Southwest Airlines - Strategic Business Model of the Organization

1. Strategic Business Model of the Organization (Southwest Airlines)

1.1 Value Network Partners

• Strategic Partners and alliances

The strategic partners of Southwest airlines were airports with less congested air space, especially airports situated near major metropolitan areas and in medium size cities. The value adding role of this strategic move was that of easy access to markets since Southwest airlines could minimize total travel time for passengers – driving to the airport, parking, ticketing, boarding, and flight time. In addition, performing operations in these airports assisted Southwest airlines to produce better-than average on-time performance and reduce fuel costs associated with sitting in line on crowded taxiways or circling airports waiting for clearance to land. It allowed Southwest airlines to avoid paying the higher landing fees and terminal gate costs found at high-traffic airports.

The other strategic partners or alliances were Southwest’s car rental and hotel partners who assisted Southwest airline with running the special fare promotions (i.e. offering $30-a-day rentals, $30-off discounts, and $30-a-day hotel rooms at some locations) during its 30th anniversary in 2001. It’s mentioned on the case study that from time to time Southwest ran special fare promotions and this marketing exercise is performed attract customers or stimulate ticket sales and hence filling the empty seats which increases the company revenue streams.

• Strategic Suppliers

The strategic supplier of Southwest airlines was aircraft manufacturer Boeing. It was stated in the case that Southwest operated only one type of aircraft (Boeing 737s) and there was significant value added with regards to following:

 Assisted the company to minimize the size of spare parts inventories and hence cutting costs associated with inventory storage.

 Simplify the training of maintenance and repair personnel

 Improve the proficiency and the speed with which maintenance routines could be done.

 Simplified the task of scheduling planes for particular flights.

 Boeing also provided aircraft to Southwest on credit when the business started.

It was mentioned in the case that Southwest acquired its new aircraft a favourable prices, it could be that Southwest had a bargaining power.

1.2 Market / Customer

• Market Segments

Southwest airlines served a wide segment of the US population who were interested in flying and hence a tag line “The Freedom to Fly”. Southwest airline customers included business travellers who were time-sensitive than price-sensitive but who wanted weekday flights at times suitable for conducting business. It also served price-sensitive leisure travellers who wanted lower fares and had more flexibility about when to fly.

• Products

Southwest airline product offering was a low fare airline commuting between pairs of cities and Southwest was using point-to-point route system, as opposed to hub-and-spoke route systems used by its rivals. The Southwest airline point-to-point system minimized connections, delays, and total trip time.

• Value Proposition

Southwest airline offered the following with regards to value proposition:

 Low-fare airline

 On-time airline

 Good and positive, fun flying experience

 Flying convenient schedules

• Customer Relationships

One way of building relationship with customers was through an attractive frequent flier programme where Southwest’s Rapid Rewards members received a free round-trip ticket, good for travel anywhere on Southwest’s system for up to one year, after purchasing and flying eight round-trips. In addition, Southwest airline named the Ronald McDonald House as its primary charity and this was a way to demonstrate Southwest’s community spirit. The company encouraged employees to create friendly and fun environment (i.e. cracking jokes) and therefore creating customer loyalty.

• Customer Channels

Southwest encouraged customers to make use the company website for making reservations and for purchasing tickets. Using the website channel had cost saving benefits for Southwest airline because it could bypass the need to pay commissions to travel agents for handling the ticketing process. Also, the company used print media such as newspapers, billboards, and television).

1.3 Processes and resources

• Activities and Processes

In mid-2001 Southwest implemented use of new software that significantly decreased the time required to generate optimal crew schedules and help improve on time performance. In addition, Southwest had systems and processes in place to ensure safety, high-quality maintenance, and reliable operations. As a results Southwest never had a plane crash in the 31 years of flying. The company has a state-of-art flight dispatch system which helped to minimize weather and operational delays. Southwest airline had a system in place for dealing with or handling complaints because complaint letters were seen as learning opportunities for employees and reasons to consider making adjustments.

• Resources

With regards to physical resources, Southwest had its own planes and when rivals were cutting back service to cities that Southwest served, Southwest was a first mover in adding their flights.

In terms of Human Resources, Southwest strategy of success was highly dependent on their staff and it is mentioned in the case that people were Southwest’s greatest assets. Therefore, the company devoted time and energy to hiring great people with winning attitudes. The intangible resources that Southwest leveraged (Employee Value Proposition) to recruit employees was its brand name because Southwest was listed in Fortune listing as one of the best companies to work for