Southwest Airlines - Research Paper Example

Southwest Airlines Brief History Southwest Airlines is recognized as one of the biggest low-cost carriers which started its business operations in the year 1967. The official headquarters of Southwest Airlines is situated in Dallas, Texas. In the year 1971, Mr. Lamar Muse joined as the President of Southwest Airlines. It was in the year 1972 when on behalf of the organization, he introduced the two-tier cost structure which is observed as a noteworthy innovation particularly in the airline or aviation marketing industry (Southwest Airlines, 2012). In relation to technological advancements, in the year 1979, Southwest Airlines introduced its own self-ticketing mechanisms based on Cubic-Western Data through which the customers possess the ability to purchase a ticket and can go instantly to the gate by the aid of swiping their individual credit card in the mechanism. In the year 1995, Southwest Airlines became the foremost chief airline offering Ticketless Travel to its customers (Southwest Airlines, 2012). From the perspective of the customers, Southwest Airlines’ mission is to ensure utmost dedication towards delivering superior service quality to its valued consumers along with offering an environment of affability, company spirit, affection and individual pride. Apart from the customers, with regard towards the employees, the mission of Southwest Airlines is to deliver stable working atmosphere along with offering equivalent prospect for personal development as well as augmenting knowledge of its employees. In this context, Southwest Airlines focused upon the aspect of innovation as well as creativity in order to enhance the competence of the organization. Collectively, it can be stated that Southwest Airlines desires to provide its staff with similar respect, concern and caring approach while operating its business functions with them (Southwest Airlines, 2012). Southwest Airlines’ well-prepared mission ultimately has made the organization attain significant awards as well as recognitions that have raised the business as well as organizational reputation at large. In this regard, it has been observed that in the year 1992, Southwest Airlines was honored as an exceptional achiever especially in airline cargo related industry that supported the organization to win “Quest for Quality” award provided by Distribution Magazine. Furthermore, in the year 1995, Southwest Airlines was positioned at the 434th place in the segment of Fortune 500 companies and was ranked first on Fortune’s Corporate Reputation Survey conducted by Fortune Magazine (Southwest Airlines, 2012). Financial Performance since Deregulation and Current Economic Standing Since deregulation in the year 1978, the financial performance especially of the airline industry had become enormously volatile in which the industry faced loss of nearly US$13 billion that concerned the policy makers to ensure a powerful aggressive aviation industry (Morrison & Winston, 1996). Furthermore, since deregulation, the aviation industry experienced low profitability while operating its business functions. The occurrence of deregulation resulted in drop of the airfares of the airline related organizations such as Southwest Airlines and also permitted new business organizations to enter into the business market of airlines. The entrance of new business market participants ultimately made the airline industry more competitive. One of the most significant problems that rose along with the occurrence of deregulation is the considerable rise in the oil price. The cost of fuel increased considerably and was regarded as the chief element of losses that were faced by the airline related business organizations like Southwest Airlines due to the factor of deregulation (Borenstein, 2010). The recent economic standing of the airline industry depicts that the market share prices of especially the US airlines declined in May’ 2012 as compared with April’ 2012 but performed slightly better as compared with certain other industries (AITA, 2012). Source: (AITA, 2012). Additionally, the travel market of airlines expanded in April’ 2012 that increased by 6.1% as compared with the preceding year at the same stage. In this similar context, the market demand for air travel has augmented considerably in a 20-year trend along with the functioning of air cargo also started to make progress magnificently (AITA, 2012). Source: (AITA, 2012). The current economic standing of Southwest Airlines portrays that the net income of the business organization amounted to US$178 million in the year 2011 and the organization deeply believed that its financial position remained quite strong and maintained a substantial performance. The short-term investments along with cash of Southwest Airlines stood at US$3.1 billion as of December’ 2011 and the net liquid cash that was generated by the business operations for the year 2011 was amounted to US$1.4 billion. In the year 2011, the total operating revenue of Southwest Airlines grew by 29% to 15.7 billion. According to the management officials of the organization, the main success factors that supported it to attain such figures include offering of low cost fares, deliverance of convenient flights, outstanding customer service and safe as well as efficient airline operations (Southwest Airlines Co., 2012). In the year 2010, Southwest Airlines became the biggest domestic air carrier in the United States that possessed 13.8% market share (Scribd Inc., 2012). Source: (Scribd Inc., 2012). Route Structure and Airport Hub Strategies/Impact of NextGen The interactive route structure or route map of Southwest Airlines includes wide number of exciting destinations such as Denver, Salt Lake City, Atlanta, Los Angeles, Charleston, Chicago (Midway), St. Louis, Austin, Panama City and Ontario among others. The customers can avail the facility to travel to the exciting destinations by viewing and selecting their preferred option in its customized interactive route map homepage (Southwest Airlines Co., 2012). A pictorial depiction of the interactive route map of Southwest Airlines is provided hereunder. Source: (Southwest Airlines Co., 2012). In relation to the airport hub related strategies, Southwest Airlines principally does not depend upon a particular hub as well as executing a spoke system but is deeply concentrated upon frequent point-to-point flights. The introduction and the application of the regular point-to-point flights is a noteworthy airport hub strategy of Southwest Airlines that has ultimately made the business organization to attain success as well as to maintain competitive position at large. In this regard, for the purpose of keeping the airfares cheap and simple for its large base of customers, Southwest Airlines offers approximately 2,700 regular flights that operate in over 55 cities along with 29 states. The major beneficial factors for the business organization that have made them to focus upon introducing regular point-to-point flights as an airport hub strategy include diminishing delays as well as overall journey time and also providing direct routes for the convenience of its valued customers (Desai, Patel, & Quach, n.d.). The Next Generation Air Transportation System (NextGen) is regarded as a transformative alteration that imposes considerable impact upon the management along with the business operations of airline organizations or similar industries. The concept of NextGen improves the security, facilitates to save fuel, diminish the delays and also reduce the adverse ecological impacts upon the aviation industry. The various transformational programs of NextGen include Data Communications, NAS Voice System, Broadcast, System Wide Information Management, Collaborative Air Traffic Management Technologies and NextGen Network Enabled Weather (Federal Aviation Administration, 2012). In relation to the significant aspect of NextGen, Southwest Airlines had commenced to implement satellite-based landing methods at few of the airports by utilizing the effective programs of NextGen. The business organization strongly believes that there would be broad impact of the utilization of NextGen programs while operating its business functions. The suitable application of NextGen programs would increase the security, diminish the delays and most significantly would decrease the ecological impact of the air travel by making the routes as well as the landings to be more efficient. Besides, with the application of NextGen application programs, Southwest Airlines might be capable to save a considerable amount in relation to fuel costs by large extent (GreenBiz Group, 2011). Aircraft Fleet Management and Scheduling Southwest Airlines maintains its smooth business operations with the execution of it’s over 3,000 regular flights by applying optimizing activities that include the execution of a unified aircraft fleet management plan. In this context, Southwest Airlines has employed innovative technologies, optimized workplace and an organized maintenance procedure in order to enhance the working performance of the engine along with maintaining the enhanced fleet related operations. In the year 1997, Southwest Airlines signed a maintenance contract for the first time with General Electric Company (GE) that introduced OEM technology in order to upgrade their fleet management procedure. Furthermore, GE also supported Southwest Airlines by recognizing the engines that exhausts high gas temperature especially in the hot summer months. This particular idea can be regarded as one of the chief business operational tactics of Southwest Airlines for the purpose of managing as well as organizing its fleet management process (General Electric Company, 2006). The overall information about the various schedules of different flights of Southwest Airlines is readily accessible on the organizational website that functions throughout day and night. The business organization has also established a toll-free number through which its customers can easily check the status of their scheduled flights. The scheduling functions of Southwest Airlines are often conducted by using the computer systems that update the status of every flight belonging to the organization. For the cancellation as well as change in flights, the business organization performs its operations by an Automated Outbound Notification System through which it can easily trail the various records of the cancelled flights as well as alterations made in flight schedules. Southwest Airlines makes planned efforts in order to perform smooth scheduling business operations. In this regard, Southwest Airlines usually refunds the fare or assists by making proper arrangements in order to reduce the irregular business operations which are associated with delays, flight scheduling and cancellations (Southwest Airlines Co., 2012). Personnel Issues Southwest Airlines is principally praised for its excellent management. The internal strength of Southwest Airlines is such that it provides a great working climate for its wide number of working people or employees. It is regarded as an exciting business organization to work for based upon previous employees’ surveys. Along with the major internal strengths relating with the working personnel, Southwest Airlines also faced certain important internal issues associated with its employees. The organization faces the issue of lack of unity among the working personnel especially at the time of effective decision making. Moreover, it does not pay well to its low-level working personnel that could be viewed as a negative factor for lack of support from its employees. The human resource department plays an imperative part in recruiting, training and hiring the individuals who fit exactly with the different operational tactics of Southwest Airlines. It also plays a crucial role towards evaluating as well as redesigning the compensation package that is to be provided to every staff in order to promote business objectives. In this similar context, Southwest Airlines faced a crucial issue about losing the faith of the working personnel from the management line through the occurrence of layoffs, downsizing, scandals, firings and hiring the wrong working personnel. Due to the occurrence of the above mentioned activities, the individuals or the working personnel of Southwest Airlines have at times focused upon the development of their own individual career rather than actively working upon the attainment of organizational objectives. The business organization faced various issues in relation to working personnel because of the role played by the human resource department of the organization. It was also alleged that they were attracting as well as employing inappropriate working personnel along with depriving them from various fruitful opportunities (Hall, 2008). Thus, on the basis of the above discussed grounds, it can be stated that though the business organization i.e. Southwest Airlines is praised for outstanding management, the organization also faces certain issues relating with its working personnel, which is considered as its one of the major internal weaknesses by a significant level. Pricing Schemes and Fare Wars The establishment of various pricing schemes that were introduced by different airline related business organizations ultimately eroded profits especially in the airline industry and also considerably diminished the price-cost margins of a large number of airline carriers. The appearance of discount airlines such as Southwest Airlines that offers low prices to its large base of customers has already affected the price competition in the aviation industry. Southwest Airlines possesses the lowest Cost per Available Seat Mile (CASM) amid the major airlines that facilitate the organization to manage the prices in order to preserve its level of profitability. The pricing scheme of Southwest Airlines is to offer lowest probable airline fare to the customers in order to make maximum profit by increasing its large base of customers. In this regard, Southwest Airlines utilizes a simple airline fare arrangement, low featured, unlimited and unrestricted regular coach fares to its customers. In the year 1995, Southwest Airlines was viewed as the foremost airline which introduced the facet of Ticketless Travel for the customers that threatened various leading competitors of Southwest Airlines that comprise Continental Airlines, United Airlines and Delta Airlines among others. The feature of Ticketless Travel represents that the customers will not require any sort of paper ticket or a printed ticket instead of need only a confirmation number which is to be shown while travelling in the flight. This particular innovation of Southwest Airlines ultimately reduced the paper work and thus saved huge sum of money for the organization (Bundgaard, Bejjani, & Helmer, 2006). The commencement of the financial deregulation ultimately raised the aspect of fare wars that posed significant impact upon the airline industry as well as the shareholders belonging to the industry. It has been viewed that the airline industry of the United Sates is not the only industry to be involved in the price wars relating with the airline fare. The different factors that include the execution of innovative technologies in the airline industry, the investment behavior, airline market competition and unpredictable demand ultimately led towards the emergence of fare wars. The fare wars generally occur in an industry when there lays a probable chance of entrance of a new business organization into the existing market (Morrison & Winston, 1996). Marketing and Distribution For securing its market position, maintaining the productivity as well as the profitability and attaining competitive position, Southwest Airlines focuses upon its business model that include offering low airline fares, single aircraft and formation of point-to-point flights as an airport hub strategy. Southwest Airlines has merged with other business organizations and offers car hiring services, hotel reservations and the facility of credit cards with rewards to its valued customers. Furthermore, the business organization also offers cargo service towards the customers that engages in transporting various items that weigh 200 Pounds throughout the United States. Southwest Airlines principally promotes its various products through advertisements on television in the form of TV commercials, newspapers, magazines and also through the medium of internet. The other crucial promotional strategy that the organization initiated is DING which acts as a tool that helps to find as well as to reserve the various flights belonging to Southwest Airlines conveniently. Additionally, the software tool also helps the customers to keep updated with valuable information about the airfare charges as well as other extended business services of Southwest Airlines. The business organization operates its business functions usually in an intense competitive business market environment and thus carefully projects its brand image so that its customers can differentiate the various products of Southwest Airlines from its market competitors. The offering of low price airline fares is one of the noteworthy aspects, which has resulted in augmentation of the brand image of the organization that ultimately has distinguished the products of Southwest Airlines from the competitors (Scribd Inc., 2012). With regard towards the distribution of products, Southwest Airlines normally does not depend upon the travel agents in order to distribute its various valuable products. The travel bookings on Southwest Airlines are performed through the execution of direct marketing such as by phone or by the medium of internet without the engagement of a middleman. Moreover, Southwest Airlines also does not entertain any sort of interline or offer joint airline fares with other airlines for distributing its broad collection of product offerings. The business organization operates its business functions through creating various reservation centers with the aid of greater than 4000 sales agents who manage broad assortment of customer service related tasks. It has been viewed that thirty percent of the sales of Southwest Airlines are handled through the reservation centers belonging to Southwest Airlines (Scribd Inc., 2012). International Operations Southwest Airlines has already acquired its business reputation by introducing low-cost domestic carrier business strategy and accumulated huge profit along with maintained the productivity as well as the profitability of the organization at large. Southwest Airlines is primarily a domestic carrier that offers low cost airline fares to its customers and is quite close to offer international flights in future. The international business operational strategy of Southwest Airlines depicts that the airline will sell its journey tickets through the application of web-based reservations system for its flights into other various destinations of North America. Moreover, the planning of Southwest Airlines in order to perform its international business operations also include offering different flights through ATA Airlines to various remarkable destinations such as Mexico, Canada and also in the Caribbean region. Moreover, the airline organization would also include especially the European destinations in its business operational regions either through initiating a business partnership along with a business agreement or flying its own flights over the Atlantic. Southwest Airlines believes that its international expansion strategy would establish new and fruitful business opportunities that ultimately might enlarge its revenue growth. Additionally, the airline also believes that by partnering with ATA along with certain other major airlines, it can generate top-line augmentation with minimum spending investments and risks by a considerable extent (Hines, 2007). Cargo Management The concept of cargo management is usually described as the management of different articles or goods in relation to air cargo and delivering them quickly and securely to any destination (Jebens, 2004). In relation to the aspect of cargo management, Southwest Airlines has created noteworthy cargo management facility especially at Hartsfield Jackson Atlanta International Airport and the organization expects that the cargo business operation as well as management in Atlanta would be the biggest in the system of Southwest Airlines. From the perspective of cargo business trade and management, the main intentions of Southwest Airlines are to provide the customers in Atlanta with a speed as well as an efficient tendering along with recovery procedure. In the year 2011, Southwest Airlines declared the name of Jim McKeon as a strategic consultant or an advisor in Cargo Management Group of Southwest Airlines. He chiefly focuses upon the areas of international air cargo marketing as well as sales along with emphasizing upon the strategy and product development. The working personnel and the business partners of Southwest Airlines execute the cargo business operations in greater than 90 destinations across the United States. Both the business organization as well as the employees of Southwest Airlines felt proud while performing cargo related business operations because it ultimately provided them with award-winning customer service and business operational excellence (Southwest Airlines Co., 2011). Thus, it can be stated that the new strategic advisor of Southwest Airlines may assist the airline to attain its expected business objectives by introducing enhanced cargo management facets by a significant level. Current Status of Southwest Airlines The net income of Southwest Airlines was amounted to US$98 million during the opening quarter in this current year i.e. 2012. The operating income of the airline for the initial quarter in 2012 stood at US$22 million which is quite low as compared with the result in the first quarter of 2011 that amounted to US$114 million. The revenues that were generated from the passengers increased considerably by 5 percent as compared with the opening quarter in 2011 which also represents 15 percent improvement over last two years and over 30 percent improvement since first quarter in the year 2009. Moreover, the booking of the flights as well as the traffic control of Southwest Airlines also remained in a solid position in the initial quarter of 2012. Additionally, the total operating revenue of Southwest Airlines raised by 28.6 percent to US$4 billion as contrast to US$3.1 billion in the initial quarter of 2011. The total operating expenditures of Southwest Airlines in the opening quarter of the year 2012 was quite high which amounted to US$4 billion as contrast to US$3 billion in the year 2011. In terms of the liquidity position of Southwest Airlines, the net cash that was provided by the operations of the organization was US$1.2 billion and the capital expenses stood at US$127 million in 2011. Consequently, Southwest Airlines was able to generate US$1.1 billion cash flow in the opening quarter of 2012. In the month of February’ 2012, the airline introduced remarkable low airline fares. In the year 2012, Southwest Airlines has been ranked at the tenth place in among the most admired business organizations in the world according to a survey based upon corporate reputations that was conducted by Fortune (Southwest Airlines Co., 2012). Recommended Courses of Action to Become Profitable There are several ways through which the airline business organizations such as Southwest Airlines can increase its profitability as well as maintain its productivity in the long run. In this context, the organizations should focus upon the aspect of network planning because it plays an imperative part in the profitability as well as the success of the business operations. For the purpose of sustaining in this competitive world of financial market and to attain expected revenues, it is quite necessary for Southwest Airlines to continuously enhance its current route arrangement. Apart from improving the current route structure, it is essential for Southwest Airlines to recognize new potential business markets that ultimately would support the organization to raise profitability at large. Furthermore, Southwest Airlines would also have to look after its scheduling operations that not only pose significant impact upon the overall business operations but also upon the revenue as well as the profitability of the organization. The other recommended course of action for Southwest Airlines in order to become profitable is raising the connectivity of the passengers through not only optimizing its flights but also its point-to-point flights that act as an airport hub strategy for the organization. In this regard, the systematic as well as organized fleet management can also be regarded as a suitable course of action for Southwest Airlines that can pose major impact upon the overall profitability of the organization. In addition, the pricing strategy in relation to airline fare management also poses a crucial impact upon the organization that ultimately would assist them to maximize revenue. Though Southwest Airlines offers low airline fares to its customers that support them with increasing profitability but still the airline would have to focus upon the airline fare management in order to manage the fares in a competitive as well as timely way. The other important course of action for Southwest Airlines in order to become more profitable in future is the introduction of group revenue management along with online reservations. The establishment of group bookings as well as the online reservation procedures can be regarded as a strong instrument that might facilitate to fill all the seats considerably and thus might aid to generate huge revenue. In addition, the aspect of cargo management can also play a decisive role for Southwest Airlines that might help the airline to grow significantly and attain competitive position by a considerable extent. The airline should focus upon its cargo operations because the airline industry is expanding around the entire globe and it is expected that the industry will continue to derive greater value by emphasizing upon the cargo operations (Sabre Inc., 2011). Predicted Airline Status into the Next Decade In order to determine the predicted airline status into the next decade, it is required to possess a deeper understanding about the different stages that poses considerable impact upon the development of the airline industry. The different stages generally include regulation, deregulation, reregulation and liberalization. The top factors that frustrated or troubled the airline industry include fuel or oil prices, pollution control, personnel cutbacks and worldwide financial crisis among others. The main expenditures of the airline industry comprise labor, maintenance and fuel. On the basis of the above mentioned factors, few of the analysts as well as the researchers commented that the future of the major airlines is viewed in danger. But recently, the airlines performed steady growth after the occurrence of deregulation by initiating effective strategies and is considered to be at the heart of worldwide financial development. In this regard, the prospects of the airlines remain much bright for the long-term advancement and the global financial growth will shape the aviation industry in future. Moreover, the intensive competitive business market environment of the airline industry will also drive innovation significantly in the long-term. In addition, it is expected that the aviation or the airline industry will be highly regulated in future that would cover various major dimensions that include technological, financial, communal, political and finally customer service related aspects. It has been recognized that there are a few major airlines that are taking steps towards the aspect of consolidation especially in the worldwide aviation industry. They are aiming towards leveraging their domestic business markets along with establishing dominant regulatory influence in order to reshape the industry by a large level. Collectively, it can be stated that there lies a bright future ahead for the airline in the next decade (Herdman, 2011). References AITA. (2012). Airlines financial monitor. Retrieved from http://www.iata.org/whatwedo/Documents/economics/AirlinesFinancialMonitorMay12.pdf Borenstein, S. (2010). Why can’t U.S. airlines make money? 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Retrieved from http://www.southwest.com/html/cs/travel_center/routemap_dyn.html Southwest Airlines Co. (2011). Press releases. Retrieved from http://www.swacargo.com/swacargo/about-PressReleases-20110817.shtml Read More