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Solved Case Study of Southwest Airlines PDF
Solved Case Study of Southwest Airlines PDF
Southwest Airlines, being a Low Cost Carrier (LCC), is famous for its uniquely
competitive low fares, which are often some 30% lower than most of its major
rivals. They have achieved this low cost leadership position in their industry by
emphasizing on:
Parameters
Resources:
Southwest Airlines had always managed its resources well including the
financial resources. In 2012, Southwest returned $422 million to
Shareholders through repurchasing $400 million of common stock
(approximately 46 million shares) and distributing $22 million in
dividends. It made money every year and earned a Return on Invested
Capital (ROIC) of 5.8%. Even in 2008, an awful year for the airline
industry it made a profit and earned an ROIC of 4%.
The Airline’s Employee Profit-sharing plan which makes atleast 25% of the
employee’s share of the plan invested in Southwest Airlines stock, acts as a
major motivating factor of the workforce making it more flexible and
productive.
Southwest Airlines excludes meals and provides for light snacks as inflight
refreshment, so as to minimize the overhead expenses and save the
resources.
Capabilities:
Even as its general expansion strategy has been more of an organic growth.
In May 2011, the company acquired AirTran Holdings, the parent company
of AirTran Airways, one of the largest low cost scheduled airlines in the
US. The transaction was valued at approximately $1.4 billion. The
acquisition provides Southwest Airlines an opportunity to grow its presence
in key markets it didn't yet served. Moreover, it would allow the company
to expand its presence in slot-controlled markets where the company
currently has little (New York LaGuardia) or no (Ronald Reagan
Washington National Airport) service; expand its service in other key
domestic markets, including Boston and Baltimore and to add destinations
to its route system; and provide access to near-international leisure markets
in the Caribbean and Mexico, as well as smaller cities.
And while pilots in most other airlines pilots are unionized, there are no
such union affiliations in the Southwest Airlines which therefore does not
restrict the pilot’s flying hours for a particular period.
Distinctive Capabilities:
- Their philosophy is to treat their employees well and put them ahead of
their customers. The benefits it gives it employees, include: profit-sharing
and empowering employees to make decisions. The logic is if the
employees are valued, they will treat the customers well and that will
spread the reputation of the Airlines further.
- It is the only carrier that does not charges any nominal amount for
changing the date of the ticket.
Southwest’s top management has cleverly made these three factors to their
advantage. At one point they have stressed on maintaining a lower cost
structure by keeping a standardized fleet with minimal inflight meal and
entertainment amenities, a workforce motivated for quick aircraft
turnaround and an aggressive fuel hedging program, however at the same
time they have equally stressed on winning customer satisfaction which is
seen by their stupendous customer retention. They have respected the basic
requirement of any passenger i.e. – to reach on time, by maintaining a
decent record of on schedule flights.
Looking at the developments in the aviation industry till recent, it would be safe to
say that Southwest enjoys the most secure competitive edge than any other carrier.
Its strategy, right from having standardized fleet to having minimal but motivated
employees while wittily introducing cost-cutting initiatives like fuel-hedging and
employee profit-sharing plan, have helped it gain a benchmark position which
cannot be easily touched by any of its competitors. With its punctual flight record,
pleasantly approachable staff, impressive Customer service, despite the fact that it
offers no-frills, there is still a high degree of customer satisfaction that
continuously builds customer loyalty for the company.
This is one of the reasons why, even in the aftermath of the 9/11 terror attacks,
when the entire aviation industry was reeling under the disastrous consequences of
running empty flights, Southwest Airlines not only was successful in maintaining
fully seated flights but also earned an ROIC of 5.8%.
Its hiring process which lays stress on applicants possessing teamwork skills and
optimistic outlook has helped it shape a dynamic and motivated workforce which
not only helps in smooth functioning of an informal horizontal organization but
also promotes accountability among the employees not just as individual but as a
team. Its method of offering differentiated products like Rapid Rewards frequent
flyer program have made it stand apart in the LCC sector.
However even while being an epitome of success in the Aviation industry, it has
been unfeasible and impossible for Southwest’s rival carriers to imitate its
business model due to following factors:
Southwest Airlines innovated the strategy of fuel hedging for a long time,
something which its rival cannot start and reap short-term benefits.
Hence, we can see how Southwest Airlines was successful in able to maintain both
Cost effectiveness as well as Customer loyalty and retention, through its
innovative and foresighted strategies.
References
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