Southwest operates into a multi-divisional structure, as it subdivided into units (divisions) on the basis of products, services, geographical area

or the processes of the enterprise. This is an attempt to overcome problems that functional structures have in dealing with the diversity of the environment. The products and markets that Southwest operates are so diverse that it could be impractical to bring the tasks together in a single body. So divisions can be created which related closely to the SBUs, allowing tailoring of the product/market strategy to the requirement of that SBU and improving the ownership of the strategy by divisional staff. The main advantage is the fact that Southwest was able to concentrate on the particular business (SBU) and opportunities of the environment. Ex. Purchase 3 brand new 737s at bargain-basement prises because Boeing had over

produce in periods of slump. Environmental Influences (P.E.S.T Analysis) Environmental forces, which are especially important for one organization, may not be the same for another; and over time, their importance may change. Southwest might be especially interesting in understanding policies and legal governmental matters, since it operates in different states, with different operating plants or subsidiaries with different political systems. It is also likely to be concerned about labor costs and exchange rates, which will affect the ability to compete with multinational competitors entering the environment For that carrying out a PEST analysis we will find the key influences of change and providing the basis of examining the extent to which these influence has major or no impact to Southwest. A PEST Analysis of Environmental Influences Political/Legal restraining order Federal Ticket Tax 1997 Deregulation of flights. Block Approval with temporary

Wright Amendment for Love Field

Labor Unions Economic Factors Federal Ticket Tax 1997 Socio-cultural

Operating costs were fixed or semi-variable.

Price sensitive customers. Time oriented customers

Price sensitive customers Internet 737s

Technological

Wanted to better evaluate the PEST diagram, we consider vital in this point to identify a key number of environmental drivers of change, by identifying the: Key drivers of change and the differentiate impacts of environmental influences. Furthermore, the impacts of Socio-cultural environment is consider crucial as South west must satisfy 2 different types of opposite cultures: Price sensitive, Time oriented. To achieve that must focus, to a low-cost time oriented strategy, as this two target groups are the most important. Also, technological factors (Internet) are considered vital, as must focus on look-to-look ratio. And, 737 are considering crucial as to provide efficient response (ER) to customers need, wands, demands. (turnaround, knowledge,) And finally flight deregulation must be a key point in competitive arena, to operate in more flexible ways. With the 5 forces analysis we will try to identify the forces which affect the level of competition in an industry, and thus that it will help us to identify bases of competitive strategy. The Threat of Entry This factor is closely related to weather there are barriers to entry or not. Southwest operates in a differentiation strategy that makes competitors very difficult to enter. By offering, low fare (25% lower than every other company that tries to imitate), point-topoint delivery (no hub-and-spoke), plastic boarding cards (to recycle back), and no designated seats is considered a powerful advantage to burry competitors. Also the offer of Chivas Regal in a double fee ticket., and also the short hub routes along with the philosophy It not now, then when? If not us, then who?" are having the basis for a strong differentiate strategy. The Power of Buyers and Suppliers. Moreover, the relationship of buyers and sellers are can have similar effects in constraining the strategic freedom of an organization and in influencing the margins of this organization.

Regarding this, there are some major factors that affect the organizational strategy. It is well known, that in market that there is big concentration of buyers the flexibility reduces. Southwest has to deal with big groups of people, meaning that their barging power is consider strong. Although, the company by offering the lowest prices along with satisfaction, reduces or either eliminate the barging power or the switching of suppliers. Moreover, the company by doing a forward integration makes her self a supplier, which connected with the customers. The Threat of Substitutes. Southwest understood that for short-haul destinations, surface transport (car) was a substitute of flying. By concentrating on the factors that lead people to choose one of these forms of transport over the other, and eliminating or reducing anything else, the southwest concept created. The key was to consider, why people are flying over driving for short destinations; because they want, luxury, multiple seating, meals, drinks, etc The answer is, no. There is only one reason that makes people to fly over driving: speed. People fly to save time. Competitive Rivalry. Even though this considers a philosophical term, southwest manage to eliminate competitors by using flexible strategy. Expansion strategy (not least than 12 flights), ideally commitment of employees, concentrate on flying big number of passengers (big market share), and with point-to-point, manage to be the worlds only short haul, high frequent, low fare carrier. Competition and Collaboration. Southwest followed some major steps concerning the direction and the method of developing the organizations strategy. 1. 2. Market penetration (in substitute industry) where the attention was small Product development on existing and with new competencies (Love field, new737,

low fare, point-to-point, short hub delivery)

3.

Market Development into new markets, territories (Texas, then interstate, smaller

market niches in time oriented and price sensitive customers) 4. And then Diversification (no hub, point to point, 10 minutes turnaround , same

airplanes, multi-operational employees) Management. Southwest was the only large airline to operate without major hubs, although cities such as Phoenix, Houston, and Dallas were increasingly becoming important transit points for Southwest trips. For example, daily departures from Phoenix, Southwests busiest airport, had increased to 170 in 1999 . Point-to-point service provided maximum convenience for passengers who wanted to fly between two cities, but insufficient demand could make such nonstop flights economically unfeasible. For that reason, the hub-and-spoke approach was generally assumed to generate cost savings for airlines through operational efficiencies. However, hub-and-spoke arrangements resulted in planes spending more time on the ground waiting for customers to arrive from connecting points. Turnaround time the time it takes to unload a waiting plane and load it for the next flightwas15 minutes for Southwest, compared with the industry average of 45 minutes. This time savings was accomplished with a gate crew 50% smaller than other airlines. Pilots sometimes helped unload bags when schedules were tight. Flight attendants regularly assisted in the cleanup of airplanes between flights. Relative to the other major airlines, Southwest had a no frills approach to services: reserved seating was not offered and meals were not served. Customers were handed numbered or color-coded boarding passes based upon their check-in order. Seating was first come, first served. As a cost-saving measure, the color-coded passes were reusable. As to why the airline did not have assigned seating, Kelleher explained: It used to be we only had about four people on the whole plane, so the idea of assigned seats just made people laugh. Now the reason is you can turn the airplanes quicker at the gate. And if you can turn an airplane quicker, you can have it fly more routes each day. That generates more revenue, so you can offer lower fares.