Strategic Management at Southwest Airlines - Assignment Example

Strategic Management at Southwest Airlines AFFILIATION: Introduction of Southwest Airlines Southwest Airlines was founded in Texas and started customer services in 1971 with three Boeing 737 aircraft that served three cities of Texas i.e. Dallas, San Antonio and Houston. The airline became the leading air carrier in 1989 when it successfully exceeded the target of billion dollars. In May 2003, the airline was given the top ranking for the first time in the domestic passenger originator on a monthly basis (Southwest Airlines, 2013). Presently, Southwest Airlines is the largest low-cost passenger carrier airline that is serving more domestic customers than other competing airlines as it has effectively blended the low fares combination with an extremely friendly customer service, no exasperating fees, excellent working culture and highly efficient operational system. The key facts of Southwest Airlines are represented in the following table: Important facts Details Daily departures 3000 flights Net Income $420 million Total Revenue Passenger Mile 103 billion Net Income excluding of special items $417 million Average passenger load factor 80.3% Total Revenue passengers carried 109 million Total operating revenue $17.1 million (Source: Southwest Airlines, 2013) Customer Target of Southwest Airlines Southwest Airlines has ensured that it develops a highly effective and well-integrated business model that will allow it to provide superior quality services to the customers at low fares. The crucial elements of the business model related to the excellence in customer service are providing safe journey, offering reliable services, shorter travelling period, excellent service quality, short haul point to point travel and lowest fare. The company is enhancing the customer’s travelling experience by providing them online booking services so that they can make their travel packages quickly and effectively. Factors important for customers Weightage Safe journey 20% Reliable services 15% Lowest air ticket fare 25% Excellent customer service 20% Quick traveling period 15% No baggage transition 5% Positioning Statement of Southwest Airlines It has been clearly mentioned in the mission statement of Southwest Airlines that it wants to provide the customers with superb travelling experience at low fare prices. In order to support this mission of the company, the positioning statement of Southwest Airlines can be stated as “To be the number one service provider for aviation needs by offering the customers a unique and sensational solution with superior quality and low cost.” The company acquired AirTran in 2011 with the aim of extending its fleet base so that it can widen its range of destinations (Morre, 2011). Business Audit – The Value Chain The existing business model of the company is well-integrated and properly developed that permits it to gain a competitive edge in the airline industry. The crucial element for the airline companies is the operational mechanics that range from the booking of air tickets to the maintenance of aircrafts. As one of the Key Success Factors of Southwest Airlines is the low-cost operational efficiency, it has ensured that it upgrades the operations by implementing a well-designed value chain system. The graphical representation of the competitive value chain of Southwest Airlines along with its vital aspects is shown below: It shows that the company has allocated sufficient resources for the development of a competent and highly qualified workforce along with supporting processes that will allow the personnel to remain ahead of the competitors. According to Morre (2011), Southwest Airlines has the strongest financial position in the industry despite being ranked as the low-cost air carrier. For any airline, the two biggest costs are the fuel costs (about 18%) and labor costs (approximately 40%); Southwest has kept a tight control on these costs by developing cordial relations with the labor and selecting the suppliers who will provide fuel at affordable prices. In order to curtail the increasing amount of fuel cost, the company has started offering point-to-point flying services on specific routes, utilizing the secondary i.e. smaller airport platforms, carrying consistent amount of aircrafts and ensuring that the aircrafts are utilized at an optimum level. It is believed that Southwest Airlines has an enhanced labor productivity level because it has a highly unionized labor; it implies that 81% of the employees belong to the union and the compensation packages are properly aligned with the US airline industry standards. Most of the Southwest flights are short hauls that average approximately 590 miles so that it can maximize its operational efficiency by achieving the targets of effective capacity utilization. It is well-known for offering on-time services to the customers and ensures that none of its flights fall below the schedule. Southwest Airlines has a common fleet so that scheduling is simplified, operations are consistent and maintenance becomes an affordable task. Internal and External linkages Southwest Airlines has been offering consistent value proposition to the customers by maintaining steadiness and uniformity in its products and services. The key strengths of the company are a loyal employee base, positive working culture, operational efficiency, effective management of human resources, friendly relations with labor and superior ranking in the airline industry in terms of timely arrivals and departures, proper baggage handling, safety and security during travelling and prompt responses to the complaints of the customer. Like all other companies, Southwest Airlines is also impacted by the external factors such as globalization, technological advancement, changing climatic conditions, natural disasters, modifications in the legislation and economic structures. The strategic fit requires the companies to continuously monitor the external and internal environment so that any required changes in the operations or offerings are effectively made well in advance so that the company is not severely impacted by any changes that take place in the environment. Hence, Southwest Airlines business model is upgraded at timely intervals so that the company remains competent and manages to maintain its competitive edge in the industry. Management Agenda Since maintaining competitive edge in the airline industry requires extensive efforts, the management agenda of Southwest Airlines is as follows: 1. The company will try to integrate with a European airline by the end of next year so that it can take advantage of the low-cost carrier services in the various destinations across European countries. In Europe, various policies have been deregulated that ensure that a hypercompetitive market is created for the competing airlines worldwide. There are various low-cost airlines in European countries who want to flourish in the low-fare air carrier market; by entering into alliance with one such viable airline, Southwest will be able to offer its services in this region. 2. Secondly, it can develop an entirely new logistics division to diversify the product base; it currently transports relatively few commercial packages and it can gain competitive edge on the parcel carriers such as FedEx, UPS by taking advantage of its point-to-point flying strategy. It will ensure that the shipping of parcels is done at a fast pace along with superior quality of care and at a low cost as it will not have to incur the storage costs of parcels or hub costs which are borne by the parcel carriers. Hence, this market will allow the airline to earn additional source of revenue. Conclusion Southwest Airlines is the leading airline company in United States that has been offering its services for more than fifty years with an excellent level of quality. It has ensured that it achieves its mission of providing low-fare air carrier solution to the customers with all the requirements so that they can travel easily, with excellence and get a good amount of return on their money spent with the airline company. Hence, the company’s management team should ensure that it goes ahead with suggested strategic moves so that it can maintain its competitive edge in the industry. References Moore, S., 2011. Southwest Airline: A case study in putting people at the heart of the strategy. [Online] Available at: [Accessed 25 March 2013]. Southwest Airlines, 2013. Southwest Corporate Fact Sheet. [Online] Available at: [Accessed 25 March 2013]. Read More