TAKE HOME EXAM

ELLYS SIREGAR MM EKSEKUTIF - 27

CASE FACT

1. The Internal Environment Cost competitves : low cost structure Quality Innovation : safety is the priority : - e-ticket instead of paper ticket (friendliness, caring, warmth and company spirit) and frill low fare flights Speed : - turn around time : rapid turn around time (10’) : - faster than substitution products (bus, train, etc) customer service : positively outrageous service

2. The External Environment  Substitute products include the train and bus which cover long distances. While these alternates cannot offer the speed of travel, most of Southwest Airlines' customers are attracted to the low price.

Suppliers include those who provide service/products necessary for Southwest Airlines to their business function. For Southwest Airlines, suppliers include mechanics (and other maintenance people), providers of fuel, food(the snacks that are offered). The suppliers do not have much bargaining power. Customers include both residential and commercial sectors. There is no bargaining power for customers, as there is no threat of backward integration; it is unlikely that customers of Southwest Airlines are going to build their own airplanes and fly themselves.

 Rivalry among competitors sets the price-Southwest Airlines is a discount airliner. Rivalry is increasing, as the market decreases, and competitors downsize, the competitors become more or less equal in size and capacity. This means that as economic conditions worsen, competitors downsize and then compete for the same remaining market.

 The threat of new entrants is low, the demand is not high. On top of that, there are hurdles, not necessarily the greatest; the FAA. Government regulations and restrictions imposed on those involved in this industry. Such would be government sanctions consequent of international issues.

ANALYST COMPANY STRATEGIC PLANNING

SWOT ANALYSIS
Strenghts 1. Southwest has successfully adopted a cost leadership strategy. • • • • • 1. The company has a reputation for great customer service. • • •
• •

Southwest maintains operating expenses per available seat mile at 1520% below average. The company has no baggage handling, no meals, no central reservations, and no assigned seats. Because all of its planes are Boeing 737s, maintenance, turnaround, and training costs are contained. The company has embraced technology that will reduce costs (e.g., ticketless travel).

28 years of safe, reliable operations 5 consecutive years of Triple Crown Customer Service 5 consecutive years of record profits and 24 consecutive years of profitability Top ranking in the Airline Quality survey conducted by The National Institue for Aviation Research for Two of the last three years A route system that has grown to 52 airport in 25 states, carrying more than 50 million customers on 243 boeing 737 aircraft, etc.

1. The company has a strong, fun-loving, employee-oriented culture. The company's mission statement focuses on these aspects of the business. 2. The company's growth has been steady and planned. Southwest enters new markets only when they can achieve frequent flights.
3. The company's marketing focuses on its low prices, convenience

service and sophisticated combination of advertising , public relation and promotions.

Weaknesses
1. Gap between Southwest and the rest of the majors has narrowed as

other carriers have attemped to emulate Southwest formula. 2. Southwest's competitors are offering shuttle services that compete directly with the company. They are also operating, investing in, and forming alliances with regional carriers. 3. As the result of its steady, planned growth strategy, numerous untapped domestic markets there are

4. Pilot and Flight Attendant Unions have increased salary and benefit

packages to be the highest in the industry. Continued increases in Seat cost per Mile will not allow Southwest to remain a low fare carrier. Opportunities 1. There are opportunities for expansion to new markets. • The new Boeing 737-700 has the ability to fly longer distances nonstop, which may change the definition of "short haul

2. Demographic trends appear favorable to an airline focusing on price and reliability. • The consumer continues to seek convenience and time savings. Flying, rather than driving, will meet that need if the price is right and the airline is reliable. 3. The competition is looking to international, rather than domestic markets, for growth opportunities. more ticketless

3. Improved computer technology will allow transactions and reservations made by PC. Threats

1. Southwest's ability to hold the line on costs will impact its cost leadership position. • The largest cost component is labor. This cost could be impacted by union actions, which cover 85% of Southwest's workforce. The second largest cost component is fuel , which could be negatively impacted by economic or political events.

1. Government regulation could hinder Southwest's ability to control costs, control fares, or enter new markets.


Recent government crackdown on safety (e.g., insulation, cargo fire detection) means costly retrofits. Proposed re-regulation would limit existing firm's ability to respond to underpricing by new companies. Prior to deregulation in 1978, carriers were limited in their ability to enter new markets. The government recently proposed an increase in facility tax rates, which would have resulted in higher costs.

• •

1. Improved telecommunications may lower demand for air travel, or may lower demand for "discount" airlines. • • E-mail and teleconferencing can result in less need to travel. Consumers may demand "personal" technology on planes, such as movies, phones, games, etc.

1. 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. 2. Southwest would be hurt if the public perception were that low price equates to low quality.

Analyst company strategic planning

dominant attribute : cohesiveness, participation, teamwork, sense of family leadership style bonding : parent-figure (Kelleher as Chairman, president & CEO) : loyalty, tradition, interpersonal cohesion

strategic emphasis : toward developing human resources, commitment, and morale How they do it : • • • • • • The culture permeates the entire organization and sends clear signals about behavior expected at Southwest Promoting employee awareness of the effects of their effort by company ‘s news letter Shared values : having fun at work to enhance a sense of community, trust, and spirit to counterbalance the stress & pressure Cooperative relationship among employee groups Positively outrageous service is in the inside of employee (valuing that it is your company, your success, your future) Employee’s stock ownership program

How does the controlling function works in this company :
✔ Characteristics Of Controls

: Uses formal rules, standards, hierarchy, legitimate authority. Works best where tasks are certain and workers are independent.

✔ Market control

: Uses prices, competition, profit centers, exchange relationships. Works best where tangible output can be identified and market can be established between parties.

✔ Clan control

: Involves culture, shared values, beliefs, expectations, and trust. Works best where there is “no one best way” to do a job and where employees are empowered to make decisions.

✔ Bureaucratic control  Low Cost strategy : • • • • Airline operation aim for efficiency and consistency Southwest does not offer connections to other airline Purchases or leases gates at airport Go slow philosophy : Southwest will not enter markets unless it perceives favorable conditions

 Focus on Customer Satisfaction • Very high standardization regarding operations, low with respect to customer service

 Safe airline : • • Organizationally Southwest is structured according to function, formal and centralized Main issue is safety, planes must be operated safely and efficiently

✔ Market control • Southwest operates the lowest cost major leadership strategy) : – Low fleet costs (using only Boeing 737 family) airline in the industry (cost

– – – •

Low landing fees (short haul) Short turn around Low distribution cost (e-ticket)

Southwest’s strategy has been a combination of profit sharing and participation

Recommendation : Southwest Airlines strategy has been successfully implemented, and the above SWOT analysis does not indicate that a major shift in strategy should be made at this time. They should continue utilizing a cost leadership strategy to underprice competitors and gain market share. This strategy has not only resulted in increased market share, but has also increased overall demand for air travel. Southwest should continue its market development strategy, focusing domestically. There are numerous untapped markets in

the U.S., many of which are actively seeking Southwest's presence. Additionally, competitors are now focusing on foreign markets, and deregulation there could result in price wars and increased competition. In expanding domestically, Southwest should continue its focus strategy of providing frequent, "point to point" flights. The expansion into new cities should be at a moderate pace to ensure adequate coverage of new markets. Ideal new cities will allow for non-stop flights. As the range of the aircraft expands, the potential markets will also expand. Southwest should strengthen its mission statement--simply by writing it down. The employees' commitment to action described in the case indicates that the mission of the airline is clear: to be a low-price, frequent flight, short haul, reliable carrier. However, this is not evident by reading the mission statement. Still, Southwest should avoid creating too formal a mission statement, which would be at odds with its culture. Southwest should continue to embrace new technologies such as ticketless travel and PC reservations. New technology also includes a commitment to new aircraft, which will result in a young, safe fleet of jets with longer range. All of these new technologies will permit Southwest to contain costs, to expand to more markets, and to maintain its image as a safe and reliable carrier. And finally, Southwest should continue to foster its remarkable culture. The company's fun-loving attitude and dedication to its employees have contributed both tangible and intangible benefits. It is a true competitive advantage.

References Boykin, Ryan. (2007, May 8 12). Southwest Airline : Marketing Plan, [online] http://www.google.com “Southwest Airlines Co: Strategic Issue.,” Chairman, President, and CEO [online] http://www.google.com “Southwest Airline Case Study: History and Analysis". Upload by Avalon on Aug 4, 2005 [online] http://www.google.com. Marketing Study of Southwest Airlines: A Symbol of Freedom". Submitted by: Fiorello B. Abenes, Ph.D. [online] http://www.hoovers.com. .