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Problem Statement:

As environmental and economic uncertainties mount, what strategic decisions and competitive
tactics should South West airlines consider to maintain their low cost competitive advantage and
customer loyalty.

External Analysis:
Factors
Political

Economic

SocioCultural

Factors as in the case


Govt. deregulation
Terrorist activities

Due
to
Recession
volatile
and
unprecedented jet fuel prices
Economic downturn
Huge investment for gate acquisition
and terminal construction
Increasing operating costs for airlines
The company had the highest salaries
for pilots
Strong
leadership
and
great
relationship with employees and Union
strong commitment towards customer
service
Employees are committed to the
organization
Informal
and
conducive
work
environment

Impact
Deregulation fostered competition and
growth of new airlines, created
regional disparity in ticket prices and
adversely affected service to small
and remote communities. Safety was
a concern.
Limited fare flexibility and cut down on
extra benefits to customers. With the
co-operation
and
support
of
employees and management the
turnaround time and hence cost of
operation was brought down.

Highly
spirited
and
dedicated
employees
made
the
working
environment for productive and cost
effective.
Kelleher
and
the
management was supportive of their
employees
and
maintained
an
informal relation with all

Technologic
al

Pioneers in several tech initiatives in


the airlines industry
Introduced ticketless travel through
the use of technology
Southwest Airlines reservation system

Helped Southwest airlines to maintain


their low cost competitive advantage
and customer loyalty.

Legal

Appeal filed by other airlines


prohibit Southwest from flying.
N/A

The U.S. Supreme


Southwest airlines.
N/A

Environme
ntal

to

court

favored

Internal Analysis
Organizations perspective SWOT:
Strength

Weakness

Iconic brand name


Leader in low-fare carrier service
Strong leadership and great relationship with
employees and Union
Pioneer in many industry initiatives First
mover advantage
Robust domestic network
Strong employee engagement initiatives and
customer service
Focus on the point-to-point model as opposed
to the expensive hub-and-spoke model
Opportunity

Increasing operating costs


Do not provide extra benefits to customers
Small market focus
Focus only on short-haul flights
Limited fare flexibility
Minimal revenue opportunities

International flight route expansion for


profitability
Increase in customer demand
Ability to restructure fare as per service
provided
Potential
partnerships
with
foreign
international
airlines
or
merger
and
acquisitions

Competition from other established and new


airlines
Increased fuel prices
Economic downturn causing industry turmoil
Terrorist activities causing safety concerns

Threats

Listing Factors:

Strong Leadership: Kellehers unconventional and unique style. Maintained cordial and
informal relationship with employees, customers and union.
Iconic brand name: Southwest airlines was famous among customers for being
champions of low-fare flight experience. This helped allot in the airlines success and
revenue growth.
Organizational Culture: The Company was known to have an informal culture which led
the management to have a more comfortable approach towards leadership. This helps in
quick learning and greater exposure.
Processes and Feedback re-addressed: Proper processes were in place and this along
with the presence of key leadership positions led to a proper mechanism for various
decisions and further re-addressing any repercussions.
Pioneer: Was an initiator when it came to many tech related industry first

Key Factors:

Constraints

Options & Evaluation:


1. Continue to cut costs and minimize commitments to minimize the effect of the
recession:
Adv.: This will allow Southwest airlines to make more air sorting and thus achieve better
revenue. Further, this will allow less commitments to luxurious customer benefits thereby will
help to streamline the cost.
Dis-adv.: May lead to decrease in quality of service. If not administered carefully will lead to
customer dissatisfaction.
2. Expand geographically and include more long-haul flight routes:
Adv.: Careful expansion can lead to tapping of new markets and better revenue and profit
growth options. Expand to South American countries as well.
Dis-Adv.: New set of challenges like airport congestion, air-traffic issues may arise. Need to
expand fleet and employee strength accordingly.
3. Limit the number of flights in marginally profitable flight routes:
Adv.: This a good way to reduce unwanted wastage of jet fuel and manpower. Is cost effective
and logical. Reduces operating cost and allows to focus on more growth oriented territories.
Dis-Adv.: Affects current business. Need to make proper use of existing routes and excess
manpower.

Recommendation
Southwest airlines are known for their competitive advantage when it comes to low-fare services.
While their near-term outlook is cautious, they are prepared for bad times and their long term
outlook is enthusiastic.
As environmental and economic uncertainties mount, the strategic
decisions and competitive tactics considered to maintain their low cost competitive advantage
and customer loyalty should be in line with future growth opportunities. Even if the airlines
suffers a short term cost, in the long term if it is able to achieve the necessary growth targets
then that option can be taken.

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