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Southwest Airlines' Cost Optimization to Create an Attractive Price for Economy Class Travelers - Case Study Example

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The study “Southwest Airlines’ Cost Optimization to Create an Attractive Price for Economy Class Travelers ” analyzes a number of events that have allowed the airline to succeed in its low-cost position: direct online booking, limited catering, cabins of one class, fewer crew members etc…
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Southwest Airlines Cost Optimization to Create an Attractive Price for Economy Class Travelers
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Download file to see previous pages There are many factors which have helped Southwest Airlines in its survival and success. This essay attempts to outline those factors and strategies on the basis of the following parameters: Financial Planning, Financial control, Costing, Decision making.
Financial planning has played a vital role in growing its business. The correct timing of its decisions has made a huge difference in increasing market capitalization (Sims, 68). Southwest Airline has gained a further advantage by packing more seats into the aircraft which increase the seat kilometer revenue generated per block hour.
Instead of buying more jets to deal with its growing business, Southwest planned and got better deals on the lease. Hence it paid substantially less per block hour for lease rental, than other carriers. Southwest has implemented its financial planning in such a way that low fares when combined with high frequencies and excellent punctuality have resulted in an increase in its revenues.  Southwest plans its finances very efficiently.  It hires new pilots with ten years contract and motivates them by offering a share in profits. This is an example of astute planning. It means that if Southwest was making losses at any particular time then the losses can be shared with the pilots. This strategy also makes the staff much more accountable. Another important aspect of financial planning was operating on low distance routes and targeting of road passengers.
Southwest plans its expenditure very efficiently and effectively. The customer service strategy of providing a full meal was costly in two ways. One, it increases the per unit costs and secondly more staff is required to provide the service. Southwest’s plan of not following this trend has saved it the cost of food as well as the number of staff employed. In other airways, when six to eight employees per flight were required, southwest managed to function with only four. This kind of planning was crucial for decreasing the costs and increasing the revenues. ...Download file to see next pagesRead More
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