Southwest Airlines: A Case Analysis
Length: 1537 words (4.4 double-spaced pages)
It is evident that the greatest strength that Southwest Airlines has is its financial stability. As known in the US airline industry, Southwest is one of those airlines who are consistently earning profits despite the problems the industry is facing. With such stability, the corporation is able to make decisions and adjust policies, which other heavily burdened airlines may not be able to imitate.
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.
Even though Southwest offers no-frills, there is still a high degree of customer satisfaction that continuously builds customer loyalty for the company. As mentioned, Southwest offers low prices on their airplane tickets. Also, Southwest is renowned in the airline industry for its short turnaround time on arrivals and departures. And since people's biggest concern nowadays is money and time, having low price airline tickets to cater their traveling needs in a shorter period of time will surely satisfy them. Moreover, aside from the low prices offered, what attracts to customers is Southwest’s way in dealing with them. The employees of the airline treat their customers well and really listen to their needs.
Southwest Airlines is also well-known for having a very productive and loyal workforce. Such loyalty and productivity among the employees were brought by the way Southwest’s management treats them. As they say, the employees are willing to work hard for the company because they feel appreciated by the top management. Southwest maintains good employee relations because what they believe in is that if employees are happy, satisfied, dedicated, and energetic, they'll take real good care of the customers.
And by having staff that enjoy their positions and present themselves in a friendly, professional manner, it adds quality and value by inserting a positive element in to a traveler's Southwest experience.
However, though coupled with several strengths, Southwest Airlines is not without weaknesses. Among such weaknesses is their use of only the Boeing 737 airplane. As it contributes to low training and maintenance costs, limiting itself to only one type of aircraft causes Southwest to have no flexibility at the time Boeing 737 receives bad reputation due to a critical flaw found in it. And it would be a costly undertaking to find a replacement aircrafts for the company who’ve consistently used only one type of aircraft.
Another weakness of Southwest Airlines is the fact that it currently serves only few states in the US, mostly in the South. This limited area of service limits the number of geographical market for Southwest. And this causes the inability of the company to compete against the larger airlines that serve both nationally and internationally, with hubs that allow them to reach a much larger share of the overall market than Southwest.
Throughout the years of its operation, because of its no-frills approach and low cost model, Southwest Airlines has consistently been very profitable, unlike other airlines that are experiencing bankruptcy. And since there is always a great demand for traveling services in the US, Southwest can take full advantage of its profitability to optimize its opportunity to expand operations. The company can spread their wings to new territories and purchase more planes to extend their capacity and cater more customers. This would be very beneficial for Southwest because the company will be able to extend its services to a larger market that is in need of their traveling services.
It is quite known that the airline industry has very high barriers to entry. This means it is somehow difficult for new companies to enter such industry. Aside from the fact that there are already so many established airlines that have good names and reputations, the vulnerability of the industry to economic cycles somehow add difficulty for new entrants. Such vulnerability means that if the economy is doing well, more people will have the money to pay plane tickets and travel. But if the economy is not doing well, then people will have less money to fly and will use more cost effective means of transportation. This difficulty for new entrants to penetrate the industry is an opportunity for Southwest to minimize the likelihood of additional competition, thereby sustaining its current share in the market. They may now focus more on their current competitors for market share rather than worrying much about others entering the industry.
Having been very successful in their operations, Southwest Airlines is surely a target of competitors’ focus. And by that, other airlines may begin copying Southwest's strategies. Though this may show that Southwest is definitely a leader in the airline industry, it is somehow disadvantageous for the company in the long run. If those airlines try to imitate Southwest’s cost efficiency strategies, they can also lower their ticket prices and compete with Southwest. Through such, competition will get tougher for Southwest and it will no longer be able to monopolize the low fare sector of the industry. And worse, there is a possibility that a big company in the future, possessing more advanced technologies and facilities, will operate using Southwest Airlines' low-cost model to a wider market, which will encroach and outdo Southwest Airlines.
Terrorism is one of the greatest threats for people to lose faith on the airline industry. Airline companies in the US can attest to that after experiencing the 911 Attack in 2001 were they incurred major losses. Though Southwest was one of those airlines who did not incur a major loss, the possibility of an unforeseen terrorist aggression using airplanes is still a major threat in the company’s operations. This is because any loss of confidence in the safety of air travel would lead to a shift to the use of other forms of transportation, leaving Southwest struggling to fill its seats.
STRATEGIC ISSUES AND RECOMMENDATION
As mentioned, a major weakness of Southwest Airlines is having a limitation on its operations in terms of geographical market. Though the strategy of focusing on smaller market niches have been very helpful in the overall success of the business, there is still a great possibility that maintaining such set-up will no longer be advantageous to the company. And the steep competition happening in the airline industry may be one of the reasons.
Since the success of Southwest Airlines is already well-known, this could entice competitors to emulate their strategies. By copying them and probably making some added strategy modifications, other airlines may also be able to offer low rates price plane tickets to the areas covered by Southwest Airlines and beyond, which would surely surpass Southwest’s performance. Such move by competitors would make Southwest Airlines' range and limitations more obvious. Also, as mentioned, there is a great possibility that in the future, a more advanced airline company, offering a higher quality of customer service, will operate using Southwest Airlines' strategies in a wider market that will greatly outdo the performance of Southwest Airlines. All of these would cause a great loss in the market share of Southwest Airlines and its lead in the airline industry.
Therefore, we recommend that Southwest Airlines should take full advantage of its financial stability and profitability to expand its operations by extending its services to new territories, purchasing additional aircrafts and upgrading some facilities to make a few changes in which the airline’s aesthetics would be more accommodating. All of these may be costly ventures, but it would open the company to a larger market. This move will help Southwest to sustain their current market and still acquire more, thereby maintaining the company’s lead and originality that will prevent copycats from outperforming them. We perceive such recommendation as crucial for the company because if Southwest would just stay as is, there may come a time when they will be left behind by more advance and flexible airline companies that have a more effective low cost strategy.
It is important for the company to improve some of its strategies in order to respond to what could be the possible changes in their environment. Moreover, in line with their mission of providing the “highest quality of Customer Service”, we believe that it is just expected from them to expand and upgrade. They have already proven to be one of the best, so the issue now lies on sustaining it. And we believe that by advancing the operations of the company, Southwest Airlines being left behind will be far-fetched.