Southwest Airlines

“SOUTHWEST AIRLINES”

SUMMARY

Southwest has been the most successful airline in the United States for 36 years, making it possible for customers to take advantage of convenient and affordable traveling. It began with only three aircraft

flying to Dallas, Houston and San Antonio, and today it is the largest domestic carrier operating more than 400 jets to 63 cities. In an industry where most of the airlines have been forced to either cut back or cease operations, Southwest has sustained its profitability in the face of severe obstacles.

By offering low priced, short, frequent and convenient services, Southwest has carved a niche for itself in the market and has gained an edge over its competitors. However, the company faces the threat of rival airlines trying to emulate its strategy and enter the low fare market. This could potentially reduce Southwest’s market share and profitability, and risk the sustainability of its competitive advantage.

The airline industry is very competitive and Michael Porter’s five-forces model can be used to explain why the potential for returns is so low in this industry. Firstly, the threat of new companies entering the industry is high and the entry barriers are low since banks, debt and equity markets provide access to funds and capital. Secondly, the bargaining power of customers is high since they are price sensitive and search for the best deals. The third force, bargaining position of suppliers, is strong since they are concentrated and this limits the control airlines have over suppliers to reduce prices and earn higher profits. The availability and threat of substitutes is another factor that can affect a company’s competitive position. However, the degree of this threat depends on various factors such as time, money, convenience and personal preferences of travelers. The final force in Porter’s model is competitive rivalry between the companies within an industry. Cut-throat competition exists among the airlines and since there is a constant struggle for market share, the over all profit potential of this industry is low.

With the help of an effective approach, which is a combination of cost-leadership, focus and differentiation strategies, Southwest has been able to establish a strong competitive position. Porter’s value chain analysis can be conducted to explain how the company has maintained its low cost structure, fast turnover and superior customer service. Inbound logistics such as acquisition of only Boeing 737 aircraft

and effective route selection, flight scheduling, crew scheduling and passenger reservation systems have helped add value to the company. Operational activities such as efficient ticket counter operations, gate operations, on-board service, luggage handling and the “no-frills” policy of providing coach seats and light snacks only, have helped Southwest maintain its low cost position. In addition, outbound logistics such as the rental car and hotel reservation system makes it easier for customers to plan their trips. Promotional events, sponsorships, advertising, frequent flyer program and the group travel program further add value to the company.

On the other hand, the company’s infrastructure, human resource management and technology development also serve as an important source of competitive advantage. The outstanding leadership exhibits an innovative management style that focuses on individuality, dedication, family values and encourages a fun working environment. Effective human resource management practices help in creating an efficient work force through selective hiring, innovative training programs and by creating a stable environment for the employees. Cost effective technology such as efficient passenger reservation system, flight scheduling, in-flight systems and other passenger management solutions supported by Sabre Airline Solutions help Southwest cater to customer needs.

One of the most important sources of Southwest’s competitive advantage comes from its management practices, work force and customer-oriented vision. Even though competitors are trying to imitate Southwest’s successful strategy, as long as they are unable to emulate the Southwest spirit and culture, they do not pose a real threat to the company.

CASE ANALYSIS

Air travel has transformed the way people live and experience the world today. The airline industry is a strategic sector that plays a vital role in the globalization of other industries since it promotes tourism, world trade, foreign investment and, therefore, leads to economic growth. However, all airlines within the industry operate in a highly dynamic environment where various legal, social, technological and economic