Full version Southwest Airlines Case Study

Southwest Airlines Case Study

This print version free essay Southwest Airlines Case Study.

Category: Business

Autor: reviewessays 04 July 2011

Words: 1381 | Pages: 6

This Case Study Analysis will attempt to take an objective look at the key issues and underlying implications of Southwest Airlines with respect to its impact on the airline industry. It will offer meaningful recommendations and plans for implementation.

This will be done by looking at Southwest’s pricing strategies, costs, and competition and putting it in context with the industry as a whole.

History, Development, and Growth

Southwest, founded by Rollin King and Herb Kelleher, began as a small Texan airline almost 35 years ago and has grown to become one of the largest airlines in America. It was created on the following premise: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline!” (www.southwest.com)

Today Southwest Airlines flies more than 70 million passengers a year to 60 great cities all across the country, and they do it more than 3,000 times a day. They have 436 of the newest jets in the nation, with each plane being an average age of 9 years. (www.southwest.com)

Southwest’s combination of low fares, outstanding customer service, and strong leadership have helped the airline remain profitable even in the midst of tragedies like the terrorist attacks on September 11, 2001.

Internal Strengths and Weaknesses

Southwest was set up for success from the beginning because of its unique upside-down organizational structure. Upper management is at the bottom and supports the front line employees, who are the real experts. Kelleher’s unorthodox leadership style, in which everyone in the company makes management decisions, is largely unheard of these days. The company doesn’t place much emphasis on structure; rather employees are encouraged to think freely without constraints such as titles. This, in addition to a profit-sharing program (first in the airline industry), higher salaries than any other airline, and a fun atmosphere, creates a very strong and loyal workforce.

Southwest also leads the industry in customer service. They were the first airline to win the coveted Triple Crown - Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints. They have won this award several times since (www.southwest.com). The airline has an average turn-around time of 15 minutes versus the industry average of 45 minutes.

No other airline has contributed more to the advancement of the commercial airline industry than Southwest Airlines. We were the first airline with a frequent flyer program to give credit for the number of trips taken and not the number of miles flown. We also pioneered senior discounts, Fun Fares, Fun Packs, a same-day airfreight delivery service, ticketless travel, and many other unique programs (www.southwest.com).

The biggest strength of Southwest is its low fares. No other Airline can even come close to beating their low-cost ticket price. Customers are highly attracted to the low cost (average one-way ticket price $89) fares. The airline is able to keep its costs low because it offers no frills. All seats are coach class, there are no in-flight meals, and it only flies one type of airplane, the Boeing 737. This low-cost model is what helped Southwest endure the attacks on September 11, 2001, keeping it in much better shape than its closest competitors.

Even though rivalry is increasing in the discount airline industry as the market decreases (less people flying) and competitors downsize, the threat of new entrants is fairly low because demand isn’t high.

In spite of its low fares, employee loyalty, and excellent customer service, southwest is not without weaknesses. No matter how successful the company is, it only serves 29 states and doesn’t have a “hub” structure to reach out to the masses. As a result it cannot compete against the larger airlines that serve both nationally and internationally with hubs that allow them to reach a much larger share of the overall market.

The airline also doesn’t have the frills other airlines make available such as Business and First Class seating, in-flight meals, movies, etc. The other airlines are trying to sell these luxuries in their marketing to maintain a competitive edge.

Another weakness of southwest Airlines is their use of only the Boeing 737 airplane. Limiting itself to one type of aircraft leaves them without the flexibility they might require in the event that type of plane receives a bad reputation of a critical flaw is found. It would cost the company a fortune to find replacement aircrafts.

Southwest was slow in catching up with the other airlines in the amount of time customers would have to queue up in the gate area while waiting for boarding passes. In 2003, the company made efforts to improve in those areas where this weakness was found.

External Environment (Opportunities and Threats)

Because Southwest is so effectively able to differentiate itself from its competitors based on price, others may want to duplicate the airline’s efforts. With Southwest’s limited range, larger carriers could effectively emulate Southwest’s low-cost strategy and encroach upon Southwest’s share of the market, since they already serve a wider community. It might then be possible for them to outdo Southwest Airlines.

An effective strategy Southwest could adapt to inflict damage to its competitors is to further slash its already low prices. This “squeezing” would be particularly effective because most of the airlines are already at or have filed for bankruptcy. Since there is no way the bigger airlines can compete on the basis of price, the most they can hope to do is narrow the gap. Southwest, which has consistently shown a profit, can widen the gap by slashing prices to the point where competitors are dragged deeper into debt or put out of business. Of course the airline would have to cut its losses as well but it is a strategy that would work.

Southwest’s biggest opportunity right now is to take full advantage of its profitability by purchasing more planes and spreading its wings into new territories. This would open the airline up to a broader market and possibly cause the other airlines to lower prices in those markets as well.

Southwest is also feeling the same pain that the other airlines are feeling due to the public’s loss of faith in the industry and increased government regulations. With the price of crude oil going up increased fuel costs may force the company to either increase it’s fares or cut costs elsewhere.

Key Issues and Recommendations

It is important to understand the key issues in this case before a clear and appropriate plan can be fortified. Issues, as previously mentioned (loss of faith in the industry, increasing costs, more competition, limited geographical market, etc.) cause me to feel that Southwest must think about what made it successful to begin with.

By capitalizing on its achievements and maintaining its pricing strategy, the airline should continue to succeed and profit. I would suggest that it takes advantage of its profitability by improving its route system (add more cities, create a hub), enhance its accessibility, further cut prices to eliminate the weakest competitors from the market (opening up a larger share for itself), and perhaps upgrading its planes (more planes, other classes of seating).

Following these suggestions would help the company compete on more than just price. Fortunately Southwest Executives are adopting a CRM model of leadership (even more than before) in an attempt to get to know their customers more personally so they can better serve them than ever before.

The result of this effort remains to be seen but I feel that Southwest is definitely on the right track. They have a long history of high achievement, excellence in customer service, high morale among its employees, and an effective, albeit unorthodox, leadership structure.

This is an enviable position to be in, especially considering the airline industry as a whole.

References

Retrieved November 4, 2005, from http://www.southwest.com/Southwest Airlines.

Degroot, V., & Inkpen, A.C. (2005). Southwest Airlines 2005. Retrieved November 4, 2005, from http://www.thunderbird.edu/pdf/about_us/case_series/a07050006.pdfThe Garvin School of International Management.

Etzel, M.J., Stanton, W.J., Walker, B.J. (2004). Marketing. (13th ed.). New York: McGraw-Hill.

J.E. Richardson (Ed.). (2005). Marketing. (05/06 ed.). Iowa: McGraw-Hill Dushkin.

Steinert, T. (2005, April 10). Southwest Airlines: Flying Low. Retrieved November 4, 2005, from http://www.baselinemag.com/article2/0,1397,1784699,00.aspBaseline Project Management Center