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Low cost Airlines (Southwest Airlines) - Essay Example

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This report will investigate the factors that have led to the survival and continuing success of Southwest Airlines, including the company’s financial planning, financial control, costing and the company’s efficient decision making process…
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Low cost Airlines (Southwest Airlines)
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Download file to see previous pages This report will investigate the factors that have led to the survival and continuing success of Southwest Airlines, including the company’s financial planning, financial control, costing and the company’s efficient decision making process.The company has a unique business model of careful financial planning, control, efficient costing and a quick decision making process. Such unique business models have been known to ensure continued success in business organisations (Schein, E. H. 1980). Financial planning Southwest airlines is the only airline in the United States that has been consistently profitable for the past 3 decades, and this is mostly due to proper financial planning by the airline. The company’s financial planning model is a major reason why Southwest Airlines has remained profitable every year since its inception in the 1960s. In order to effectively carry out flight operations, an airline needs pilots, cabin crews planes that can take-off and land on the landing slots, and sales-point coordination. It is quite difficult to make these resources sustainable sources of competitiveness, as they are now much more accessible due to the development of the international markets. (Butler, G.F., and Keller, M.R. 2000). Southwest created an advantage by planning to price their fares at 60 percent below the prevailing air fares in the market. “When Southwest launched its Florida intra-state services in 1996, it offered some advanced purchase fares for as low as $29. Also, when the airline opened a Chicago-to-Cleveland route, its lowest unrestricted one-way fare was as low as $59, while those of other airlines were around $310.” (Doganis R. 2001). With this plan, the airline has been able to divert a substantial number of passengers from the road thus ensuring that the yields achieved are relatively high when measured in terms of revenue per passenger-kilometre because the fares are all point-to-point The airline’s financial success comes from the company’s ability to operate at costs that are lower than the revenue generated by the airline’s operations. Although southwest’s unit revenues are not much lower than those of other competing airlines, operating on the same routes, southwest has enjoyed an advantage in the unit cost, by operating at cost levels that are as much as 40 percent below those of its major competitors. (Doganis R. 2001) Financial control Despite the economic downturn that has been experienced in the United States, Southwest Airlines has remained financially stable and ahead of its competitors in the industry. This is due to an adequate control of the company’s finances, as Southwest Airlines has been able to overcome the economic issues that have affected the airline industry. Southwest is one of the most successful airlines in the United States due to its ability to attract customers based on the exceptional services, low-fares, and the company’s ability to evolve and effect needed changes. “In recent years, the global price of oil has caused many airlines to collapse as airlines were forced to raise ticket prices and lose customers. Airlines were also hurt by low ridership rates.” (Bennett and Craun 1993) Southwest Airlines has been able to maintain financial control by increasing or decreasing the number of flights served per day, as against increasing the coat of travelling for their customers. As a result of this control, the customers reach their destinations on time, and without having to pay higher fares. Since low fares have become the airline’s selling point, decreasing the cost becomes a very important aspect of the company’s financial control. Southwest Airlines also tries to maintain financial control by simplifying its operating process and utilizing strategies like the maintenance of one type of aircraft, not serving meals on flights, using cash-register receipts as tickets, and not using a computer reservation system. Southwest airlines has been known to cuts flights with poor sales and ...Download file to see next pagesRead More
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