SWOT Analysis of Southwest Airlines - Essay Example

SWOT Analysis of Southwest Airlines of the of the SWOT Analysis of Southwest Airlines Executive Summary The internal andexternal forces faced by business firms may force them to change their strategy and focus if they are not proactive and alert. In this paper we will make a SWOT analysis of Southwest Airlines as a key player in the US domestic airline industry. We will see how Southwest uses its available resources to coordinate primary and support activities within the value chain to its advantage in a very challenging environment. Introduction Any firm within a given industry will be battling with internal and external forces in the environment that can either be a blessing or a curse for the firm and in cases, even for the industry as a whole. In this paper we will make a detailed analysis of the strengths, weaknesses, opportunities and threats of Southwest Airlines and see how they contribute to its overall success. A firm is blessed with its own resources of men, money, machines and materials that can be used to its best advantage if the strategy it is following is correct and feasible in the present conditions. Strengths of Southwest Airlines Strong and Robust Reputation: One of the best strengths of Southwest Airlines is its strong reputation and brand name in the airline industry. Established in 1967, it changed its name to Southwest Airlines in 1971 and from them on has been dominating the local air transport sector in the USA. According to its Annual Report 2011, it presently flies to 76 destinations within the USA, and following its acquisition of Air Tran and strategic alliance with Volaris, Mexico it has also established routes to the Caribbean and Mexico in Latin America, making it an emerging regional player (Annual Report, 2011). Zealous and Committed Staff: Southwest Airlines makes no secret of the fact that it works hard to be the leader in the domestic airline sector. It spends a lot on the training and education of its staff and likes strong, enterprising and hard workers who can do a variety of tasks. Even its internship program encourages this attitude. A unique combination of zeal and enthusiasm on the part of its workers coupled with a businesslike but courteous customer service plan makes for a WOW experience even on this low cost service provider. Although Southwest Airlines has in excess of 45,000 staff belonging to as many as 18 different Collective Bargaining Agents in Unions, yet it has managed to coexist with their needs (Annual Report, 2011). Exemplary Pricing and Service Plans: Another plus point for Southwest which other airlines are struggling to emulate are its challenging low fares and variety of pricing plans, available discounts and carry-forward/ refund polices, and various loyalty programs such as flyer miles and loyalty card users. Being a low cost service provider, this is Southwest’s dominating strategy and no doubt its wide service area and available economies of scale help to supplement this strategy. Innovation and Modernity: Another of Southwest’s strengths as part of its operating philosophy is its concentration on innovation and modernity. It tends to use the most modern fleet, look at customer service and comfort factors, employ a fast reservation system and think of ways to increase consumer traffic permanently or long term, such as beginning to cater to those with medical problems that have to be transported across States or from one destination to another in a fast and comfortable way. It is commendable that despite being a low cost provider, Southwest management are alert and keen to new opportunities (Henry, 2007). Weaknesses of Southwest Airlines Large Size and Unmanageability: Every organization however large or successful will have its own weaknesses and Southwest Airlines is no exception. The large size of this organization sometimes leads to manageability problems. Already there are concerns about layoffs following the takeover of Air Tran. The firm is also having problems regarding cultural and operational assimilation between Southwest and Air Tran staff. Fuel Cost and Price Control: Being a low cost provider, Southwest can reap economies of scale but the rise in fuel costs over the years is a principal cause of concern to its low cost leadership strategy. Though it tries to economize with its point to point strategy, short runway landings and flights to capacity, the fuel cost is nevertheless going to be a factor that will affect its profitability in the long run. Possibility of Strikes: Given that its workers are unionized and belong to up to 18 different Unions, the possibility of industrial action like strikes is an ever-present weakness that can be exploited to weaken Southwest’s position in the marketplace. Opportunities for Southwest Airlines and the Industry Open Skies Policy and Repeal of Whitney Amendment: While the Whitney Amendment of 1979 had restricted air travel to some destinations, its repeal in the 1990s led to more opportunities for Southwest and indeed the whole of the industry. It also affected pricing of tickets and airlines were able to offer more reasonable rates and new destinations. Success of Pricing and Customer Satisfaction Policies: The low fares, reward program, discounts and carry forward/ refund polices adopted by Southwest are the envy of the industry. There are tie-ups with hotels, tourist resorts and even rent a car outlets to make a trip a memorable one. Its website is responsible for over 60 percent of its sales through online reservations. By investing in state of the art in its 737-800 and 737-MAX fleet, faster reservation systems and customer friendly attitude, Southwest leads the way as a domestic low cost provider. Southwest has been consistently listed as among the Top Ten Companies to work for in the USA, and makes the Fortune 500 list. Indeed, it has given impetus to the formation of other low cost airlines like Ireland’s Ryan Air and Malaysia’s Air Asia. Investment and Cost Cutting Strategies: Indeed, Southwest’s wise combination of network optimization and revenue management has paid off and enabled it to maintain its status as a low cost provider. It has saved time by carrying out refueling and maintenance on runways during flights, used short stop landing to save fuel, and reduced ground staff maintenance time by parking near gates to lower operational costs. This commitment to the bottom line has contributed handsomely to its revenues and profits (Zahorsky, 2009). Threats for Southwest Airlines and the Industry Cost of Fuel and Other Factors Affecting Profitability: Brent Crude touched $120 a barrel in March 2012. Along with the cost factor affecting overall revenues and profitability, the threat of terrorism, safety and security, accidents and bad weather can affect the schedule of flights and ruin the reputation of any airline. Beginning with the events of 9/11 and the slump that followed, quite a number of airlines have filed for bankruptcy in the last decade. Regulatory Factors and Impact on Pricing: There are a whole lot of safety and security regulations that need to be adhered to within the airline industry. The Department of Transportation and the Federal Aviation Standards Board have to be satisfied at all times. Aviation taxes are another cost factor. Added to this the Passenger Protection Rule effective this year is bound to slow down the booking and cancellation process for airline seats and could well impact the full capacity strategy of Southwest and other airlines that seek to maximize revenues while controlling costs on every flight (Anonymous, 2009). Employee Difficulties: The airline industry is continually buffeted by strikes due to demands by various CBAs of which employees are members. Southwest has a staff in excess of 45,000 employees to contend with and In addition to this there has been the specter of layoff rumors that are circulating due to integration of Air Trans and impact of duplicate positions, cultural and operational difficulties that may be difficult to surmount. In fact this is a concern for the whole airline industry whenever a merger or takeover of another entity is accomplished (Author Unknown, 2007). Summary of Findings So we can say that the threats to Southwest Airlines far outweigh the opportunities. However Southwest is an airline that has consistently used its strengths to overcome its weaknesses. It has been in business since 1967, has an able and experienced team filled with innovative ideas that will continue to make headlines in this sector and has a staff and philosophy that is committed to cost saving and protection and conservation of the environment for a better future for us all. Impact on Southwest Airlines and the Industry Quite evidently the negative factors are having a detrimental effect on Southwest and the airline industry in general. This industry has very few positive factors to look up to. Added to this the business is seasonal and cyclical and there are low margins with intense competition (Porter, 1985). It is indeed commendable that Southwest Airlines is surviving and prospering even in these increasingly difficult times and that too as a low cost provider. It is a credit to the hard work and dedication of its staff and the ingenuity and creativity of its management that it continues to seek ways to capitalize on its opportunities and strengths Conclusion We have thus seen that by using the infrastructure and resources at its disposal, Southwest Airlines continues to fly as a dominant force in the US domestic aircraft passenger category. Southwest has also made deals with its supplier Boeing for fast delivery of planes, and the authorities at various airports all over the USA to allow it favorable landing space near gates and terminals, and allow speedy touchdowns. It has consistently won accolades for its performance and is listed in the Top Ten Companies to work for in the USA, in fact being the only airline in that category. References Annual Report (2011). Southwest Airlines. Retrieved on 05 Sep 2012.  Anonymous (2009). SWOT Analysis Lesson. Retrieved on 05 Sep 2012 from: http://marketingteacher.com/Lessons/lesson_swot.htm Author Unknown (2007). The Value Chain. Retrieved on 05 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. Zahorsky, D. (2009). A business owners secret weapon: SWOT analysis. Retrieved on 05 Sep 2012 from: http://sbinformation.about.com/cs/bestpractices/a/swot.htm  Read More