Southwest Airlines - Research Paper Example

This airline particularly targeted the bottom-of-the-pyramid market segment by offering no-frills services that resulted in reduced fares. It was claimed to be one of the most low cost carriers as it offered high frequency and short hauls matched with point-to-point service and reasonable fares (Inkpen 5). Unlike its competitors, Southwest did not believe in the hub-and-spoke system as it resulted in congestion and a lot of time wasted in the process of waiting for customers to arrive from other airports.

In the words of the company’s Annual report, the company was poised to manage well in good times so as to sustain during bad times (Inkpen 1). Even though the company enjoys a high volume of passenger traffic and high turnover, it has met with various challenges. The most important challenge was the increasing efficiency of legacy carriers in the U.S along with large mergers such as those between Delta and Northwest that was leading to industry consolidation (Inkpen 1). Such consolidations were a threat to companies such as Southwest since the consolidated companies had access to lower operating costs (owing in part due to joint resources) as well as higher prices of tickets which is something Southwest did not focus on.

This is reflected in the fact that, according to the financial statements, Southwest possesses the lowest “average revenue passenger miles” per passenger and has the highest operating margin in the industry (Inkpen 3). However, since passenger yield is high (reflecting high volume of passengers), Southwest has managed to rack up profits in years when others have faced losses. The company also possesses the lowest costs (including unit costs, labor costs and number of employees per aircraft) which add to its source of competitive advantage.

However, the company’s ability to offer low fares at low costs has been challenged by smaller airlines such as JetBlue and Allegiant. Furthermore, the acquisition of Air Tran was a big challenge as it would require downsizing, acquiring new fleet as well as moving into non-U.S destinations. One of the major issues faced by the company was the attempts by its competitors to prevent the company from flourishing. Time and again various airlines that were Texas based tried to tilt law in their favor; however, the company succeeded in its legal proceedings.

In line with further attempts to outdo its competitors, Southwest offered unmatched low fares such as $59 compared to $310 offered by its competitors (Inkpen 4). Although this was a good thing in one way, it was difficult to position these fares as regular and not introductory fares in the minds of customers. Positioning the brand through such low prices was, therefore, the ultimate challenge. Another issue faced by the company as that of growing and expanding its operations. There was some resistance by employees to this idea which could result in losing markets to rivals.

Furthermore, entry into the northeast region did pose threat to the company’s operations due to congestion on airport and high turnaround times at airports. The company might consider using “drive through airport” models that reduce the number of lanes that the aircraft must pass through. Perhaps the most pressing issue is the Air Tran deal which requires merger of two airlines with different mindsets and operations. There was a difference in the type of fleets used along with Air