What Is Southwest’s Strategy? What Is the Basis on Which Southwest Builds Its Competitive Advantage?

Djara Lou N. Lopez                                                                     June 11, 2016

Mgmt 221 – Management Control                                                1:00PM – 4:30PM

Case 3-1 Southwest Airlines Corporation

1. What is Southwest’s strategy? What is the basis on which Southwest builds its competitive advantage?

Southwest Airlines Corporation’s strategy is to have a low-cost operating structure in the domestic airline industry. They have been offering the lowest and simplest fares due to its strategy of improving efficiency and pass on the cost savings to its passengers. Southwest employs the short haul and medium haul and point-to-point approach in their airlines. This pertains to a relatively short distance in terms of travel ranging from under three hours to six hours or flying directly between two small markets. This is in contrast with other major airlines that use “hub-and-spoke” approach wherein long-distance flights are available from a hub, which is a central airport, to spokes, which are the routes that planes take out of the hub airport.

The basis on which Southwest builds its competitive strategy is through putting their employees first. At their perception, their cycle starts from their employees. According to the founder of Southwest, if their employees are happy, satisfied, dedicated and energetic, they’ll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy.

Southwest’s culture was inculcated to each and every employee such as hard work, high-energy, fun, local autonomy, and creativity. This was reinforced through training them, encouragement of in-flight contests, and recognition of personal initiative. Their crews were paid per trip. Their pilots were unionized independently, allowing them to fly far more hours than pilots at other airlines. Although some of their workers were nationally unionized, their contracts were flexible enough to allow them to jump in and help out, regardless of the task at hand.

Due to this strategy of Southwest, they have been profitable for 32 consecutive years which is a record unmatched in the airline industry.

1. How do Southwest’s control systems help execute the firm’s strategy?

Southwest’s main objective is to have goal congruence within their company. They want to lead the least costly airline offering customer satisfaction and at the same time taking care of their employees. In line with their main objective, they have different control systems to make this happen.

First is the cutting down of costs. They are applying the short-distance flights which makes 80% of its passengers flew non-stop. They have no assigned seats, paid its crews by trip and used less congested airports. They also have this control over the purchase of fuel wherein 85% of its fuel and oil were hedged which resulted to savings of $455 million. Efficiencies made my Southwest resulted to lower costs which are passed on to its passengers. This will lead to my second point which is, offering customer satisfaction. Many would want to fly with Southwest because it is cheaper, lesser hours of travel and at the same time easier to book a flight. Southwest have this desktop application called “Ding!” that provides exclusive deals. They also have online bookings via southwest.com where they generated 60% of their passenger revenue. This also helped to reduce their employees and save costs.