Southwest Airlines: Case Study - Research Paper Example

Southwest Airlines: Case Study Southwest Airlines is the largest air carrier in the US in terms of domestic traffic and has maintained profitability for the longest time in the highly volatile airline industry; a basis that informs its choice for this case study. A background of Southwest Airlines will be followed by a detailed SWOT analysis plus Porter’s 5 forces analysis with respect to the strategy pursued by the company. The issues and challenges currently facing Southwest Airlines will be explored for which recommendations will be given followed by an appraisal of the lessons learnt from this case study. Southwest Airlines’ Timeline The roots of Southwest Airlines can be traced back to the late 1960s when two individuals, Rollin King and Herb Kelleher identified the potential business opportunity that lay in provision of intrastate airline services in Texas. Southwest Airlines managed to launch legal business operations in 1971 and from just 3 Boeing 737 planes the company never looked back. It has maintained growth to an enviable 548 Boeing 737 planes operating in 65 cities across 35 states as of 2010 (YahooFinance, 2010). It is a market leader with more than 3,400 daily departures, about 35,000 employees on its roster, operating revenue of $12.1 billion and a net income of $550 million as of 2010. This is happening under the leadership of Gary C. Kelly heading an equally able management and is guided by a mission centered on high quality and friendly service to customers. The management is complemented by a dedicated workforce as the company’s organizational culture is built around employee satisfaction and motivation to achieve optimal operations as evidenced by the fact that over 80% of the supervisory positions are filled from within (Southwest, 2011). Swot Analysis on Southwest Airlines The main strength that the company has lies in its ability to provide reliable and assured low cost flights across several destinations which is important especially in the current state of reduced consumer purchasing power. The efficiency of operations within the company brings a double advantage in minimizing the company’s operational costs thus maximizing profits and satisfying customers thus developing a strong brand. Equally important is the workforce present at Southwest Airlines. The workforce is motivated and committed hence achieving high levels of productivity that enables the airline to meet its goals (Flouris and John, 2005). The biggest weakness of Southwest Airlines is its conservative approach to transcontinental flights as evidenced by strategy of sticking to short distance aircraft types which limit its growth potential. Externally, the company has several opportunities the main being its opening up of new routes and considering international air travel services. The recent economic recession provides an opportunity for even more markets since it already offers low cost travel in comparison to its rivals. One of the most serious threats faced by the company is development of high speed railway systems that are cheaper and thus preferable for the low end market that is the company’s niche. The ever rising oil prices are also a major threat alongside increased competition from major and minor airlines for low cost air transport service and terrorism scares creating apprehension to air travel (Kazmi, 2008). Porter’s Five Forces Analysis on Southwest Airlines To begin with, new entrants into the airline industry have to contend with the entry barrier of massive capital costs. However, this has not hindered companies such as Air Trans Airways and JetBlue from increasing competition more so to Southwest Airlines since such entrants seek to target low cost markets. In terms bargaining power of buyers, it is evident that consumers are becoming more knowledgeable especially with the advent of the internet hence airline companies have to devise strategies to maintain market share. The bargaining power of suppliers in terms of aircraft is considerably low since thee are only two major makers i.e. Boeing and Airbus. Countries producing oil form strong associations e.g. OPEC and influence the global oil prices thus influencing the operations and income generation potential of airlines. The threat from substitute products is real in the airline industry with the development of efficient, high speed and low cost rail transport bearing down on air travel. Issues of brand and preference are not enough to curtail inroads from substitutes since consumers’ main interest is in low prices, efficiency, speed and convenience and would readily switch allegiance to the one offering these. The extent of competitive rivalry is high in the air travel industry with both established and new entrant companies devising strategies and counter strategies to gain competitive advantage. Air travel has thus become more of a commodity and less of a brand product with consumers increasingly aware of the price factor across airlines hence most competition is being centered on this (Gillen and Morrison, 2003). Company Strategy Although Southwest Airlines has sought various differentiation strategies such as efficiency and convenience through a point-to-point network, its most important and clearly visible strategy is provision of low cost flights. The company sustains this since it is able to build on its customer base and can attribute most of its success to this strategy. Rival companies can and have adopted this strategy in the past but it is accompanied by sustainability challenges and reduced profitability. This strategy harmoniously fits with the shakeout stage of the industry’s life cycle witnessed by declining fortunes of several airlines and entry of several new companies (Dess et al. 2008). Issues and Challenges Facing Southwest Airlines Increased competition and skyrocketing oil prices are the most serious challenges the company is experiencing. However, adept implementation of the low cost service strategy gives it a sustainable competitive advantage presently and into the future especially as the company is in the maturation stage of its life cycle where competitive prices are the key to reaping into marginal markets and maintaining market share and profitability. The company needs to maintain its staff satisfaction and motivation culture since this is the key to maintaining its efficiency especially in its point-to-point operations model. Recommendations Southwest Airlines should consider expanding to transcontinental operations while still maintaining its image of low cost air travel. To do this, investment should be made in the appropriate aircrafts followed by opening high traffic routes such as Europe and Asia. Marketing and sensitization especially to its present customer base who would be happy to travel with their favourite airline abroad should be undertaken while at all times highlighting the low cost charges with an eye at the long term benefits. Opinion This case analysis is particularly insightful in terms of strategic analysis, SWOT analysis and Porter’s 5 forces analysis into organizations besides highlighting the importance of commitment to a carefully planned strategy for the long term success of a business in highly competitive markets. References Dess, G., Lumpkin, G., & Eisner, A. (2008). Strategic management. Boston: McGraw-Hill Irwin. Flouris, T. W., & John, T. (2005). The financial performance of low-cost and full-service airlines in times of crisis. Retrieved September 29, 2011 from http://findarticles.com/p/articles/mi_qa3981/is_200503/ai_n13638987/?tag=content;col1 Gillen, D., & Morrison, W. (2003). Bundling, integration and the delivered price of air travel: Are low-cost carriers full-service competitors? Journal of Air Transport Management, 9, 15-23. Kazmi, A. (2008). Strategic management and business policy. Delhi: Tata McGraw-Hill Education. Southwest (2011). Southwest Airlines fact sheet. Retrieved September 29, 2011 from http://www.southwest.com/about_swa/press/factsheet.html#About%20the%20Company YahooFinance. (2010). Southwest Airlines (LUV) Co: Profile. Retrieved September 29, 2011 from finance.yahoo.com: http://finance.yahoo.com/q/pr?s=LUV Read More