Internal Analysis and SWOT Analysis for Southwest Airlines - Essay Example

?Internal Analysis and SWOT Analysis Introduction All firms in an industry have to compete with each other in the marketplace. A firm’s strategy is based on factors that hopefully will allow it to retain its competitive edge in the marketplace vis-a-vis its competitors. While Michael Porter’s 5 Force Model is a good explanation of what forces a firm may be up against, in his later work ‘Competitive Strategy’ he contends that it is best for a firm to base its strategy on its internal strengths and weaknesses so that it has a consistent and long term basis for surviving and prospering in the marketplace. Porter came up with the Value Chain concept to explain how a firm could create value from its processes and partnerships. He divided a firm’s activities into Primary and Secondary Activities, which are respectively essential and ancillary to its business success. In this paper we will take a view of Southwest Airlines’ internal strategy and how it measures up against the competition. Physical Resources In terms of physical resources, we see that Southwest Airlines has a good number of aircraft both in its own fleet and that of the recently acquired Air Tran. Despite its low cost leadership strategy, it has concentrated on having the latest fleet of 717 and 737 MAX for passenger comfort. This shows that Southwest Airlines is committed to its goal of making the customer have a WOW experience and continue choosing it at their airline of choice. As of 31 Dec 2011, it had a total of 698 aircraft comprising 610 Boeing 737s and 88 Boeing 717s (Annual Report, 2011). Financial Resources Despite its low cost strategy, Southwest earned a profit of $178 million in 2011 and has been doing so consistently over the last 39 years. This is highly commendable in an industry that has been fraught with risk since the last decade. Fuel costs remain the major worry, as reported in the Annual Report. With its reduced fares and refund/ carry forward policy, Southwest still has an edge over other airlines (Annual Report, 2011). Amazingly, it is still investing in technology like faster reservation systems and latest aircraft to match competitors and meet customer needs. Human Resources For Southwest, its people are one of its key resources. As of 31 Dec 2011, it had in excess of 45,000 employees, including 19,000 flight personnel and 2,400 administrative staff (Annual Report, 2011). The various groups of workers are represented by at least 18 different Collective Bargaining Agents (CBAs) under different Unions. Meeting the demands of these entities and integrating Air Tran staff into the Southwest fold from a cultural and operational standpoint is expected to be a major challenge. Technical Resources  In terms of technical resources, Southwest Airlines can look upon the experience of its staff, the use of modern aircraft and reservation systems, and the operational and logistical administration of its fleet, cargo and passengers. No less important is its ability to sync its operations, service, marketing and sales to run concurrently and efficiently (Henry, 2007). Intellectual Resources Among Southwest’s key intellectual resources are its use of the Love field for its operations and the mind and vision of its upper management including the CEO and the Board of Directors that give the airline its strategic direction for the future. Its brand name and reputation for efficient service no doubt contribute to its revenues and profits. It is currently concentrating on attracting groups of passengers that present a continuing need to be transported for instance, patients under acute care settings. This shows that the company is innovative and not afraid to experiment. Goodwill Considering its vast experience and time spent in this industry, Southwest is reaping the element of goodwill as can be seen from its loyal passengers. Loyalty programs with cards and air miles are common in the airline industry, but Southwest also has an advantage in its flexible ticket policies including refunds, transfers, carry forward and discounts. This goodwill can also extend to its suppliers, buyers, employees and other groups it deals with regarding day to day activities and continuity of business (Porter, 1985). Cultural & Strategic Alliances Owing to the recent takeover of Air Trans, Southwest has managed to convert its image from a mainly domestic carrier to a regional one. It has also teamed up with Volaris, Mexico’s second largest carrier, to expand into the Caribbean, Mexico and Latin America. The takeover is as filled with possibilities as with problems. People fear layoffs because of duplication and integration. Strategic alliances in the airline industry can add strength, reduce competition and expand business opportunities but only if handled correctly (Author Unknown, 2007). Distinctive Capabilities-Structure Looking at the history and infrastructure of Southwest Airlines, we can see that being in the industry since 1967 has given the airline some distinctive capabilities concerning its infrastructure. For example, it is allowed to have major use of the Love field for its activities. Its administration follows a relatively flat structure, with few levels (Annual Report, 2011). Distinctive Capabilities-Reputation As a result of being in the business for so many years, Southwest is usually the first in share of business and share of mind when it comes to domestic air travel. It flies to 76 destinations in 39 states of the USA. But consumers are now also realizing that it has a reputation for quick and efficient service, a businesslike attitude and friendly treatment of customers. Now that it has increased its routes to Mexico and the Caribbean, more people are becoming aware of its regional status. Its reputation, innovation and service delivery stand behind its image. Distinctive Capabilities-Innovation Southwest has always been an airline that thrives on innovation and opportunity. While its founder Herb Kelleher took many of its operating principles out of Pacific Southwest’s rulebook, in time Southwest Airlines made these their very own in the way that they improvised and changed them in order to meet present conditions. They have used loopholes in rules and regulations to their own advantage in sidestepping the Whitney Amendment, relocating and registering out of Texas to save taxes. Their ticket policy is innovative and revolutionary as it gives a minimum of burden and hassle to the customer. They are still investing in the best aircraft and better reservation systems. They manage to give the customer comfort and peace of mind even while being a low cost operator. Conclusion Looking at the above, we can conclude that Southwest Airlines has many distinctive capabilities that contribute to its continued success. References Annual Report (2011). Southwest Airlines. Retrieved on 03 Sep 2012.  Author Unknown (2007). The Value Chain. Retrieved on 03 Sep 2012 from: http://www.netmba.com/strategy/value-chain/ Henry, A. (2007).  The Internal Environment:  A Resource Based View of Strategy.  Understanding Strategic Management.  Oxford University Press. Retrievedfrom http://www.oup.com/uk/orc/bin/9780199288304/henry_ch05.pdf Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press. Read More