Southwest Airlines - Essay Example

? Southwest Airlines It can be said without much doubt that Southwest Airlines is a reputed among the best performing airlines in the US. The study tries to identify the performance of the company before and after the deregulation. It has been noted that the performance of the airline industry has been quite unstable because of deregulation. However, Southwest Airlines has been able to maintain its position because of its innovative strategy of low cost airlines and also due to its commendable service towards the passengers. Southwest Airlines seems to have been confronting numerous issues such as maintenance issues and rivalry issues that need to be resolved in order to beat the competition. Therefore, the study has tried to recommend various strategies to resolve the issues and thus maintain the competitive position in the market. Overview Incepted in 1967, the Southwest Airlines has been one of the biggest domestic airlines in the US. It serves the customers with point-to-point, diminutive haul, and elevated frequency along with low fare services (Leavenworth, 2004). Performance before and after Deregulation In 1967, Air Southwest Airlines Company was established. It was in the year 1971 that Air Southwest Airlines Company altered its name to Southwest Airlines. The founder of the company, Mr. Herb Kelleher took reference from numerous airline companies’ principles so that corporate culture can be formed at Southwest Airlines. During the fiscal year 1971-72, the company experienced operating losses which was a massive shock for the company (Learning Organisation, 1997). After 1978, when deregulation came into being, the company planned to provide interstate services from an airport named Love Field. The company was successful at amending the Wright Amendment with an aim that such alterations would be advantageous to Love Field and Dallas Fort/Worth International Airport (D/FW). However, this was opposed by American Airlines as well as Dallas Fort/Worth International Airport (D/FW) (Chang, 2011). It can be mentioned that since there was deregulation in the airline industry, the financial performances of the companies has been too unstable. During, the period of downturn in the economy from the year 1990 to the year 1993 the total loss to the industry had been $13 billion. Most of the policy makers had been quite worried with this which triggered the creation of the National Commission. This led to well-built competitive airline industry in the year 1993 (Morrison & Winston, 1996). Southwest Airlines which is considered as low cost airlines demonstrated a stable growth in the airline industry and the average growth in the number of the customers had been approximately 9%. It can be mentioned that there was high competition in the deregulated airline industry since the airline routes were competing among each other and there was rise in the low-cost carriers such as Southwest Air lines (US Government Printing Office, 2003). Although it has been almost thirty years of the deregulation, the services provided by the Southwest Airlines has been satisfactory to draw on the passengers with a pleasant experience. In this period of time, a number of airlines have been losing money because of lack of adequate service and certain other reasons. However, the best part to note in this regard is that Southwest Airlines is continuing to earn profits because of its hedging programs (Mallone, 2008). Business Issues Hub Strategies It is worthy of mentioning that Southwest airlines does not adopt the “hub and spoke” approach. The company instead tries to focus upon the short haul as well as point-to-point approach. The takeover of Transtar Airlines by Southwest Airlines in 1994 assisted the company to develop stronger edge in the market place. It can be mentioned that deregulation has allowed the companies to burgeon and has lowered the travelling cost of the air-passengers travel. Personnel Issues One of the significant issues that Southwest Airlines faces is related to maintenance of its flights. As a result of this deficiency, the company had to upon the cancellation of flights in various instances resulting into customer dissatisfaction and operational hazards. it identified subsurface cracks on three of its jet liners. The company has been facing the issues of maintenance since a long period of time (IB Times Staff Reporter, 2011). Although the company has been well-known for its culture, it lacks in effective operational strategic implications. Southwest Airlines has an unconventional culture and has been one of the constantly profitable airlines in the US. Low-cost carriers such as AirTran as well as JetBlue have tried to follow the strategies that have been adopted by the Southwest Airlines and have improved significantly. However, Southwest Airlines has not been capable of improving its performance because of the ‘conservative fiscal management’ that it practices (The New York Times, 2011). Since the company offers the low cost flights to the passengers, it can be mentioned that the company faces stiff competition from its rival firms. It is in this context that the company shall possibly face significant challenges in attaining the growth that it had earned in its past performances. Furthermore, due to the operational lacuna of Southwest Airlines in terms of maintenance and conservative fiscal management, the growth of the company shall be hampered in the future (Reed, 2002). It can be stated that the company faces internal threats as well as external threats or issues that hampers the success of the company to a great extent. Internal threats are faced by the company by means of changing culture in the organization. The company faces the external threats since the new entrants are also adopting the same philosophies or strategies that the Southwest Airlines follows to make their services distinct from others. The company has been successful at responding to the issues related to competition. It has been possible by means of nationwide fare promotions. However, such promotions may not be an effective way of fighting the competition on a regular basis (Desai, Patel, & Quach, n.d.). It can be identified that the company has faced certain issues related to marketing as well. For instance, Southwest Airlines started using the slogan “Just Plane Smart” to market its services in an attractive manner. On the other hand, it was found that “Plane Smart” had been the registered slogan of Stevens Aviation. This resulted in a lawsuit against Southwest Airlines raising legal issues (Hunter, 2009). Financial Performance There has been estimation of the fact that Southwest Airlines will demonstrate signals of positive earnings development. The earnings estimates of the year 1998 and 1999 have been demonstrated below (Ainsworth, Goidell, Ledoux, Modi, Owens, Walters, & Walters, 1998). Source: (Ainsworth, Goidell, Ledoux, Modi, Owens, Walters, & Walters, 1998). Source: (Ainsworth, Goidell, Ledoux, Modi, Owens, Walters & Walters, 1998). Southwest Airlines earned a profit of approximately $111 million in the year 2007. In the later period due to the deterioration of its performance the company had to witness a loss amounting to approximately $56 million in the year 2009 (Maynard, 2009). The net income of the Southwest Airlines has been $459 millions in the year 2010. It has been noted that the profit margin of Southwest Airlines as on June 2011 has been 3.89% (Southwest, 2010). Recommendations Southwest Airlines needs to introduce new strategies so that it can maintain the competitive advantage. Expanding its operations in those areas where the competitors have not yet reached can be the best option. The employees of the organization need to be continuously rewarded and compensated for their achievements so that the best talents can be retained in the company. The reason behind the retention can be identified as being blessed by dedicated and apt employees who are the pillars of success for the organization (Southwest, 2009). The company also faces the issue of maintenance on a regular basis. Therefore, in order to prevent such events from occurring in the near future, the company needs to continuously solve the various prevailing issues in terms of technical aspects by hiring mechanics and thereby fix the problems of maintenance. Each flight needs to be checked before they take off so that safety of the passengers can be improved. In order to increase the profitability of the company, the company can make use of new advertising strategies that will draw the customers towards the company. By keeping watch of the business environment the company can prosper in the short run as well as in the long run. In the next 25 years, there might be tremendous changes in the work environment of the airline industry. This might as well hamper the successful operations of the Southwest Airlines. The changes may be evident in the form of organizational structure and culture. The rules and regulations of the government in relation to the airlines industry may affect the operations of the industry. However, by looking at the performance of the company from past 10-15 years, it can be predicted that in the near future Southwest Airlines shall be capable of maintaining its position in the market by enhanced growth and profitability. Conclusion There is tremendous change in the way business houses are operating in the recent times. The operational changes have been triggered because of the changes in the business environment. By adopting new technologies and taking initiatives for innovation, the companies are surpassing the expectations of the customers. Strategies related to new technologies and innovations when framed, change the way of conducting the business. New strategies are developed and therefore restructuring of the overall organization may be necessitated. According to the Chief Executive Officer and the Chairman of the company, Mr. Gary C. Kelly, the company will keep offering the passengers low fare flights in order to retain the existing passengers also to win new customers. References Ainsworth, G., Goidell, J., Ledoux, C., Modi, T., Owens, G., & Walters, R. (1998). A financial analysis of southwest airlines co. Retrieved from http://teknirvana.com/documents/Southwest.pdf Chang, K. (2011). How southwest airlines beat the wright amendment. Retrieved from http://www.cnbc.com/id/43714139/How_Southwest_Airlines_Beat_the_Wright_Amendment Desai, K., Patel, V., & Quach, D. (n.d.). Southwest Airlines. Retrieved from http://www.mcafee.cc/Classes/BEM106/Papers/UTexas/351/Southwest.pdf Hunter, J. A. (2009). Anger in the air: combating the air rage phenomenon. United Kingdom: Ashgate Publishing, Ltd. IB Times Staff Reporter. (2011). Southwest Airlines has a history of maintenance problems: report. Retrieved from http://www.ibtimes.com/articles/130098/20110404/southwest-airlines-arizona-crack-fuselage-cancles-flights-maintenance-issues-penalty.htm Leavenworth, S. (2004). Southwest Airlines Co. Retrieved from http://www.ive.cuny.edu/downloads/cases/Southwest%20Airlines%20IVE%20Case.pdf Learning Organisation. (2003). LO when people come & go LO1535. Retrieved from http://www.learning-org.com/97.10/0192.html Morrison, S. A., & Winston, C. (1996). Causes and consequences of airline fare wars. Microeconomics. Vol: 1996. Mallone, M. (2008). Flight risk. Retrieved from http://www.portfolio.com/news-markets/national-news/portfolio/2008/09/18/Analysis-of-Airline-Troubles/ Maynard, M. (2009). Southwest posts a fourth-quarter loss. Retrieved from http://www.nytimes.com/2009/01/23/business/23air.html Reed, D. (2002). Southwest's challenges grow. Retrieved from http://www.usatoday.com/money/biztravel/2002-10-16-southwest-cover_x.htm Southwest. (2009). Our performance. Retrieved from http://216.139.227.101/interactive/luv2009/luv2009ar.pdf?print_pages=true Southwest. (2010). 2010 Financial statistics. Retrieved from http://www.southwest.com/html/about-southwest/history/fact-sheet.html The New York Times. (2011). Southwest airlines company. Retrieved from http://topics.nytimes.com/top/news/business/companies/southwest_airlines_company/index.html US Government Printing Office. (2003). The funture of the airline industry. United States: DIANE Publishing. Read More