Easyjet and Ryanair flying high on the Southwest model Charting the ups and downs of low-cost carriers Abstract Purpose – Reviews the latest management developments across the globe and pinpoints practical implications from cutting-edge research and case studies. Design/methodology/approach – This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings – There was a time when the notion of commuting daily between Rome and London would have been considered far too timely – not to mention expensive! But today, for Italian financier Ettore Thermes, this is an everyday occurrence thanks to the advent of low cost airlines. Practical implications – Provides strategic insights and practical thinking that have influenced some of the world's leading organizations. Originality/value – The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format. Article Type: General review Keyword(s): Airlines; Management strategy. Journal: Strategic Direction Volume: 22 Number: 6 Year: 2006 pp: 18-21 Copyright ©Emerald Group Publishing Limited ISSN: 0258-0543 There was a time when the notion of commuting daily between Rome and London would have been considered far too timely – not to mention expensive! But today, for Italian financier Ettore Thermes, this is an everyday occurrence thanks to the advent of low cost airlines. These cheap, no frills carriers have revolutionized the airline industry, making European and worldwide travel affordable for all and forcing the established brands to take a long hard look at their operations. There is no doubt that this low-cost model has been a resounding success. However, some airlines have experienced considerably more success than others. Low-cost model The first LCC to rival the major carriers was Southwest. Introduced in 1971 in the USA, this LCC implemented the original low-cost model comprising: low fares; high frequency flights; point to point service; no free meals or drinks on board; no seat assignment; short flights; and flights to secondary airports. This approach is in line with Michael Porter's theory that there are three major strategies companies can adopt to gain competitive advantage: Cost leadership – where an organization seeks to be the lowest cost producer by selling standard, mass products. This is where the original LCC model eminates. Differentiation – where companies introduce a unique dimension that is considered to be important to the market. Some LCCs have moved onto this strategy. Focus – this involves targeting a certain segment of the market and is rarely adopted by LCCs.
Evaluated qualitative market trends and company data and presented findings to a panel of 7 leadership executives
Spirit makes our fares so low because they know that draws in the attention of the consumer. Once they have your attention you’re shocked at the price so you go for the deal, oblivious to the fact that you walked into their trap. Southwest’s symbol for shareholders is LUV while Spirit’s is SAVE. They are not the only companies to start to enter into these paths. Hotels, rental cars and cruises are all faced with the same choice to embrace the LUV or the thriftiness with SAVE (Elliot
The airline industry not only transports passengers across the country and world but it also moves cargo from location to location. The largest segment for the airlines is general commercial passengers and business travelers. In 2004, there were 15 major airlines with 12 of those being mainly passenger carriers, the remaining three being cargo carriers. In addition to the large airlines (Delta, United, American, Southwest, Northwest), there are numerous low-cost regional carriers that have tapped into the larger carriers’ customer base. These smaller companies generally fly from smaller airports and serve a smaller amount of destination cities. Calling them a no-frills air carrier would not be far from the truth. Their goal is to move customers f...
Recently Qantas has partnered up with Emirates in an effort to channel Europe-bound travellers through Dubai International Airport in a mutually beneficial arrangement, an example of business-to-business geographic segmentation marketing.... ... middle of paper ... ... Indirect Taxes on International Aviation*.
Having a low amount of cost in their operations is one of the contributing factors in Southwest Airlines’ financial success. Such low cost model of the corporation is brought about by an effective strategy. Southwest uses only one type of aircraft – the fuel-efficient Boeing 737. This tactic keeps training and maintenance costs down. Moreover, the no-frills approach to customer service contributed to the low cost of operations for Southwest. The airline does not serve meals on board, and there are no luxurious or first class seats offered. Services like these have been seen by the airline as unnecessary for an airline that provides a short-haul trip from city to city. By these, Southwest were able to offer low price tickets to customers, which was good for the company because most people would prefer to fly without those services mentioned if it meant for cheaper ticket price.
More than 37 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. They began with one simple notion: If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline. And you know what? They were right. What began as a small Texas airline has grown to become one of the largest airlines in America. Today, Southwest Airlines flies over 104 million passengers a year to 64 great cities all across the country, and we do it more than 3,400 times a day.
Porter (1997) suggests in order to gain competitive advantages in the changing business environment, it is essential to design a generic strategy for the business: product differentiation or cost leadership. The competitive strategy is determined at round 2, when recognised our rivals held whole product profile which was the product differentiation strategy. To differentiate our strategy from rivals for competitive advantages, Digby designed to imply the cost
Since CEO Gary Kelly took the reins of the company back in 2004, Southwest has maintained and enhanced the company’s ability to offer customers a great flying experience for low fares. This effort start early in Mr. Kelly’s tenure when he identified four success factors
Problem solving and flexibility helped the members of our group to agree on our travel destinations such as Rome, Venice and Florence. I quickly realized that compromise was the best method if the group was going to enjoy each other.
The Economist. 2013. Flying into more flak. [online] Available at: http://www.economist.com/blogs/gulliver/2013/08/ryanair [Accessed: 26 Mar 2014].
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
The low cost and no frills strategy is make travel affordable at low cost. The company only operates one type of aircraft which is Boeing 737 to help maintenance cost low. Southwest was the first airline to use E-ticketing in this way customer can reserve spot and buy ticket on their web and allow less expense in printing tickets. Medium measured airports which allowed them to produce better time performance and less fuel costs so plane do not have to wait in the line at the runway. The core value of the company of “LUV and fun” makes the company great place to work that gives customer with a great experience.
Since the internet the power of the buyer has increase. Consumers can now go online and compare the prices of flights to finds the cheapest one.
Management; The New Competitive Landscape. Chapter 4, Managing, [University of PhoenixE-Book]. ISBN: 0072538651. Retrieved October 20, 2005, from University of Phoenix EResource, MGT/330-Theory, Practice, and Application, Web site: https://ecampus.phoenix.edu/secure/resource/resource.asp
It all started in 1971, when Rolling King and Herb Kelleher decided to challenge the existing rut of charging high prices for air travels. They considered the railways and roadways their competitors and decided to offer cheaper travel for smaller routes. The company was incorporated in 1967, apart from initial entry troubles, Southwest has been the only US airline to have earned profits since 1973. The eccentric company’s outlandish way of conducting themselves has been the sole reason for Southwest Airlines to succeed in a highly competitive and packed industry.