Southwest Airlines was founded by Herb Kelleher in 1967 to provide low-cost service between Dallas, Houston, and San Antonio. Although the U. S. airline industry had lost money in 15 of the 30 years between 1980 and 2009, Southwest has reported profit every year since 1973. Southwest Airlines is considered to be the most successful budget airline in the U. S. Since 2000, the number of passengers flying Southwest has increased more by more than 28 million annually, whereas passenger traffic on domestic routes for other carriers declined.
The airline is dedicated to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. Southwest has weathered numerous challenges since its beginning but has found a way to maintain profitability during economic downturns even as other airlines were flailing. They succeeded by relentlessly pursing operating efficiencies ranging from small details like serving peanuts and not full meals to operating the same airplane model across the entire company.
Southwest’s relentless quest to have the lowest fares combined with their organizational culture has made them the largest domestic carrier in the United States by passenger volume and has made Southwest profitable in the face of rising oil prices, increased regulation and a downturn in the demand of their services due to the terrorist attacks of September 11th, 2001. Analysis Southwest relies on a low-cost strategy. They experimented with several successful gimmicks to gain a foothold in the industry.
The best concept and the one that remains with them today is their “LUV Campaign. ” When they entered Dallas’ Love Field market, their slogan was, “Now there’s somebody else up there who loves you. ” They instilled the Golden Rule philosophy in their employees who passed the “LUV” to their customers creating a flying experience unlike other airlines. They also decreased their turnaround time at the gate to become the fastest in the industry. This initiative combined with others helps Southwest maintain their low-cost and low-fare policy.
Customers are willing to give way to frills in order to keep their ticket price low. Southwest continues to search for ways to keep their total operating expenses lower than their competitor’s giving them a considerable competitive advantage. Southwest Airlines is in direct competition with many airline carriers including American West, American Airlines, Continental Air Lines, Delta Air Lines, JetBlue Airways, Northwest Airlines, Unites Air Lines, and US Airways.
While United Air Lines sold more tickets than Southwest from 1998 to 2001, as did Delta from 1998 to 2004, and American Airlines from 1998 to 2006, Southwest outsold them all in domestic flights from 1996 to present. In fact, they sold more tickets in 2007 than any other company proving their concept of price elasticity where increased ticket sales would more than compensate for the revenue erosion associated with low fares, making them a viable competitor in the industry, and giving them a competitive edge.
SWOT Analysis STRENGTHS ? Top class service ? Has experienced rapid growth since its inception in 1971 ? More departures than any other U. S. airline ? Best low-fare carrier (Low cost approach to flights that has drawn consumers to their services) ? High capacity usage (few un-filled seats) ? Is one of the most profitable airlines, while many other airlines are unprofitable ? Great staff relationships – (Excellent employee relations leads to higher ticket sales as they all work as a team. Southwest looks after their staff ? Employees are allowed/encouraged to have and show their sense of humor ? Carefully considers each applicant so that they are sure to hire the best employees which lead to excellent service for their customers.
Maintains very good relationships with its unions ? Maximizes use of Internet for booking ? Only one basic type of aircraft/reduces training times ? Very good safety record ? Offers credit based on the number of trips with the airline instead of the total miles traveled. Was the first to offer senior discounts, ticketless traveling, and services for air freight delivery. WEAKNESSES ? Limited to 60-plus cities ? Most employees belong to a union ? No flights to international destinations ? Being copied by other airlines ? Operates mainly its own booking service ? Few morning flights offered ? Dependent on a single type of aircraft – the Boeing 737 ? Only one class of seating is offered – coach ? Booking flights is not available except directly through
Southwest Airlines ? Space to carry freight and cargo is limited. ? Very short trips earn the same amount of perks as a long, extensive flight. ? Scrutiny of potential employees based on personality before skill could be dangerous. OPPORTUNITIES ? Expansion into international and other national markets ? Further improve customer satisfaction and value ? Overall air travel is predicted to increase ? Better use of the Internet for marketing, ticketing, etc. Longer flights are a growing market ? Applying new technologies to make the travel experience more enticing ? Expanding services to include services for leisure or business classes ? Considering applicants with large skill bases but lower amounts of enthusiasm
Recession (Decrease in air travel) ? Oil prices ? Terrorist attacks ? Competitors copying them: (ex: Jetblue ; Airtran) ? Operates mainly its own booking service ? Fuel price increases could reduce air travel ? High-speed rail or other means of travel ? Government regulations that add to operating costs. Costs for airline security have increased annually. Company Evaluation Southwest is an exceptional example of well-executed strategy, in this case, low-cost leader strategy. The airline attracts its customers through low fares, frequent flights to multiple destinations, convenient scheduling, fewer delays, and excellent customer service. Southwest has been able to offer the lowest and simplest fares consistently because it has the lowest operating cost structure in the domestic airline industry. Southwest’s primary competitive advantage is its low cost structure.
By flying only plane type, the Boeing 737 series, Southwest saves millions by simplifying schedules, maintenance, flight operations, and training activities. Unlike other network carriers, who use hub and spoke system where most airline operations are concentrated at a limited number of hub sites and serve most other destinations through one stop or connecting service through the hub, Southwest uses point-to-point system where most of its flying is non-stop between two points. This minimizes the flight connections, delays, total trip time for the passengers, and enables frequent, conveniently timed lights. Southwest does not offer in-flight meals, assigned seating, baggage transfer to connecting airlines, or first-class seating and service, thereby eliminating all cost-producing activities associated with these features. Southwest has mastered fast turnaround at the gates allowing its planes to fly more hours per day. It can unload a flight, clean and restock the plane, and board another flight full of passengers in as little as 25 minutes compared to an industry average of 45 minutes. This reduces the number of aircraft and gate facilities that would otherwise be required.
The company practices foster high labor productivity resulting in lower labor costs compared to other airlines. Southwest’s preference for less congested airports minimizes total travel time for the passengers. Southwest also finds significant cost savings through technology and innovation. It was the first major airline to introduce ticketless travel resulting in huge savings due to the elimination of printing and processing of paper tickets. It was also the first to sell its tickets at the company’s website, thus eliminating the need to pay commissions to travel agents and reducing staffing requirements at their reservation centers.
Southwest has their flight attendants clean up trash left by deplaning passengers, thus cutting costs on cleaning crew. It recently added vertical winglets on the wing tips of most of its airplanes that reduce the lift drag, extending engine life and reducing maintenance and fuel costs. It was the first among major U. S. carriers to enter into fuel derivative contracts for protection against rising fuel costs. Southwest has a highly motivated workforce and has built up considerable goodwill with its employees and unions over the years by avoiding layoffs.
Its no-layoff policy has been a huge strength to the company because it breeds loyalty, sense of security, and sense of trust. The management listens to the employees, responds to their concerns, and gives them substantial authority and decision-making power. Employee led initiatives have saved the company millions of dollars. It was Southwest clerks who came up with the idea of getting rid of paper tickets and shifting to e-tickets. At Southwest, employees come first – ahead of customers and investors. It is one of the “top ten- most admired” companies to work for.
It was able to motivate its employees to deliver great customer service, which was not easy for other airlines to imitate. There is a real family relationship amongst the whole staff, so everybody seems very much involved and responsible. It fully utilizes its resources and capabilities to make up its core competencies. Southwest’s success can be attributed to its internal business environment and execution systems- culture, core values, philosophies, principles, and effective management of its workplace.
The design of these best-fit activities, the superior management skills and the employees’ commitment are its core competencies. These core competencies are valuable to the customers, and difficult for competitors to imitate. The end result of this strategy is a sustainable competitive advantage and superior profitability for Southwest. Recommendations Southwest Airlines has redefined the airline industry and they have also redefined business. The whole concept of choosing to put employees first was a revolutionary concept in business.
Southwest has brought airline travel into the reach of many consumers that were previously alienated by the airlines. Southwest has also maintained profitability in the airline industry when other airlines were going under. They have expanded to become the largest domestic carrier by passenger volume. They have done all of this by thinking outside the box when it comes to operation, relentlessly pursuing cost efficiencies and then passing those savings on to passengers, and redefining the meaning of customer service and culture.
It has been said that Southwest’s greatest differentiation is its culture and customer service. In order for Southwest to maintain their outstanding reputation and organizational performance it must stay true to its nature, but also stay aware of new opportunities and operating approaches that will continue to streamline their business model. Some passengers have a preconceived idea or stereotype of what Southwest is or isn’t. This stereotype is formed around the idea that since Southwest is a low-cost carrier that they are also a low- quality carrier.
Another popular stereotype is one that derives around Southwest’s practice of open seating. Some individuals carry a notion that Southwest herds all the passengers in the plane like cattle leaving them to fight like animals for an aisle seat. While it is true that Southwest uses an open seating policy, the boarding experience is not a ruthless process. Southwest has changed their boarding procedures and now offers “business select” ticketing that allows a passenger to board first for a small fee. Business select passengers also get one free cocktail on he flight. Southwest should push this new service to the public which would give passengers another traveling alternative. This new service gives those who are willing an opportunity to receive similar preferential service that they may be used to getting on other carriers. In recent years Southwest has partnered with hotels, rental car companies, and vacation attractions to package airline fares with discounted prices from the previously stated organizations. Airlines are moving towards accommodating consumer’s total travel and vacation needs.
This draws passengers to the airlines websites where the consumer can save significantly on third party fees that are charged on websites like expedia. com and travelocity. com. Moreover, airlines would like to become a total travel solution in which they could charge third party fees to companies like Enterprise and Holiday Inn. Southwest should continue to develop its online experience and its partnership with other companies. This would serve their customers well and also provide the opportunity for revenue in the form of third party fees. Southwest also has one of the most successful customer loyalty programs in modern business.
Their rapid rewards credit card encourages frequent flyers to continually purchase tickets on Southwest Airlines. Also rapid reward members acquire points by using their rewards card on everyday purchases. Southwest should continue these methods to build brand loyalty and better serve their customer’s needs. Southwest has always kept true to its strategy of a low-fare domestic carrier. However, as major domestic and international airlines merge together they are able to gain an advantage. As globalization continues there arises more demand for international flight services.
International flights yield the highest revenue in terms of passenger miles flown. Large U. S. carriers are able to capture this higher revenue on its international flights and then deeply discount their domestic fares to compete with Southwest. In the future Southwest should start to look for opportunities to slowly expand into the international market. This process must be slow and calculated. For the foreseeable future, Southwest will be a domestic carrier, but at some point in the future they may have to expand into the international market to stay competitive.
The most crucial task that Southwest must accomplish is staying true to its culture and iconic customer service. As a company expands, oftentimes, this becomes the most difficult thing to accomplish. Southwest differentiates itself by offering the “LUV” experience. Meaning a lighthearted fun atmosphere that always strives to exceed customer expectations. Southwest’s whole culture is built around cultivating employees that will go the extra mile for guests and also the airline. Southwest must continue to hire excellent people and also continue to encourage employees to do their best.