Fundamentals of Management - Southwest Airlines - Book Report/Review Example

?Southwest Airlines Summary In the year 1992, the Southwest Airlines lost almost $2 billion and combined with the loss till 1991, the airlines lost almost $8 billion TWA, Continental and America West were three carriers which faced severe financial crisis and were called bankruptcy during this time. This crisis situation began in late 1960s. In the year 1967, Rolling King, one of the clients of Herbert D. Kelleher expressed the idea of reducing the fair rate and no-frills airlines have been suggested to “fly between major cities of Texas”. Eventually the plan has been implemented and in 1971 the name Southwest Airlines has been registered. At the beginning this airlines started to fly to different cities of Texas at lower rates compared to its competitors. Although for small firms it is very difficult to survive after the having a price war, but Southwest airlines somehow survived in the competition. During this time the airlines company not only successfully survived this intense price competition, but also gained significant market share because of the cost-saving nature of its operation. Even larger airline companies could not achieve this level of cost efficiency during this time. But questions have been raised that how long this airline will survive? In the early years of its operations the airlines faced several legal cases. The famous of these cases was the case where the policy of flying from Love Field and cities of Texas have been criticized by the rival airline companies. Eventually, a negotiation between Southwest Airlines and rival companies has been met with the introduction of the Wright Amendment. This amendment provided Southwest Airlines greater success in later periods (Hartley, 2010, pp. 283-285). After these victories in respect to intense price competition and also in regard to legal cases, the airlines company started to face significant growth in the business. The airlines company dominated the market of Texas by providing cheapest level of air services to passengers who were careful about the value of their income as well as the value of time. The policy of most frequent departures of domestic flights has been the most significant strategy of the airline company to gain high level of market share in the country. During the time point of 1987 Southwest Airline was charging $59 as “one-way fare between Dallas and Texas”, whereas during the same time point other airlines were charging $79 as one-way fare for the same route. During early and middle periods of 1980s the number of annual passenger traffic of the company was tripled. During 1989 the company started to increase the cost effectiveness of the company. This goal has been achieved by reducing the “operating cost per revenue mile” to 10 cents. This cost was almost 5 cents below compared to the average cost of the entire industry of the country. Growth in revenues and profits occurred during this time and the company decided to expand its operation by investing its internal financial funds, instead of taking loans. In early 1990s the airlines company expanded its operation across 34 cities in almost 15 states. The company had 141 flights and each flight had almost 11 trips per day. The business domain of rival airlines companies have largely been captured by the Southwest Airlines within late 1990s (Hartley, 2010, pp. 285-293). Again, in some of the markets of the country the company found itself lucky after capturing the share of its rivals. For instance, in Chicago after the announcement of the Midway Airlines of getting bankrupt in 1992, the Southwest Airlines gained significant amounts of share of the market by offering lower prices compared to other companies. During the 1990s prices charged by the Southwest Airlines were lower than fares charged by buses and private cars. This pricing policy helped the company to gain greatest amounts of profits and market share. During this time the company started to capture the most demanded market in the state of California and the company succeeded to a great extent during time to capture the market of the “Golden State” of the country. Both revenues and profits structure of the company increased to a great extent during this time. The company started to reduce its costs of operation as well as improving the level of employee commitment to significant level as well. During the 2000s the company captured most significant markets of the country and the reputation of the company increased greatly during 2007-2008 (Hartley, 2010, pp. 293-300). Answers 1. At present the company is implementing marketing strategies along with price cutting policies for the purpose of capturing greater market share in the airlines industry of the country. This policy of reducing prices of domestic fights is helping the company to gather greatest level of monopolistic competition in the country and also to enjoy competitive advantage in the market (Pride and Ferrell, 2010, p. 53). 2. The brand and image differentiation policy of the company has helped it to a significant share of the market between the time period of 2005 and 2010. The market share of the company during this time has increased by almost 33 percent. This high rate of growth is also increasing the profits margin of the company which is further getting invested into operational purposes. This greater investment is also increasing the future profitability of the company (Lauer, 2010, pp. 50-52). 3. The company is still experiencing high rate of growth in the airlines industry of the country. During the period of 2009, the company had experienced significant rate of growth in its revenue and profit earnings. Also in 2010, the company has grown at significant rate. During this time the net income of the company grew at 364 percent per year, amounted to almost $459 million (Southwest: 2010 Southwest Airlines One Report, 2010, p. 2). 4. The airlines company is still using the nonstop transcontinental services as one of the most important airlines services provided by the company. Not only this, decisions have also been taken to expand the use of this service in the country. Also decisions have been taken regarding use of no-frills services. These decisions have been taken due to the fact that these are most significant services which gather greatest level of customer satisfaction as well as greatest level of share of the market (Hartley, 2010, p. 231). 5. Southwest Airlines has also implementing business policies and strategies to expand its business into the international airline business by incorporating international flights. In 2010, the company launched international flights between USA and Mexico after creating collaboration with Volaris, the second largest airline company of Mexico. Various cities of Mexico, such as “Cancun, Guadalajara, Morelia, Toluca/Mexico City, and Zacatecas”, have been connected with this policy of the Southwest Airlines (Southwest: 2010 Southwest Airlines One Report, 2010, p. 21). 6. JetBlue has created significant competitive pressure on Southwest Airlines. JetBlue has been the notable case study in the entrepreneurial success. The company started in 1999 and soon became a significant competitive threat to Southwest Airlines. But eventually it failed to compete in price strategy with Southwest Airlines and became the second mover in regard to gaining market segment in the airlines industry of the country. the cutthroat price competition between Southwest Airlines and JetBlue has forced the company to implement business policies after those policies taken by Southwest Airlines. Southwest Airlines with its strategy of specializing in discount carrier has also successfully positioned its dominance in the market for airlines over JetBlue. However, the new strategy of JetBlue of lowering prices of their flights even further compared to those of Southwest Airlines is creating significant threat to the Southwest Airlines (Griffin, 2011, pp. 150-151). References 1. Griffin, R. W. (2011), Fundamentals of Management, USA: Cengage Learning 2. Hartley, R. F. (2010), Chapter 18 Southwest Airlines: Success is Finally Contested, Marketing Mistakes and Successes, Hoboken, NJ: Wiley 3. Lauer, C. (2010), Southwest Airlines, USA: ABC-CLIO 4. Pride, W. M. and Ferrell, O. C. (2010), Foundations of Marketing, USA: Cengage Learning 5. Southwest: 2010 Southwest Airlines One Report, (2010), retrieved on April 3, 2012 from: http://www.southwestonereport.com/_pdfs/SouthwestOneReport2011.pdf Read More