased amount of upper level business travelers has
led to greater demand for better seats.
7. Booked online 13.6% more than American Airlines (in
2004)
8. Top-ranked web site in customer satisfaction among
travel sites (by 2004)
9. Increase popularity of internet leads to an expected rise
of 22 percent from 2006 in flight booked online
0.01
0.01
0.02
0.02
0.03
0.03
0.03
0.06
0.03
0.09
0.01
0.01
0.04
0.08
0.03
0.09
0.10
0.30
0.05
0.10
0.03
0.03
0.10
0.30
0.04
0.08
0.09
0.27
10. There is a decline of 11 percent in airline companies

with funding leading to used planes being able to be
purchased
11. Each year, airline companies (such as Delta and
Northwest in 2006) are declaring bankruptcy leaving
more cities existing allowing more airlines to fly to
12. Decline of 11 percent in airline companies with funding
leading to experienced workers being laid off.
Threats
1. Specialization expertise of Jet Blue using one plane
model allows them to provide less expensive mechanics
to maintain planes.
2. Jet Blue is the only airline to carry satellite televisions on
planes.
3. The largest cost component (36.9% of expenses) is
labor. This cost could be impacted by union actions,
which cover 84% of Southwest's workforce.
4. The second largest cost component is fuel (11.2%), which
could be negatively impacted by economic or political
events, high cost of fuel leads to increase in ticket prices
6. Increase in airport security due to possible terrorism,
terrorists attacks
7. Many companies such as AirTran Airways are offering a

business class in their B717 jet.
0.04
0.04
0.04
0.08
0.04
0.04
0.04
0.04
8. Competing airlines offer satellite radio in their

passenger jets, newer and more technologically
advanced jets with luxury items and some of
competitors offer in-flight meals adding luxury
9. Alternative forms of transportation, such as a highspeed railway, could weaken demand for air travel.
Also, if the economy weakens, people may choose to
drive rather than fly
10. Southwest would be hurt if the public perception were
that low price equates to low quality. An incident like
the ValuJet crash could reinforce this perception.
TOTAL
1.00
2.03
8. PERFORMANCE OF AN INTERNAL AUDIT (RESULT)

An assessment of the internal strengths and weaknesses based on the case study
(Southwest Airlines, 2002) and additional references (by 2009) is as follows:
Strengths
1. Southwest has successfully adopted a cost leadership strategy

2. Southwest has a reputation for great customer service: Southwest won the
Department of Transportations Triple Crown 5 years consecutively for ontime service,
baggage handling, and least number of customer complaints. The company has
topped the National Airline Quality Rating three years consecutively.
3. Employee loyalty: the company has a strong, fun-loving, employee-oriented culture.
The company's mission statement focuses on these aspects of the business. The result is a
loyal employee base that is willing to work hard to achieve the company's goals.
4. Thirty-seven consecutive years of profitability 1972 till 2009 (31 consecutive years of
profitability by 2003)
5. Eighty-five percent hedge position on fuel.
6. RPMs for 42.2 billion
7. Excellent public image.
8. Strong management team.
9. Thirteen billion in market value.
10. In 2009 Southwest has three hundred and eighty-eight new jets (30 new jets in 2003)
11. Average age of jets is least than 10 years around 8 years
12. Fourth largest domestic airline.
13. Growth rate higher than industry.
14. 54 % of revenues from online booking via SW Website (25% in 2003, 50% in 2004).
15. Seventy-five percent of flights are E-tickets.
Weaknesses
1.
The company's mission statement is weak. Although there appears to be clear

communication of the company's goals, the mission statement doesn't even mention
what industry Southwest is in.
2. Depend on single producer,

3. SW has highest percentage of full-time employees leading to increased overhead.
4. Southwest only flies one plane, the Boeing 737.
5. They will not fly outside the continental United States, 63 cities and 32 states.
6. Difficult to convince customers SW offers benefits other airlines do not.
7. Flying only 737s could lead to negative press if problems with that plane arise.
8. Does not accommodate for severely handicapped.
9. Large cities (Atlanta, Charlotte, etc) are without SW service.
10. No business section on plane, do not provide a first class for passengers, do not provide
assigned seating.
11. Southwest does not offer any type of in-flight meals.
12. Southwest offers in domestic only, no international flights.
9. INTERNAL FACTOR EVALUATION (IFE) MATRIX
By the performance an internal audit above, the IFE matrix is presented as below:
Weights
Rating
Weighted
0.0 to 1.0
1 to 4
Score
0.07
0.21
2. Southwest has a reputation for great customer service
0.07
0.21
3. Employee loyalty
0.07
0.28
0.04
0.16

Strengths
1. Southwest has successfully adopted a cost leadership

strategy
4. Thirty-seven consecutive years of profitability 1972 till

2009 (31 consecutive years of profitability by 2003)
0.07
0.28
0.04
0.12
0.07
0.28
0.07
0.28
0.04
0.12
0.04
0.12
11. Average age of jets is least than 10 years ~ 8.4 years
0.04
0.16
0.03
0.12
0.07
0.21
0.02
0.06
0.03
0.12
1. The company's mission statement is weak
0.02
0.02
2. Depend on single producer
0.01
0.01
0.03
0.06
0.01
0.01
0.04
0.08
0.01
0.02
0.01
0.01
0.01
0.01
0.05
0.05
0.01
0.01
11. Southwest does not offer any type of in-flight meals.
0.01
0.02
12. Southwest offers in domestic only, no international flights.
0.02
0.02
10. In 2009 Southwest has three hundred and eightyeight new jets (30 new jets in 2003)
14. 54 % of revenues from online booking via SW Website

(25% in 2003, 50% in 2004).
Weaknesses
3. SW has highest percentage of full-time employees

leading to increased overhead.
4. Southwest only flies one plane, the Boeing 737.
5. They will not fly outside the continental United States,
63 cities and 32 states.
6. Difficult to convince customers SW offers benefits other
airlines do not.
7. Flying only 737s could lead to negative press if
problems with that plane arise.
8. Does not accommodate for severely handicapped.
9. Large cities (Atlanta, Charlotte, etc) are without SW
service.
10. No business section on plane, do not provide a first
class for passengers, do not provide assigned seating.
TOTAL
1.00
3.05
9
10. THE TOWS ANALYSIS

Here, the TOWS matrix an effective way of combining internal strengths with external
opportunities and threats, and internal weaknesses with external opportunities and threats.
(Base on the external audit at point 5 and internal audit at point 8)
External Opportunities (O)
1.
External Threats (T)
O1
1.
T1
2. O2
2. T2
3. O3
3. T3
12. O12
SO Strategy (maxi-maxi )
10. T10
ST Strategy (maxi-mini)
1. Use the reputation for great 1. Expand the rapid rewards

Internal Strength (S)
1.
S1
customer service to penetrate
program to offer one reward
& attract customers from
point
other 100 new cities (S2-O1)
purchases
2. S2
2. Through market value, offer
3. S3
flight service in the cities
currently without SW (S9-O3)
15. S15
3. Base on increasing of revenue
for
every
made
three
on
the
Southwest website at least

one month in advance.
2. Upgrade our fleet by adding

12 of the similar Boeing 717 jets
in order to accommodate to
from online, continue to satisfy
the
customer via internet
travelers
desiring
the
luxury of a business class.
(S14S15 O6O7O9)
WO Strategy (mini-maxi)
WT Strategy (mini-mini)
1. Hire more part time worker 1. Add new cities not flown to
Internal Weaknesses (W)
1.
W1
(W3-O12)
2.
With
by
airline
planes
Southwest
such
as
companies
Atlanta, Charlotte, Chicago,
SW
and New York
2. W2
selling
3. W3
purchase models similar to 2. Shorten the flight life span
the 737, which could lead to of
12. W12
better press if a problem with maintain planes that

the 737 arises (W7-O10)
can
the
B737s
in
order
are
consistently up to date with

technology
10
11. THE SPACE MATRIX

Internal Strategic Position
Financial Strength (FS)
ROI
ROA
Leverage
Net income
Inventor Turnover
FS average
Rating
3
3
2
3
2
2.6
Competitive Advantage (CA)

Market Share
Product/service quality
Customer loyalty
Competitions capacity utilization
Technological know-how
CA average
Rating
-2
-1
-1
-2
-1
-1.4
External Strategic Position

Environmental Stability (ES)
Rating
Technological changes
-2
Risk involved in business
-3
Rate of inflation
-3
Competitive pressure
-5
Price of elasticity of demand
-2
ES average
-3.0
Industry Strength (IS)
Profit potential
Growth potential
Financial policy
Resource utilization
Rating
6
5
4
5
IS average
5.0
Conclusion
Directional vector coordinates:
X-axis -1.4 + 5.0 = 3.6

Y-axis 2.6 + (-3.0) = -1.4
Therefore, the Southwest Airline should pursue Competitive Strategy
FS
Conservative
+6
Aggressive
CA
IS
-6
+6
(3.6,-1.4)
Defensive
Competitive
-6
ES
11
The directional vector locates in the competitive quadrant of the SPACE Matrix, indicating
competitive strategies. So Southwest should take backward, forward, and horizontal integration;
market penetration; market development; product development; and joint venture.

12. THE GRAND STRATEGY MATRIX
According to the Market Growth and Competitive Position of Southwest (via the case),
therefore Southwest is in the Quadrant I (please see the matrix below).
.
Rapid Market Growth
Quadrant II
1. Market development
2. Market penetration
3. Product development
4. Horizontal integration
5. Divesture
6. Liquidation
Quadrant I
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
7. Concentric diversification
Weak
Competitive
Position
Southwest
Strong
Competitive
Position
Quadrant III
1. Retrenchment
3. Conglomerate
diversification
5. Divesture
6. Liquidation
Quadrant IV
3. Conglomerate
diversification
4. Joint ventures
Slow Market Growth
12
13. THE INTERNAL-EXTERNAL (IE) MATRIX

Use the findings score of EFE (at point 7) and IFE matrix (at point 9), we get the IE matrix
based on the following two criteria:
1.
The total weighted score from the EFE matrix: 2.03 this score is plotted on the y-axis
2. The total weighted score from the IFE matrix: 3.05 this score is plotted on the x-axis
Now we plot these values on axes in the IE matrix.
EFE total weighted score

Strong
3.0 to 4.0
Average
2.0 to 3.0
Weak
1.0 to 1.99
4.0
High
3.0 to 4.0
II
III
Here, Southwest
is in cell VI
(2.03,3.05)
3.0
Medium
2.0 to 3.0
IV
VI
VII
VIII
IX
2.0
Low
1.0 to 1.99
1.0
2.0
3.0
4.0
IFE total weighted score
As the matrix, Southwest is in cell VI that suggests the hold and maintains strategy. In this
case, Southwests tactical strategies should focus on market penetration and product
development.
13
14. MATRIX ANALYSIS AND TOWS SUMMARY

As the result of IE matrix (at point 13), SPACE matrix (at point 11), Grand Strategy Matrix
(at point 12) and TOWS analysis (at point 10), we find out the Alternative Strategies such the
table below:
N
01
02
03
04
05
06
07
08
09
10
11
12
13
Alternative Strategies
Forward Integration
Backward Integration
Horizontal Integration
Market Penetration
Market Development
Product Development
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Joint Venture
Retrenchment
Divestiture
Liquidation
IE
SPACE
GRAND
TOWS
Count
3
2
2
3
2
3
2
0
0
1
0
0
0
15. THE QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

This QSPM compares two alternatives. Based on strategies in the stage 1: the input stage
(EFE, CPM, IFE) and stage 2: the matching stage (TOWS analysis, SPACE matrix, IE matrix, GSM),
company executives determined that Southwest needs to pursue an competitive strategy aimed
development of new product and further penetration of the market.
It means the possible strategies for Southwest Airlines are (1) market penetration strategy:
Expand into more cities that are currently without SW airline flights (such as Atlanta, New York)
and (2) product development strategy: Add 12 B17s to Fleet.
Expand into
more cities such
Add 12 B17s to
Weight
as Atlanta, New
Fleet
0.0 to 1.0
York
AS
TAS
AS
TAS
0.16
0.08
Opportunities
1. More than 100 new cities have encouraged

Southwest to offer flight service (2003)
0.04
14
2.
There
is
an
increased
demand
for
international travel
0.09
0.36
0.27
0.09
0.36
0.27
0.01
0.03
0.02
0.01
0.02
0.04
0.02
0.03
0.03
0.03
0.01
0.02
0.02
0.04
0.08
0.04
0.03
0.03
0.03
0.10
0.10
0.20
3. Increased demand for cities that are currently

(by 2009) without Southwest airline flights
such as New York, Atlanta
4. With an increase of nearly 3 million people in
the US there is an expansion of developing
cities across the United States
5. Increased amount of upper level business
travelers has led to greater demand for better
seats.
7. Booked online 13.6% more than American
Airlines (in 2004)
8. Top-ranked web site in customer satisfaction
among travel sites (by 2004)
9. Increase popularity of internet leads to an
expected rise of 22 percent from 2006 in flight
booked online
10. There is a decline of 11 percent in airline
companies with funding leading to used
planes being able to be purchased
11. Each year, airline companies (such as Delta
and Northwest in 2006) are declaring
bankruptcy leaving more cities existing
allowing more airlines to fly to
12. Decline of 11 percent in airline companies with
funding leading to experienced workers being
laid off.
Threats
1. Specialization expertise of Jet Blue using one
plane model allows them to provide less
expensive mechanics to maintain planes.
15
2. Jet Blue is the only airline to carry satellite

televisions on planes.
0.05
0.05
0.10
0.03
0.10
0.04
0.09
0.09
0.09
0.04
0.04
0.12
0.04
0.04
0.08
0.04
0.04
0.04
0.04
3. The largest cost component (36.9% of

expenses) is labor. This cost could be impacted
by union actions, which cover 84% of
Southwest's workforce.
4. The second largest cost component is fuel
(11.2%), which could be negatively impacted
by economic or political events, high cost of
fuel leads to increase in ticket prices
6. Increase in airport security due to possible
terrorism, terrorists attacks
7. Many companies such as AirTran Airways are
offering a business class in their B717 jet.
8. Competing airlines offer satellite radio in their
passenger
jets,
newer
and
more
technologically advanced jets with luxury

items and some of competitors offer in-flight
meals adding luxury
9. Alternative forms of transportation, such as a
high-speed railway, could weaken demand
for air travel. Also, if the economy weakens,
people may choose to drive rather than fly
10. Southwest would be hurt if the public
perception were that low price equates to low
quality. An incident like the ValuJet crash
could reinforce this perception.
Sub total of weight and TAS
1.00
1.42
1.40
Strengths
1. Southwest has successfully adopted a cost

leadership strategy
2. Southwest has a reputation for great
0.07
0.07
0.14
0.07
16
customer service
3. Employee loyalty
0.07
0.04
0.07
0.04
0.08
0.08
0.07
0.14
0.07
0.07
0.07
0.07
0.04
0.16
0.08
0.04
0.08
0.12
0.04
0.08
0.12
0.03
0.06
0.03
0.07
0.14
0.07
0.02
0.03
4. Thirty-seven consecutive years of profitability

1972 till 2009 (31 consecutive years of
profitability by 2003)
10. In 2009 Southwest has three hundred and

eighty-eight new jets (30 new jets in 2003)
11. Average age of jets is least than 10 years ~ 8.4
years
14. 54 % of revenues from online booking via SW

Website (25% in 2003, 50% in 2004).
Weaknesses
1.
The company's mission statement is weak
0.02
0.04
0.04
2.
Depend on single producer
0.01
0.01
0.02
3.
SW has highest percentage of full-time
0.03
0.06
0.03
0.01
0.01
0.04
0.04
0.12
0.04
0.01
0.02
0.01
0.01
0.01
0.02
0.01
employees leading to increased overhead.

4.
Southwest only flies one plane, the Boeing

737.
5.
They will not fly outside the continental

United States, 63 cities and 32 states.
6.
Difficult to convince customers SW offers

benefits other airlines do not.
7.
Flying only 737s could lead to negative press

if problems with that plane arise.
8.
Does
not
accommodate
for
severely
17
handicapped.
9.
Large cities (Atlanta, Charlotte, etc) are

without SW service.
0.05
0.20
0.05
0.01
0.01
0.02
0.08
0.02
10. No business section on plane, do not provide

a first class for passengers, do not provide
assigned seating.
11. Southwest does not offer any type of inflight meals.
12. Southwest
offers
in
domestic
only,
no
international flights.
Sub total of weight and TAS
1.00
SUM TOTAL ATTRACTIVENESS SCORE

Note:
1.5
2.92
0.98
>
2.38
. AS = Attractiveness Score, TAS = Total Attractiveness Score

. Attractiveness Score: 1 = not attractive; 2 = somewhat attractive; 3 = reasonable attractive;
4 = highly attractive.
Doing calculation in the QPSM, we conclusion that market penetration strategy: Expand
into more cities that are currently without a SW airline flight (such as Atlanta, New York) is a
better option. This is given by the Sum Total Attractiveness Score figure. The market penetration
strategy yields higher score than the product development strategy: Add 12 B17s to Fleet. The
market penetration strategy has a score of 2.92 in the QSPM shown above whereas the Add 12
B17s to Fleet strategy has a smaller score of 2.38.
16. CONDUCTION AND PRESENTATION THE EBIT/EPS ANAYLYSIS
(Assume $500 million needed; in millions)
Amount needed
$500 millions
Interest
5%
Tax rate
38%
Share price
$7.2
Shares outstanding
770 millions
18
EPS/EBIT Analysis for the Southewest Airlines (in millions except)

Common Stock
Financing
Recession Normal Boom
EBIT
Combination Financing
Debt Financing
Recession
(70% Stock 30% Debt)
Normal Boom
Recession
Normal Boom
300
500
800
300
500
800
300
500
800
50
50
50
15
15
15
EBT
300
500
800
250
450
750
285
485
785
Taxes
114
190
304
95
171
285
108.3
184.3
298.3
EAT
186
310
496
155
279
465
176.7
300.7
486.7
839.51
839.5
839.5
770
770
770
818.65
818.65
818.65
0.22
0.37
0.59
0.20
0.36
0.60
0.22
0.37
0.59
Interest
#Share
EPS
EPS
0.7
0.6
0.5
Series1
Series2
Series3
0.4
0.3
0.2
0.1
0
EBIT
200
400
600
800
1000
Note: Series1 is Common Stock line

Series2 is Debt line
Series3 is Combination (70% Common Stock, 30% Debt)
1
839.5 = 770 + (500/7.2)
19
17. RECOMMENDATION TO SOUTHWEST AIRLINES

Based on QSPM, the best looking strategy would be the market penetration expanding
geographically market to mare cities that are currently with out Southwest Airline flight such as
Atlanta and New York. It is recommended Southwest penetrates its flights to more cities both in
domestic and internationally.
Last modified: July 28, 2010

Submitted Date: July 31, 2010
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Case Study On Southwest Airline 2010

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Case Study On Southwest Airline 2010

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2010

CASE STUDY ON SOUTHWEST AIRLINE

CHUOP Theot Therith

CHUOP Theot Therith: Southwest Airlines (2010)

2. PROPOSE A VISION STATEMENT FOR SOUTHWEST AIRLINES

Customer: the Southwests customer is the everyday person, to provide quality

service for the everyday person

services air travel

4. Technology: the technologically current of Southwest is the latest technology,

5. Concern for survival, growth, profitability: the Southwest committed to growth

Southwest the most recognized airline today

Technological competency and its popularity of Southwest

CHUOP Theot Therith: Southwest Airlines (2010)

Jet Blue Airline

CHUOP Theot Therith: Southwest Airlines (2010)

6. COMPETITIVE PROFILE MATRIX (CPM)

7. EXTERNAL FACTOR EVALUATION (EFE) MATRIX

CHUOP Theot Therith: Southwest Airlines (2010)

10. There is a decline of 11 percent in airline companies

CHUOP Theot Therith: Southwest Airlines (2010)

7. Many companies such as AirTran Airways are offering a

8. Competing airlines offer satellite radio in their

8. PERFORMANCE OF AN INTERNAL AUDIT (RESULT)

1. Southwest has successfully adopted a cost leadership strategy

The company's mission statement is weak. Although there appears to be clear

2. Depend on single producer,

2. Southwest has a reputation for great customer service

Key External Factors (KEF)

1. Southwest has successfully adopted a cost leadership

4. Thirty-seven consecutive years of profitability 1972 till

CHUOP Theot Therith: Southwest Airlines (2010)

5. Eighty-five percent hedge position on fuel.

6. RPMs for 42.2 billion

7. Excellent public image.

8. Strong management team.

9. Thirteen billion in market value.

11. Average age of jets is least than 10 years ~ 8.4 years

12. Fourth largest domestic airline.

13. Growth rate higher than industry.

1. The company's mission statement is weak

2. Depend on single producer

11. Southwest does not offer any type of in-flight meals.

12. Southwest offers in domestic only, no international flights.

14. 54 % of revenues from online booking via SW Website

3. SW has highest percentage of full-time employees

10. THE TOWS ANALYSIS

External Threats (T)

1. Use the reputation for great 1. Expand the rapid rewards

customer service to penetrate

program to offer one reward

& attract customers from

other 100 new cities (S2-O1)

2. Through market value, offer

flight service in the cities

currently without SW (S9-O3)

3. Base on increasing of revenue

Southwest website at least

2. Upgrade our fleet by adding

from online, continue to satisfy

customer via internet

luxury of a business class.

Atlanta, Charlotte, Chicago,

and New York