Southwest Airlines 1

Southwest Airlines

………………………………………. Internal Environmental Analysis …………………………………… Current Strategy …………………………………………………….... References ………………………….Southwest Airlines 2 Table of Contents: Executive Summary.. Conclusion .……………………………………………………… Introduction ………………………………………………………………… Analysis ……………………………………………………………………..………………………. Alternative Strategies …….……………………………………….……………………….……………………………………….. Recommended Strategies ….……………… 3 4 5 5 7 8 8 10 10 11 .... External Environment Analysis ……………………………………..

2001 terrorist attacks combined with the worst economic recession and astronomical oil prices had an overall negative impact driving the industry to lose millions of dollars and causing numerous bankruptcies and liquidations. operations have focused on the domestic segment. SWOT Analysis. and evaluate their weaknesses and threats and how they will mitigate them in order to continue succeeding. but worldwide. Since the beginning of Southwest Airlines. new competitors. By analyzing the internal and external environment we can determine what strengths and opportunities the company possesses to continue growing and expanding. Airline industry evolution. commercialization and privatization have altered the way people live and conduct business. the September 11. devoting their efforts on being the lowest fare. For the US airline industry. lower fares and opening of new routes and services have created an intensive competitive war among the airline companies.Southwest Airlines 3 Executive Summary The US commercial aviation industry has grown dramatically since the end of World War II. PESTEL Analysis. it has reduced travel time and changed our concept of distance. point-to-point carrier. Following the1978’s Deregulation. making it possible to visit and conduct business in places once considered remote. This sequence of events has driven airlines to continuously evaluate the fluctuations not only in the local airline market. . the US economy improved moderately promoting an increase on air travel demand. With the assistance of the analytical tools including Stakeholders Analysis. high frequency. In 2010. Porter’s 5 Forces and VRINE Analysis we can evaluate what possible alternative strategies the company could adopt and what their advantages and disadvantages are.

people will fly your airline” (Southwest 2011). has helped them remain the top low cost producer of major airlines. want to work hard and have fun at the same time has been their consistent recruitment philosophy throughout its history (Carpenter & Sanders 2009). friendliness. currently flying to 72 cities in 37 states and employing over 35. on time. SWA’s philosophy of not following the industry’s efforts to pile on additional fees and surcharges. and make darn sure they have a good time doing it.000 employees. After a 3 year legal action initiated by competitors and resolved in favor of SWA. at the lowest possible fares. With this in mind they were able to create competitive advantages over other airlines. Employees and management maintain enjoyable relationships.Southwest Airlines 4 Southwest Airlines Southwest Airlines (SWA) has evolved to become the largest and most successful low fare domestic airline in the US. SWA’s mission “Dedication to the highest quality of customer service delivered with a sense of warmth. SWA’s success has not been possible without their employees. Their business philosophy started with one simple notion: “If you get your passengers to their destinations when they want to get there. with a high level of superior customer satisfaction that continuously improves shareholders interest. giving the choice to customers to pay more if they want optional services. individual pride and Company spirit”(Southwest 2011) has driven them during the last 40 years to maintain a high level of commitment and competency. Recruiting people who are energetic. in 1971 the company started operations with only four airplanes serving three cities in Texas. they feel part of an extended family and take part in the company’s success. . the company’s position and their financial stability.

. operational efficiencies. from wireless communication. External and internal environment analysis provides guidance to do so. effective management must continuously re-evaluate strategies and adjust accordingly. habits and lifestyle SWA has exceeded their markets expectations. Government regulations. PESTEL: SWA’s financial stability. adopting a quality service culture and offering lowest fares SWA has successfully mitigated the economic cycle’s fluctuations. innovative and proactive while providing the best customer experience. By continuously evaluating changes in society’s vision. SWA attempts to forecast changes and positively impact their customers by being empathetic and transparent with their customers. reliability record and commitment to safety has reduced the uncertainty and instability political pressures create in the traveler’s minds. internet and e-commerce to aircraft modernization and efficiency. As time passes. They emphasize on providing the best customer experience by promoting a high quality and friendly service. The industry’s performance can be affected by uncontrollable environmental factors like weather and air traffic. behavioral patterns. SWA have surpassed competition by being focused. the reason why they do business. But what if we develop a new business division or expand to other countries? External Environment Analysis: SWA’s most valuable stakeholders are their customers. Incorporating modern technology promotes efficiencies. taxes and controls influence on the complexity of their operations. an efficient operation and offering the lowest fare possible. cost reduction and infrastructure simplicity.Southwest Airlines 5 Analysis Business can chose between being a competitor or a leader. customer needs change and economies evolve. By being innovative.

aircraft manufacturers and airports is fairly high. this threat would seem minimal. The power of suppliers including fuel distributors. buses or cars can be an alternative method of transportation. energy conservation and recycling programs. however purchasing power is individual the impact of their decisions are minimal.Southwest Airlines 6 Airlines are pressured to preserve the environment and reduce global warming. Complying with environmental legislations. emerging into national and international markets and developing frequent flyer programs and complements.000 passengers of the industry’s 2 million daily passengers. The power of buyers is low. For casual travelers train. SWA to mitigate their exposure has focused on a single airplane model. Opportunities and Threats: SWA’s business opportunities includes increasing the number of destinations and longer flights availability. SWA’s environmental programs support emissions reduction. the barriers of entering the industry are moderate. Brand recognition and low fares play important roles in maintaining a competitive advantage. but in the long term reduces litigations risks and noncompliance fines. it’s expensive to exit the business and the variety of products or services is limited. But the majority of business travelers who are looking for an efficient and reliable way of transportation. and fuel price fluctuations. small airports and hedging fuel cost fluctuations. There is a high cost of competition. governmental and environmental regulations that could result in costly implementations. the continuance of a depressed economy. Porter’s 5 Forces: With a variety of financing opportunities and a deregulated airline market. SWA services an average of 250. SWA has maintained a low operational cost while . The threat of substitutes is low. safety and employment laws can be costly. Consumers are very price sensitive. consumer protection. The rivalry degree is high due to the competitive environment of the airline industry. SWA’s threats are the decline of leisure travel due to terrorism.

Not charging for an inherent travel experience has differentiated them from the competition. Strong organizational values and their culture have given the company an excellent relationship with their employees and customers. Standardization of procedures. However. The fleet uniformity has reduced training and maintenance costs creating flexibility of crew allocations. short-haul routes. Customers can choose from wide variety airlines who offer added amenities. SWA has positioned itself as a market leader in the industry with a low-cost business model and strong financial performance. the lack of alternative booking channels and travel agency’s relationship limits their exposure to potential customers. this has helped them maintain a competitive advantage over their competitors. versatility among staff. Reduced flight destinations and no international . no meals and excellent service. point-to-point travel and fast turnaround. Competition has tried to mimic their model of low prices. quick turnaround times and pricing structure are additional strengths. SWA has been able to exploit their competitive advantages by maintaining low cost operation. Strengths and Weaknesses: By maximizing the usage of their strengths. but because of their expensive and complicated hub-andspoke structure models. an excellent safety record. they have not been able to substitute SWA’s product. increasing efficiencies and economies of scales. outperforming their competition by serving a particular segment that wants low cost fares. promotion of skills. Internal Environment Analysis: VRINE: SWA’s most valuable competitive advantage has been the ability of creating value for customers in a niche market segment. but has failed to imitate it due to the high implementation costs.Southwest Airlines 7 providing excellent customer service. with quick flight turnaround and avoiding larger airports.

“From flying to driving. in 2011 SWA purchased AirTran Airways. SWA’s low cost operation of using one type of plane. competitive advantage that is valuable to their customers and is difficult for competitors to imitate. expand their route network and strengthen their financial position. by adopting their competitive advantage of a low cost operational model. no-frills service. SWA can exert purchasing power over the automobile distributor and negotiate better prices.Southwest Airlines 8 presence also limit travel options. Customers could perceive the airline as a second class carrier due to the lack of segmented seating for first and business class. By investing on a single model moderate size car fleet. The integration of both companies will increase SWA’s customer base. quick turnaround time on the ground. As a low cost competitor. all in one”. The proposed strategy will require SWA to start up a car rental division or subsidiary. management continuously needs to evaluate different strategic alternatives to sustain and promote business growth. this will translate into future savings on maintenance and . “New Business Entry – Focused Differentiation” . Alternative Strategies: As economies and markets evolve. they serve a market of travelers who look for low fares and a reliable service. Current Strategy: SWA’s business strategy has been a “focused low-cost leader”. SWA can provide the option to rent a car at a discount during the ticket fare purchasing process. Leveraging on the current customer base. This additional service will complement their current structure. presence on lesscrowded airports. point-to-point routes. In line with their strategy of growth and financial goals. The following recommended opportunities and strategies are some options that management should consider. superior management and employee’s commitment have resulted in a sustainable.

This new business model will generate additional revenues. “Business Expansion – Focused Low Cost Leadership” – The second recommended strategy would evaluate entering the Canadian domestic airline industry. they would have to hire bilingual English and French speaking staff. The increase in level of completion after the 2001 economic turndown has increased over the years due to the shift in the industry to rely more on the vacation sector and less on the relationship with the airline industry. The age of professional business class traveler ranges between 24-60 years and live in Canada’s metropolitan cities such as Toronto. Some of the disadvantages of entering the Canadian airline industry are the initial startup capital required that could potentially affected SWA’s US division cash flows. Montreal and Vancouver. The 1995 “Open Ski” agreement between the US and Canada provided a unique open access between the countries. efficiencies and competition. In1988 Canada’s airline industry was entirely deregulated. and provides services to an average of 40 million passenger. Quebec. flight options. which represents a 10% of the total transportation.Southwest Airlines 9 repairs costs. Some of the disadvantages of entering the business are the startup capital investment required that could potentially affected SWA’s cash flows. increasing the opportunities for better air services. removing the measures designed to control market entry or exit and the regulations governing services and fares. while ensuring excellent customer service. The new business will operate at the same airports SWA currently flies starting with the busiest airports. Currently there is a duopoly system in Canada’s airline industry dominated by Air Canada with 56% of market share and West Jet with 36%. then expanding to other ones as demand increases. In addition they would have to . The differences in language and culture could potentially threat their development and growth. The lack of knowledge of the car rental industry could potentially increase education and administrative costs. in order to maintain the reputation of friendly and high quality customer service.

presenting $3 billion dollars in revenues. they would be able to target the frequent flyer business professional travelers who are looking for a low cost reliable service.Southwest Airlines 10 restructure and invest into their reporting accounting platform due to the differences in US and Canadian GAAP’s. Maintaining the current usage of their 737 Boeing aircraft they would be able to fulfill the needs of their target customers. Recommended Strategy: After evaluating both strategies. quick turnaround time and one single model plane. point-to-point service. SWA strategy of not following competitions models and being different has successfully proven their vision statement “ A sustainable future is one where there will be a balance in our business model between Employees and Community. the Environment. By designing a marketing and promotion campaign focused on the business professionals SWA can maximize their exposure and create awareness. and our Financial Viability” (Southwest 2011). excellent customer service. Concurrent with the strategy proposed. advantages and disadvantages. Conclusion Competition requires companies to deliberate on what to do and what not to do. they should use it to complement and support any future strategy. SWA should not deviate from their current business model which has made them very successful. By replicating SWA’s model of low cost fares. With SWA’s management experience in dealing with hedging transactions they could mitigate the risk of exchange rates fluctuations. The airline industry generates approximately $18 billion CAN dollars in revenues. with SWA’s strategy they can gain between 10% and 15% of the market. I would recommend that SWA adopt the business expansion in Canada. .

htm . 2011 from: http://www. 2011 from http://www. (2011).com/ Airlines Activity. (2011).com/features/industryhandbook/airline. (2011). (2011). Retrieved November 13. Retrieved October 27. Southwest Main Web-site Retrieved November 1. Open Skies agreement with the United States.Southwest Airlines 11 References Air Canada.bts. Commercial and Business Aviation.gc. 2011 from: http://www. 2010 Southwest Airline Annual Report.statcan. (2011).tc.html Transport Canada. Retrieved November 1.asp The Car Rental Business (08/08/2011).southwest.investopedia. Retrieved November Southwest Airlines.masteralfadesir. Retrieved November 13.htm Transport Statistic Canada (2011).ca/eng/civilaviation/standards/ (2011).transtats. Main Web-Site Retrieved November 12. 2011 from Southwest Airline Co..gc. from http://www. Retrieved November 7. Research and Innovative Technology Administration (RITA).aircanad. Automotive 2011 from: http://www. 2011 from Southwest Airline Co. (2011).com/the-car-rental-industry. (2011). 2011 from: http://www. Retrieved November 2011 from: http://en.htm The Airline Industry. 20101 from http://www.

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