Southwest Airlines was introduced in Texas on June 18, 1971 with three Boeing 737 airplanes and only serving three cities of Texas which included Houston, Dallas and San Antonio. The company came a long way since 1971; today Southwest Airlines has 537 Boeing 737 airplanes and serving 68 cities around the US. Southwest Airlines has become a major airline in 1989 when it hit the billion-dollar revenue mark. Southwest Airlines is the United States’ most successful airline due to the low fares, high frequency, and point-to-point carrier. According to the Southwest Airlines Fact Sheet 2010 “Southwest operates more than 3,200 flights a day coast-to-coast, making it the largest U.S. carrier based on domestic passengers’ carrier as of September 30, 2009”. As June 2011, Southwest Airlines has become the top airline to carries the most domestic passengers in the US. Southwest Airlines in 2013 has expanded their destination to 86 cities in 42 states and Puerto Rico.
The current CEO of Southwest Airlines is Gary Kelly and his vision for the company is “to connect people to what important in their lives through friendly, reliable, and low cost air travel”. According to the swamedia.com “Gary is a 27-years Southwest veteran who began his career at Southwest Airlines as Controller, moving up to Chief Financial Officer and Vice President Finance, then Executive Vice President and CFO, before being promoted to CEO and Vice Chairman in July 2004. Gary assumed the roles of Chairman and President in 2008. Prior to joining Southwest Airlines in 1986, Gary was a CPA for Arthur Young & Company in Dallas and Controller for Systems Center, Inc.” Gary has received many awards during his 27 years with the company and twice being named CEO of the year by D CEO Magazine’s. Also, he was named of the best CEO in America by Institutional Investor three times.
According to the Sawmedia.com “Gary was selected as Dallas Business Journal’s CEO of the year for 2011. In 2010, Gary was honored with the Distinguished Alumnus Award from the University of Texas at Austin. In 2013, Gary will be inducted into the McCombs School of Business Hall of Fame at the University of Texas at Austin; Gary is the recipient of the 2013 Father of the Year Award; and Gary is the recipient of the 2013 McLane Leadership in Business Award at Texas A&M University.” According to Gary Kelly and SouthwesAirlines.com their mission statement “is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual price and Company Spirit”.
They have been operating their business exactly as their mission statement. They have been so successful due largely to the usual focus on their employees. LUV and FUN is the program which Southwest has created for their employees and their focus on customer service which they have to show respect for one and another, represent the company and create a comfortable, relax and fun working environment. Southwest Airlines’ Strengths
Southwest airlines has many strengths’, but one that brings in profit to the company in a major way is their customer service. Southwest airlines has the highest quality of customer service that is delivered with a sense of warmth, friendliness, individual pride, and company spirit. That statement is not only their motto, but also their way of making a profit. Southwest brand their name on good customer service. They have been admired to be the third top ranked airline in the U.S and the tenth in the airline industry. Buyology and an online research marking company evaluated 4,000 men and women, with four key parameter of a company; the awe, the superiority harmony and exploration of a company to rank the top ranked company.
According to www.southwestonereport.com, “220 brands and companies were studying during this evaluation the company were matched by numerically with strength and weakness. With relation with Southwest airline consciously and unconsciously Southwest airline earned the top spot for 2012.” Not only do bag fly free Southwest airline was the first airline to offer senior discounts, ticketless traveling, and services for air freight delivery to the common traveler. Southwest airline offers credit based on the number of trips with the airline instead of the total miles traveled also understanding the not how far you fly it’s how many times you fly with Southwest airline.
As Southwest’s major strength is the customer service making a profit is another strength that has sustained them. In 2012, Southwest airline marked the most profitable airline in U.S airline industry unmatched for over 30 years. These profits is the results of the exemplary customer service that Southwest airline has making over 421 million dollars in 2012 alone. Another major strength is Southwest airlines website. During the second quarter of 2013, 80 percent of Southwest airline passenger revenues were booked via southwest.com. In addition to flights, customers are able to make car, hotel, cruise, and complete vacation package reservations on southwest.com.
Southwest airline has the “Southwest Shortcut” feature on southwest.com, which is the first online tool that helps customers find the lowest fare based on availability across the entire month. Southwest airline has many strengths, but as southwest airline put it in a nut shell its all about. According to www.southwestonereport.com, “Southwest continues to differentiate itself from other carriers with exemplary Customer Service delivered by nearly 46,000 Employees to more than 100 million Customers each year among 96 destinations in 41 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries all at low far.” Southwest Airlines’ Weaknesses
Southwest Airlines has become one of the top airlines in America, it is the number one airline that carries domestic passengers around the state. Southwest Airlines have followed their CEO leadership, they do what they are supposed to do and they are carried on their mission statement to the fullest. With that in mind Southwest Airlines could be the only perfect airline and have many advantages compare to others: as for examples low fares, beautiful flight attendants and happy employees who respect one and another. Southwest Airlines has successfully built a great, comfortable and relax workplace for their employees. Also, they have great customer service which is always their first priority. Unfortunately there is no such thing as a perfect company or a perfect person because the world that we live in right now is not perfect, so Southwest Airlines has many strengths but they are also have many weaknesses as well. The first weakness of Southwest Airlines is within their company.
Debt and operating expenses are among the tops of the company priority, according to quality-assurance.com “The company is estimated to possess $361 million of debt on their balance sheet, and until they pay down these debts it will drag significantly on their business”. Debt will drag on the business of Southwest. Also the Mounting Operating Expense can count as one the weaknesses of the company as well. The company has to pay out more for fuel because it has grown 182.30% for the average of gallon from 2005 to 2011. Unfortunately, the company also has to deal with it employees’ union because of the union has demand more services and benefits for their members, and by the end of the day Southwest doesn’t have much left money to cover their debts and expenses. The second weakness of Southwest Airline is the services provided to customers.
According to businesstune-ups.com “Southwest Airlines doesn’t provide international flights, they don’t have seating options, their cargo space is very limited, they only have one type of airplane, Very short trips earn the same amount of perks as a long, extensive flight. Scrutiny of potential employees based on personality before skill could be dangerous.” Not having international flights and only have one aircraft for their services are the disadvantages to Southwest’s competitors. These days more and more passengers going out of country for their business trips which will increase profits and customers for the company. Only have one type of aircraft which is a great way to save money when the maintenance services come. Also, it is a big disadvantage for Southwest Airlines because the aircraft has a limited space for passengers’ luggage.
Southwest Airlines also doesn’t have a seating chart and no business option for their passengers. It is a great way to save money for the company and as well for the passengers to get a lowest air fares as possible, but many business passengers want their own space to work on their presentations or their companies’ projects. So, without the business class option the airline will be losing out to its competitors. Another weakness of Southwest Airlines is the company only provides limited destinations for its passengers and mostly is from the South. The limited areas will limit the number of passengers who will choose Southwest as their designated airlines. It is hard and difficult to compete with other larger airlines that serve both domestics and internationally with also help them to build bigger market for their companies. Southwest Airlines’ Opportunities
Now that the merger of Southwest Airline with AirTran is now complete, growth is on the rise for Southwest, its customers and employees. In the acquisition, Southwest now can handle more international destinations with its new fleet of larger aircrafts. This gives more diversity for the customer and gives Southwest the ability to keep its fares low. Southwest also gained 8,000 additional employees from AirTran and if done correctly, this merger can only improve its customer service rating. Southwest Airlines is one of the top airlines in service today; known for their strategy, dedicated work force, low fares and customer service. The competitors’ component or analysis is defined as the process of identifying the performance and marketing strategy of competitive brands or products in the marketplace.
So what is it about Southwest Airlines that has put them in such an elite category compared to the competition? Southwest’s main strategy is to keep things simple. “It has never served meals, does not have advanced seat reservations, and flies only Boeing airplanes. These decisions have helped Southwest be flexible in the face of the recent decreases in airplane passengers caused by the 9/11 terrorist attacks and the world economic crisis.” (http://teamsparksouthwest.blogspot.com) By reducing some of the amenities that other airlines offer, it allows them to reduce the amount of employee cut backs, maintain low fares while retaining employees that are loyal to the brand, ensuring a good customer experience.
This strategy has allowed Southwest to have 39 years of profitable growth (Thompson). Southwest has been on the cutting edge of managing employee loyalty. In a recent interview with, Herb Kelleher, founder of Southwest, he expressed that the key to a productive workforce is “Paying personal attention to each of your people instead of a formula, also to empower employees and back them up (Kelleher)” (Thompson). Over time, implementing these general tactics has reinforced a working culture at Southwest that separates them from their competition. A happy employee means great customer service, customer retention and consistently growing profit margins. Southwest airlines is known for its low fares but due to increasing fuel costs, limited destinations and people finding alternate ways of travel; ultimately Southwest’s competitive advantage of being the leader of low fares will diminish.
Having fewer planes equals lower fuel costs which is an area that Southwest is struggling with to maintain those low airfare prices. “Fuel crisis and fuel price become threats to Southwest Airlines Company. Fuel costs in 1978 averaged 37 cents per gallon while in 1979 it became 80 cents. In 1980 fuel costs exceeded $1.00 per gallon. This price hike changes the expenditure pattern of the company. Operating costs become 40% of the total budget” (MBA Study Point case study). The only true competition for Southwest is regionally. Delta out marks them in most areas but due to Delta’s concentration in the Southeast they only compete on a regional level. Delta does however fly to most of the areas where Southwest is the preferred airline. The same is not true for Southwest who has more limited destination availability. In order to compete, Southwest will need to add more destinations to their roster.
Business travelers will still prefer Delta because of their perks for Business travelers which Southwest does not have. Not to have a business class excludes a whole subset of travelers that are more likely to fly on a regular basis which cuts down on profits. Southwest’s culture is centered around the customer. While in recent years they were positioning themselves as a low-cost airline with exceptional customer service; their fares have seen a slight increase but the standard for high quality customer service remains the same. They create an employee friendly environment that motivates employees to want to work hard and be the best they can possibly be for the company. Southwest’s website states “happy employees = happy customers” and this is the culture they operate with every day. Southwest airline believes that volunteering is crucial to the health of nonprofit organizations that work to meet needs in different communities.
Southwest airline employees volunteer their time day in and day out for the important causes that are closest to their hearts. “In 2009, Southwest Airlines Employees volunteered more than 45,000 hours to charities across the country. In an effort to support these passionate Employee volunteers, Southwest Airlines launched the Tickets for Time program. For every 40 hours our Employees volunteer for a nonprofit organization, the benefitting nonprofit organization is eligible to receive one complimentary, round-trip ticket on Southwest Airlines for fundraising or transportation needs”(Southwest.com). Southwest Airline has an outreach program for every culture and lifestyle the employee volunteer more than 137, 000 hours.
Southwest airline has an Adopt-A-Pilot program where students will research careers and further develop life skills, while the importance of staying in school is reinforced. Southwest Airlines and AirTran pilots mentor fifth grade students and offer this program at no charge to the schools that participate in the Adopt-A-Pilot program. Southwest airline has several outreach programs that reach out to many cultures such as African- American, Asian, and Hispanic programs and LGBT. Southwest Airlines’ Treats
Airline industry could be affected by many factors such as general economic environment, fuel price, airline terror acts, weather conditions and air traffic restrictions. General economic environment has an impact on the demand for travel, and therefore influences the number of flights run by Southwest. The fuel price controls the company’s costs; rising fuel price would increase the cost, and the company cannot always avoid influences of fuel price by fuel hedging. Terrorist attack incidents would both physically and psychologically affect customers and employees, which leads to a higher security cost. Weather conditions also, have an important impact on flights as well. Bad weather conditions may delay flights, increase turnaround time, and thus mark up costs. All these potential threats are faced by Southwest Airlines. 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 when 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. High unemployment and inflation are keeping more travelers at home; Supply and demand price elasticity of airline carriers may vary depending on the nature of the industry. The macroeconomic factors affecting the airline industry include unemployment, the economic growth in the United States, and inflation. With low economic growth, consumers are finding luxury items more difficult to purchase and airline tickets for vacations fall into that category.
Unemployment contributes to a lack of vacation travelers since individuals who are not employed do not have extra money for vacation or airline tickets. Inflation also causes operating costs of the airlines to be higher which entails cuts into the profits of Southwest. Unemployment is affecting the airline industry because consumers are taking more “stay-cation” at home or vacationing to areas to which they can drive. As unemployment has risen, the airlines have laid off a much higher percentage of their people as well.
Southwest Airlines’ Grand Strategies Recommendations
Grand strategies, often called master or business strategies, provide basic direction for strategic actions. There are many grand strategies that Southwest Airlines can choose from when considering which match with their company’s strengths, weaknesses, opportunities and threats. Southwest Airlines is excellent in planning their long-term goals. The above SWOT analysis proved that the company is successfully carrying out the cost leadership strategy to manipulate their competitors and boost up their company. Their mission in providing low fare cost is one of the best strategies that they have to increase their market share, and it also put a significant increase in the demand of air travel. Southwest Airlines’ rapid rewards program is brilliant, so they should continue and expand it even more. Southwest Airlines’ employees mainly belong to the Union and they are mainly full time workers.
Since the Union has demanded more services and benefits for their members, the company gained limited profit. To fix this, the company should hire more part time workers instead of full time workers because if they implemented this they would not have to provide full benefits and instead focus on gaining profit. Also, Southwest Airlines should make all flights within the states point-to-point flights, and give their employees a strict timeline to alleviate delays. This will keep an accurate time frame for customers. As far as the flight concerns, Southwest Airlines has only one dependable flight, which is very dangerous when it comes to safety, but the good thing about that is an inexpensive cost for maintaining the aircraft. The safety of the customers is very important, so Southwest should increase at least one more dependable aircraft just in case something unexpected happens to the other one.
Customer service is superior for Southwest Airlines, but many of their weaknesses can give their competitor many advantages. Southwest does not offer international flights, and there are increases in demand for international flights, so they should consider flying internationally within the next 5 or 6 years, or Southwest should completely become integrated with AirTran Airline by 2014 because they could put an increase in their net income. The advantages that Southwest’s competitors such as American Airlines and US Airways have are their inflight meals, seating charts, and highly advanced technology they have available for their customers. In this case, Southwest Airlines should invest in one more jet that provides higher quality and luxurious experience for customers such as business travelers who are willing to pay extra for it. In that jet they would offer inflight meals, provide seating options when customers book their tickets, and most important of all, they have to advance their jet to have advanced technologies such as television.
One of Southwest Airlines’ threats is a general economic environment problem like high unemployment and inflation that they cannot control. One thing that can be done is to create a program that provides customers time to pay off their ticket 5 months in advance before flying. So the customers would have enough time to pay in increments over a period of time so they do not have to worry about spending a lot of money at once. When it comes to expanding their name brand Southwest Airline should continue to increase their popularity by increasing the advertisements on both their and AirTran’s website.
Since the websites are the main places where customers go to book their tickets, the company should put that into a good use by creating more advertisements, and therefore gaining more popularity. Lastly, Southwest should continue to foster its remarkable culture. The fun-loving attitude that the company has for their customers and employees shows that Southwest has a great working environment; the dedication that the employees have for the company contributes to both the tangible and intangible benefits. “It is a true competitive advantage for Southwest Airlines.” (Terra Thompson) Conclusion
As a result in performing this project, we have learned that SWOT Analysis is the key for all businesses success. Understanding the strengths and weaknesses within the company and understanding the opportunities and threats that the company has externally are extremely important in planning the strategic plans to help the business overall outlook. As far as Southwest Airlines, we have learned that the company is very successful when it comes to the superior customer services, but Southwest should definitely continue on increasing their brand by upgrading their services within their aircrafts to become more high tech.
We know that Southwest is known for their low cost fair, which gave them a huge advantage of their competitors. And the fact that they are integrating with Air Trans was a brilliant idea, because they are expanding their brand through Air Trans in providing International flights, which are, in a very high demand right now. We think Southwest Airlines is in the borderline in gaining a sustainable competitive advantage if they are expanding their aircraft to fit what their customers needs and wants.
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