Southwest Airlines External and Internal Environments - Case Study Example

Case Analysis Southwest Airlines Name of Student: Student No: Name of Supervisor Date: Introduction The story of Southwest Airlines is a great one. According to Doolittle (2011), Southwest launched in 1971 flying regionally from Houston to Dallas. To stand out from the crowd, their criteria for flight attendants was beauty and unique personality and then proceeded to attire them in hot pants and go-go boots. In order to save costs on maintenance, all the planes they purchased were 737s in order that they did not need to train their mechanics to maintain more than one model of airplane. They remain a single airplane model company to this day which has saved them quite a bit of money. When their competitors dropped their prices to an extremely uncompetitive level, Southwest responded by offering frequent flyers a bottle of whisky for each flight they took with Southwest. When other airlines were serving in-flight meals to their passengers, Southwest served peanuts. They were known at the no-frills airline and this saved them a lot of money. The growth of Southwest was facilitated by the fact that they were an interstate airline operating in Texas only. Therefore they were not subject to Civil Aeronautics Board (CAB) authority. Southwest was able to charge significantly lower fares than the trunk carriers on many routes which meant that demand for their services rose. In spite of charging lower prices, Southwest was profitable on a consistent basis ( Bailey, Graham and Kaplan, 1991). For more than thirty years, Southwest Airlines has been a shining light in the American airline industry, growing non-stop in that time and posting an unprecedented string of profits and fostering an organisational culture that surpassed any in an industry known for its bitter labour relations. In 2009 however, pressure mounted on Southwest, as it posted a $176 million dollar loss during the second half of 2008, recording its first two loss quarters one after another. This lead to cutbacks on flights and new airplanes after years of solid development. Rising costs had also been recorded as they downsized. This report will discuss the factors that affected their growth in the organization’s external and internal environments. It will also review and analyze Southwest’s environment might affect its management style and make recommendations. To conclude the report will examine how other companies can learn from Southwest’s experience. 1- Analysis and discussion of the most important factors in Southwest airline’s external and internal environments A 2009 review done by an captain at Southwest airlines claimed that the company is still an enjoyable place to work but not as enjoyable as it was a decade and a half ago. The benefits and compensation remain higher than the industry average and employee rapport is good. The atmosphere is considered to be positive. However, the degree of cost cutting is starting to affect operations in the field which was not considered a good trend. The fact that management brands any employees who point this out as malcontent is considered retrogressive. There seems to be a lack of attention by management to issues cropping up at outstations which is leading to discontent amongst customers. Considering that Southwest is a no-frills airline with no first class or in-house entertainment, management would do well to address this issues (Employee review, 2009). The SWOT Analysis will examine the internal and external environment at Southwest airlines. Strengths Southwest airlines has grown phenomenally since its inception in 1971. this growth has been fostered by such offers as credit based on number of trips travelled with the airline rather than miles travelled. Southwest was a pioneer in senior discounts, ticket-less travel and air freight delivery services. They also carefully select their employees from the best of all applicants so as to maintain excellent customer service. They are a no-frills airline which has excellent customer service coupled with reasonably priced travel packages. This low cost approach has attracted customers to use their services. The excellent employee relations also contributes to higher sales because of teamwork. Their purchase of only single model (Boeing) aircraft has contributed to reduction of costs when it comes to repair and savings garnered from bulk discount. Southwest is one of the largest airlines in the world as pertains to passengers per year. The over four decades in the industry gives it an advantage in economies of scale. Southwest also offers flexible working hours although a majority of employees belong to a union. Southwest has a strong brand image with the highest daily domestic departures in the commercial aircraft industry within the United States. Weakness Southwest has a lot of contractual responsibilities coupled with dwindling margins and returns and heavy reliance on passenger revenues. They also heavily rely on Boeing for their aircraft and have a very conservative growth strategy. Their reach is limited to over fifty seven cities domestically and it manages its own bookings. Furthermore, it does not fly internationally. Southwest has the lowest amount of flights in the morning in the industry and lacks segmentation of flights. The space to carry freight and cargo is also restricted. The union-management structures and processes are informal. There is no difference in perks between very short trips and long flights. Employing personnel based primarily on personality and not skill can be dangerous to the airline. The reduced number of Line Supervisors gives leeway for rogue employees to operate. Opportunity There are plans to expand Southwest airlines into international airspace as well as other national markets. They are also indulging in research and development in order to develop procedures and services. These new technologies will assist in enhancing the travel experience. Flights are also being extended to further destinations, as well as flight segmentation into leisure or business class. The shift of focus of potential employees from personality to skill bases. Furthermore, the US Airline Industry is experiencing recovery as is the tourism sector. Southwest has also acquired Air Tran Holdings. There has been improvement in customer satisfaction and value and traffic is expected to expand by three and a half percent through to 2019. the United States is also the largest single market for airline travel in the world. Threat Southwest airline faces challenges from the intense competition in the airline industry coupled with regulation restrictions and fluctuations in the price of petroleum on the world markets. The high rate of unemployment and inflation keeps many potential customers grounded and joint ventures with other airlines may negatively impact on the brand image. All this could be exacerbated by failing to meet the expectations of shareholders. 2- A Review and critique of the planning processes in this organization, and ways they could have been improved The low-fare model adopted by Southwest airlines calls strategy to mind and this has clearly enhanced their financial health. Khalifa (2008) states that a large number of theorists have failed to explain the idea of strategy literature and how it impacts organisations. From a business perspective, strategy can be defined as a plan to facilitate the achievement of an organisation’s aims and policies. Davies (2000) adds that the resources required to make this a reality are determined by strategy. For Southwest, this consists of a strategy of offering low-cost flights to customers. This low cost model consists of low fares, high regularity flights, no-frills flights, no seat designation, point to point service, flights to secondary airports and short flights (Emerald, 2006). Low-cost can be defined as carrying out activities at variance from competitors that gives a consistent set of key activities that augment each other in order to achieve a sustainable position (Porter 1996 in Jiang, 2007). This model means that Southwest has an edge over its competitors and created a customer niche. However, competitive advantage must be about more than low prices and must include provision of a quality product and service so that clients are getting value for money. 3- What could other organizations learn from the Southwest experience While Southwest has adopted the same strategy since its inception in 1971, the change in the external environment has caused it to review its internal environment and enhance services in order to maintain its niche in the market. They are adapting to the changing environment and this has assisted them to stay afloat and maintain their growth even as other airlines go out of business. Therefore for example, from a policy of no flight segmentation, they are attempting to attract more business class customers by coming up with business select fares inclusive of some perks (Star-telegram, 2009) Conclusion Southwest airlines experienced a drop in revenue and made a loss two quarters in a row in 2009 due to the external environment that had affected the entire industry. As a result, they resorted to cutting costs which led to reduction in customer service. This was the backbone of their brand image as well as the low cost of fares. This led to customers resorting to other options that had more perks or better customer service. However, the management at Southwest saw the danger and changed its strategy accordingly – catering more to customer comfort, introducing extras such as Wi-fi in the sky for a price, reviewing their employment policies and expanding markets. This saw them back on the road to recovery. References Bailey, Elizabeth, Graham, David, and Kaplan, David. Deregulating the Airlines. MIT Press: Cambridge, 1991. Davies, W. ”Understanding strategy. Strategy and Leadership. 28, 5, p. 25-30. 2000. Doolittle, Troy. Key Moments In The History Of Southwest Airlines. Viewed 2012-08-30 at http://www.topdogillustration.com/news/key-moments-history-southwest-airlines 2011. Emerald. Easyjet and Ryanair flying high on the Southwest model. Strategic Direction. Vol, 22, 6, 2006, pp. 18-21. Employee Review. Southwest Airlines Employee Review. Viewed 30 August 2012 at http://www.glassdoor.com/Reviews/Southwest-Airlines-Reviews-E611.htm February 3rd 2009. Jiang, H. Competitive strategy for low-cost airlines. Asia Pacific Management Conference. Vol, 13, 2007, pp. 431-436. Khalifa, S. A. The strategy frame and the four Es of strategy drivers. Management Decision. Vol, 46, 6, 2008, pp. 894-917. Star-telegram. Southwest Airlines facing unprecedented pressure ... for Southwest. Global Travel Industry News. Feb. 08, 2009. Read More