Marketing of The Southwest Airline Company - Coursework Example

ANALYSIS OF SOUTHWEST AIRLINES The Southwest Airline Company based in the U.S., is the largest domestic air carrier not only in the U.S. but also in international markets like the Bahamas, Jamaica, Mexico just to mention a few. The envied success of the company is attributed to several factors, none playing a major role like the strategic management of the organization. The company’s strategic management is shaped by the clear vision and mission on which the organization is founded. Being an airline company, the volatile nature of this sector, the formulation of management strategies takes into account a myriad of factors. One, the rising demand for airline travel services and products matches the expansion strategy that the company embarked on since 2012. The incremental expansion strategy has gradually grown ever since the formative years. Precisely, modest acquisitions and mergers like that of Muse Air in 1985 and Morris Air in 1992 have mounted the confidence in this strategy (Carpenter & Sanders, 2006). Fast forwarding this, Southwest Airlines recently explored markets in eleven other countries. This was marked by the Air Tran acquisition a move that was aligned towards the grand strategy of making profitable acquisitions as well as rendering quality customer services. Following the strategic management model, a situational analysis of its operations over time remains absolutely relevant. In the formative years, the Southwest airlines landed and took off on small airports where it only encountered weak and easily manageable completion. However as it expands and takes position among the most congested airports in America, it has to battle with giants like United Continental, Delta and others. For this, strategic plans to up the performance, gain the benefit of authenticity shapes the strategic management. Analysis of the external environment Remotely, social, economic, political and technological factors play a significant role in the airline industry. The Southwest Airline’s domestic operations were victims to legal statutes around the 1990s when the airline was prohibited from flying non-stop, through the Wright Amendment Act. Later on this was repealed to favor higher normal operations and better revenue. Since then, the company has won numerous legal battles to ensure that it is always on the right side of the law as this impacts its business activities. Economically, it is a great disadvantage that Southwest is heavily dependent on imported fuel that is also subject to energy regulation policies regulation. The economic downturn due to fuel prices implicates on the entire economy including the demand for airline travel services. This means that the company employs a sustainable solution to keep it afloat in the times of economic crisis. Dealing in this market space, the company values and is obliged to social satisfaction. The airline business is typically, customer service oriented such that the company mission, vision and objectives have to be informed by the social factors. The demographic demands of various regions are now more differentiated since the organization went international. Numerous opportunities again rise from the recognition of social needs and the company’s redefined focus to grant the social needs. The technological concept has implicated on the company in two ways. One, creating new opportunities and two triggering threats from other airlines. First of all, the limits within which the organization operated a few decades ago have been expanded. The need for superior information systems and stronger technologies such as e-commerce and ticket-less travel means a whole technological transformation. The aircraft emission pose an environmental impact, a course that environmental regulatory agencies are sensitive about. Just like other airline companies, the corporate social responsibility of the company is more important especially because of the commitment to its CSR. For this reason, Southwest Airline has to strategically choose its airports and the design of the aircrafts to ensure it meets the minimal air pollution standards. The industrial environment is analyzed best using the Porter’s five forces tool. The level of competitive rivalry seems to scale upwards day by day. The profound success following the acquisition of AirTran was a move to counter fierce competition from Delta Airlines that acquired Northwest Airlines in 2008 and later United Airlines and continental. Despite the sustainable competitive strategies developed new competitors are constantly emerging. The Allegiant Airlines ad JetBlue Airways in particular are threating competitors as they offer low-price no frill services just like Southwest. The barriers to entry are all tied to financial issues; large start-up capital and the difficulty to cut a strategy that leverages on income and cuts on costs and this alone scares new entrants. In terms of the threat of substitutes, air travel can obviously be replaced with cheaper means; ferries, cars and trains. However, the context of globalization does not offer the benefit of choosing cheaper over fast. For this reason, Southwest Airlines will continue to enjoy the growing demand as stimulated by globalization. The bargaining power of suppliers seems to have enormous control over the company. Recently, Southwest decided to shift from Boeing Aircrafts to Airbus and this would result in high cost for training pilots and technical staff. The company cannot avoid the bargaining power of fuel suppliers. The bargaining power of consumers revolves around price based preferences, value of consumers’ money and the availability of information for comparison. Consumers are constantly updating themselves of newer airlines and the kind of services available, they are able to compare the cost of travel against the quality of services offered on board. For this reason, it is quite costly and time consuming to attract consumers and quite risky for the airline too lose clients. The bargaining power of consumers is thus very high pushing the company for a strategic focus on quality customer services. The southwest Airline competes with domestic airlines, regional airlines as well as new entrants pose a competitive challenge on the company. The efforts to counteract the competition range from the strategic management technique, the value of innovation, the aggressive marketing campaign to immense differentiation of company products and services. The cost management strategy helps to counter the competition from all ends. This well-though of strategy would create a sustainable advantage over the rivals. The strengths of the Southwest Airline Company are quite evident just from the outlook. Its ability to strike merger deals and turn the risk of acquisition into a big success is commendable. The turn of events after the acquisition of Air Trans explains it all. Other than this, the management employs innovative techniques to be company’s competitive advantage. For instance, in the 2009 world credit crisis and severe economic recession, there was plunge in the demand for air travel. In response to this, Southwest resorted to the increment of unit revenues and control of costs to revive the demand for airline services. The internal control and ability to manage the external factors such as this is a profound strength on which the company flourishes. This strategic direction as analyzed through the strategic clock tool scores between one and two. It means the company’s competitive advantage fairly and modestly stems from proper utilization of the resources and building up on the core competencies. As of 2014, Southwest was making bold steps threatening its key competitors in the airline industry. The then CFO, Tammy Rommo puts it subtly that each and every year is historic for the organization. The ultimate of success of the airline company basically depends on how all environmental issues are handled. The time factor is crucial to the achievement of the goals and consequently the short-term and long-term objectives. Achieving high quality growth, establishing continued revenue momentum and mastery of the cost leader model are the success determining factors for Southwest airlines. Swot analysis According to the internal and external analysis of the Southwest Airline, all market factors have profound significance in the company’s mission. On keen observation, the firm prides itself in mastery of the cost-management technique, emphasis on core competencies and value based utilization of resources to counter the competition. The weakness keeping the company on toes include the emergence of technological advances compelling the company to be updated. On the other hand, there is a huge chunk of opportunities lying ahead. The unexplored markets like Hawaii, the rate of globalization that is fueling the demand for air travels is enough reason to keep investing in the industry. The reliance on fuel upon which regulations are applied weakens the ability of the company to work independently. The inflation in oil prices and at times lack of it translates to big losses that have to be compensated for. Nevertheless, the company has the labor, skill and management that is able to turnover the events to provide superior services, support its employees and offer quality services. Analysis of strategies The grand strategy employed by Southwest is largely the cost leadership technique. Besides having a reputable brand name, The Southwest Airline has several points of differentiation that have for a long time given it a competitive advantage in the market. The company’s fare structure is very different from that of its competitors. It only Southwest that offers fares classified into three bundles. The Wanna get Away fares that are the lowest since they can be purchased way in advance. Though this are non-refundable, at least customers enjoy the privilege of paying for air travel in instalments. There anytime bundle fare are very flexible, they are refundable can be changed with a change of circumstances and plan or be used for future travel. The third bundle is the Business select where a passenger enjoys bonus credit, priority boarding security access and complimentary adult beverage (Czaplewski, Ferguson & Milliman, 2001). The company’s competitive strategy is thus founded on innovativeness by the way of creating fare bundles for customers, being able to adjust the airlines for the comfort of travelers and above all giving the experience that customers dream of. This strategic focus has by and large ben the reason for the excellent performance compared to other airlines. The products and services are highly differentiated such that competitors cannot duplicate them into the systems. These strategies are fully effective and aligned towards the achievement of the company’s long term objective. The long-term objectives are focused on the company vision and value statement. Basically, the expansion of the airline services domestically and internationally is the key long-term objective. This objective has been achieved to a great extent yet there is more to deal with on the international scale of the business. The long term objectives are widely relevant and appropriate as they cut across profitability. The expansion strategy is directed towards achieving profitability. Secondly, the most important aspect of it is the competitive advantage. The company CEO Kelly, articulates on customer based service as key to increasing its market share. To spice on this, the cost management strategy serves the company a huge competitive advantage. The labor relations cater for the needs of the employees. The key drivers to productivity by employers is imperative to the operational procedures. Whilst promoting productivity, employees are motivated to consolidate their efforts for one common goal. This approach lays the appropriate groundwork for the achievement of long-term objectives. However, employee’s entitlement and representation by unions weighs heavily on the company’s capability to regulate wages and salaries. The management has to be keen and balance the company’s interests and reward for employees’ input (Teece, Pisano & Shuen, 2007). Southwest works on a threefold grand strategy. Cost management, profitability and customer service. The company’s lives to realize the profitability ambition by the mergers strategy. Kelly the CEO has in many occasions attributed the successful expansion through mergers and acquisitions to the objective of profitability. The value based approach offers a cutting edge solution to the pricing strategy of the services. Since Southwest has greatly reduced its costs, it is able to state prices that match the value of the services while at the same time ensuring that the value of the freight or passenger travels have massive returns to the firm. Unlike its competitors, Southwest management sough unique methods of realizing profitability other than purchasing large number of plains to flood the market. In the bid to reap optimum profits, through the cost management strategy, the Southwest planes trimmed unprofitable fights and reinvented long hauls to accommodate more seats. This cut on the general costs that could be used to purchase planes yet it was a lucrative idea from which it attracted thousands of customers to the comfort of the flights they offered. Along with this, the master objectives have fully informed each of the functional tactics employed by the company. In the year 2015, the company CEO announced an increase in seat capacity to between 7%-8% from the previous 7%. Unfortunately, the reactions from American Airline for the discounted offer did not favor the anticipated outcome. This forced that the capacity of southwest planes be restated to retain customer. Functional tactics such as this endorse the three mega objectives. That customer service, cost management and profitability are central. The functional strategy therefore, is more that appropriate and functional. It determines the short-term objectives while supporting technical changes meant for the achievement of long-term objectives. The current short-term objectives are very timely and specific on the areas they impact. By and large, the short-term objectives are formulated on the seasonality of the business. Considering factors such as weather conditions, political situations on its destinations, the prices of fuel and economic changes, the company is able to strategically build on its strengths to make up for the low seasons or keep the demand high during this times. The seasonality aspect grants the timely feature of short-term goals making them relevant and an evaluative tool of some of the strategies. Some of the short-term objectives regarding the cost of jet fuel were reflected in the first six months of 2015. By saving billions for jet fuels in the early 2000s, the company was able to cut on fuel expenditure from $3.1 to $ 1.88. Its short-term objective of opening up long flights also took off with the opening of 6 major airports. In essence the short-term objectives are relevant and very achievable setting ground for the long-term and grand objectives. Drawing from this, the firm’s current financial position is more stable and better than in the previous years. The upward trend in the revenue is attributed to the cost strategies, the expansion technique and market intelligence. The ability to cut on cost of fuel is a grand achievement especially because it was one the challenges that threaten the company’s financial position. The steady rise of net annual profit from 2008-2012 is a sound point of reference. 2008 2009 2010 2011 2012 Annual net profit 178. 0 million 99.0 million 459.0 million 178.0 million 421.0 million The financial trend appears to be a zigzag where a shoot in the net profit is followed by a tremendous drop in the revenues. This trend persisted in the years featured above due to the political regulation and the uncertainty of the market. However, the Southwest now stands high in the market making as much money as it projects and implementing policies to affirm is stable financial health. References Carpenter, M. A., & Sanders, W. G. (2006). Strategic management: a dynamic perspective, concepts and cases. Czaplewski, A. J., Ferguson, J. M., & Milliman, J. F. (2001). Southwest Airlines: How internal marketing pilots success. Marketing Management, 10(3), 14. Teece, D. J., Pisano, G., & Shuen, A. (2007). Dynamic capabilities and strategic management. Strategic management journal, 509-533. 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