Strategic Management of Southwest Airlines - Case Study Example

Southwest Airlines Case Study of the of the Southwest Airlines Case Study Executive Summary Southwest Airlines is a lowcost domestic airline operating in 42 States of the USA for over 40 years with exemplary standards of service. It was started in 1967 in Dallas Texas. It is the largest domestic airline in the USA as of 2011 and operates nearly 3300 flights every day. It ahs recently acquired and integrated with Air Tran, another carrier to expand its fleet, reach and area of operation to a more regional base. This has necessitated a review of its mission and vision statements that will form the basis of this paper. Introduction This paper will look at the mission statement, vision statement and values of Southwest Airlines, a local airline operating within the USA but now branching out regionally starting with Mexico and the Caribbean. I will analyze each of the above elements from the point of view of good strategic management principles, evaluating their efficacy and worth as exemplary factors or otherwise. I will also try to determine whether they truly reflect the body and soul of the business, and if not, make recommendations and changes in the above three elements so that they are worthy of good strategic management principles. Companys Mission Statement and Analysis Southwest Airlines believes in continuing to be the USA’s leading low cost airline, with commitment to the highest quality of customer service, delivered in the company spirit of warmth, friendliness and customer pride. Concentrating on the domestic sector, it flies to 92 destinations across 42 States of the USA. It is incorporated in Dallas Texas and operates more than 3300 flights a day. It is the USA’s largest domestic carrier. Looking at the mission statement for this airline, it is clear that they have defined their target market and reach in the USA. They are a domestic airline and want to keep it that way. What’s more, they want to lead the industry as a low cost competitor and are currently looking for ways to attract and solidify new groups of customers. A recent news release shows that they are tying up with hospitals, hotel chains and other businesses that have groups of customers or cargo that they can transport on a regular basis. This is an innovative approach that can bring them more business opportunities (Crosby, 1992). As far as the target market is concerned they have defined it as local customers. They do not want to enter the international sector, possibly due to added costs of fuel, distance travelled and taxation and other financial costs. Moreover they are already leaders in the domestic market so it would pay to stick to their strengths rather than take unnecessary risks. As regards the products and services that this airline offers, its main emphasis is on being cost effective. In Michael Porter’s terms it is using Low Cost Leadership as its chief strategy (Porter, 1980). It operates a point to point service- with recently acquired Air Trans used as a hub and spoke service. It also has a tie up with Volaris, Mexico’s second largest airline for regional routes outside the USA. It operates a modern fleet with Boeing 737-800s and 737-MAXs being part of its inventory. It operates three kinds of flights principally- I Wanna Fly, Business Select and Anytime Fares. Only the first fare is non-refundable but all of them can be applied towards future flights. They have also started a Rapid Rewards Program and Early Bird Check In to further appeal to customers- and expanded operations to the Caribbean and Mexico after the acquisition of Air Tran. This airline company has also managed to achieve some degree of backward and forward integration with airline booking agencies and hotels all over the USA and in Mexico and the Caribbean. It even has linkups with resorts and rental car agencies if the passengers want to use these facilities. All of them are available on its website and there are also various gifts, rewards and discount packages that make it beneficial for the customer to avail of these opportunities. Companys Vision and Analysis A peek into the airline’s latest annual reports and press releases indicates that the company’s main focus has been on three areas- employees, communities and the planet. It seeks to strike a balance between these three aspects in serving its customers and other stakeholders and considers financial viability to be as important as resource conservation and reusability. However the integration itself will cause a lot of problems that have to be surmounted, such as integration of Air Trans staff into the Southwest culture, learning how to operate and care for the Boeing 717s that are part of the Air Trans fleet, possible excess staff and layoffs in administrative and other areas (David, 2011). With the acquisition and integration of Air Tran it is seen that Southwest is trying to increase its presence in the region by operating flights to Mexico and the Caribbean. Meanwhile the company’s earlier policy of allowing just ten minute intervals between flights is likely to come under fire as new safety regulations recommend a fixed number of hours per week for the pilot and also increased time for refueling, inspection, maintenance and cooling off of the planes before the next flights. However the company is still using technology and cost saving devices such as using ground related electricity while its aircraft are on ground, using the derivative market to reduce the burden of fuel price hikes etc. However there are limits to what can be achieved in terms of cost savings in this highly competitive industry. Perhaps the integration of Air Trans will help it achieve better returns as its market and passenger volume will increase on regional flights. Companys Values and Analysis Performance, People and Planet are the three cornerstones of the values that Southwest Airlines aspires to incorporate and respect in everything that it does. The airline industry is subject to a number of regulations, inspections and rules by the Air Transport Safety Association and Federal Aviation regulations. Also its ability to attract the customer by cutting costs is under pressure due to new rules regarding advertising, consumer price protection and safety and security. Meanwhile the rising cost of fuel and fear of terrorism has impacted the airline industry since 9/11, causing ongoing concerns for all participants in this sector, as well as adding to safety and insurance costs (Southwest website, 2012). Alignment of Companys Mission, Vision, Values and Goals with Stakeholders Interests As far as the stakeholders are concerned, for Southwest Airlines we can see that the most important are the customers, the employees, the regulatory agencies and the supply chain. While Southwest maintains that the company operates with a Warrior Spirit, a Servant’s Heart and a Fun Loving Attitude, it is nevertheless committed to all of its stakeholders’ interests and balances concerns of the community and its employees as it seeks to expand its business and increase its profitability. Southwest must take into account the interests of its shareholders, industry regulators and inspection agencies, employees and the community it serves. It must also maintain good relationships with its buyers and suppliers. Depending on just one company for its needs would be detrimental to its interests, in the same way that taking a risk on financial derivatives without hedging could be disastrous for its fuel costs. So the company’s revised mission and vision statements as well as its values should reflect all these realities (Peters & Waterman, 1988). Recommended Changes The company’s cornerstones of value in people, performance and planet do not need any change and are very commendable. However it needs to revamp its mission statement and vision for the future. A new mission statement could be stated as: To be the best and most affordable low cost carrier in the USA offering customers convenience and comfort at an affordable price, serving destinations all across the USA as well as the Caribbean and Mexico. Likewise the vision statement of the business could be changed to: Dedicated to providing the highest standards of comfort and convenience to customers at an affordable cost, to all our flying destinations. It can have the slogan: Our price is the one to beat. If it is able to maintain its standards of service and quality at a low cost, it can continue to serve the community without fear of much competition. However to maintain its costs and profitability in times of rising prices would be a challenge and it must find other ways to woo the customers- possibly through convenience and comfort factors (Welch & Welch, 2008). Conclusion We have looked at the case of Southwest Airlines and made some recommendations for changes in its mission statement and vision statement after taking into account the changes in its environment and the present realities. References About Southwest (2012). From the Southwest Airlines website at http://www.southwest.com/html/about-southwest/index.html?int=GFOOTER-ABOUT-ABOUT Crosby, P (1992). The Eternally Successful Organization. Signet Books. David, Fred R. (2011). Strategic Management: Concepts and Cases, 10th ed. McGraw Hill.  Peters, T. & Waterman, R. (1988). In Search of Excellence: Lessons from America’s Best Run Companies. Grand Central Publishing. Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. Welch, J., & Welch, S. (2008). State your business: Too many mission statements are loaded with fatheaded jargon. Play it straight. Business Week, 4066 (80). Retrieved on 06 August 2012 from http://www.businessweek.com/stories/2008-01-02/state-your-business Read More