Вы находитесь на странице: 1из 13

Background Summary

Southwest Airlines Co is a major U.S. airline and the world's largest low-cost carrier,
headquartered in Texas. Southwest Airlines based in Dallas was founded in 1967 by Rollin King
and Herb Kelleher. It is one of the major domestic airliners which provides carrier and
transportation service. This company has 35,499 employees and it runs over 500 Boeing 737
aircraft in 67 cities in the US. .Although the industry suffered a major blow from the terrorist
attack of September 11th, the company is still holding strong; while other airline companies are
in debt. The information was majority gathered and analyzed from the internet; sources such as
"News Week," and "Wall Street Journal." According to the acquired knowledge of Southwest, the
company maintains steady sales. The major success to their continued success is due to their
low-cost model and competitors are aware that they cannot match Southwest Airlines low prices
therefore, by dropping the price even lower; Southwest Airlines can force a company to go
bankrupt. Southwests principal values are:

Providing low-fare and short haul service.

Offering the highest quality of customer service.

Putting a lot of importance on the fair treatment to its customers.

Building friendly relationship between its customers and employees.

Southwest Airlines has achieved a great position in the airline industry by adopting five
important strategies.

First, using the minor league airports which have helped the company to reduce
traffic delays and increase passenger convenience.

Second, flying one kind of aircraft has helped it to achieve lower training cost.

Third, reducing turn-around time by using point-to-point strategy, has avoided


the use of complicated reservation process system.

Forth, not offering assigned seating and preferential treatment on frequent fliers,
has led the company to have better ticket price.

Lastly, emphasis on building good relationship between passengers and


attendants has been a well valuable factor.

Company History
1967

Company is incorporated as Air Southwest Co.

1971

Airline launches first route, connecting Dallas, Houston, and San Antonio

1973

SWA posts first profit and begins RUSH cargo service

1975

Southwest goes public on the American Stock Exchange

1976

Company is renamed Southwest Airlines Co.

1977

Shares migrate to the New York Stock Exchange

1978

Herb Kelleher becomes Southwest's outspoken new chairman

1979

SWA flies outside Texas to New Orleans

1981

Kelleher is named company president and CEO

1982

SWA begins flights to West Coast

1990

Revenues exceed $1 billion, making SWA a major airline

1994

Morris Air and Arizona One are acquired

1996

Online booking site is launched

2000

SWABIZ corporate booking tool is introduced

2005

SWA enters first ever code share arrangement, with ATA Airlines

Vision of Southwest:
Dedication to the highest quality of Customer Service delivered with a sense of warmth,
friendliness, individual pride, and Company Spirit

Mission of Southwest

The mission of Southwest Airlines is dedication to the highest quality of customer service
delivered with a sense of warmth, friendliness, individual pride, and company spirit. It primarily
provides short haul, high-frequency, point-to-point, low-fare air transportation service among 58
cities (59 airports) in the United States.

A brief of Southwest:
The airline industry has been hit hard by the terrorist attack of September 11th. There is a 13%
insurance raise for the airlines and the government is enforcing fees regarding security problems.
The operation cost increases dramatically and there are less people traveling by air. Most of the
airliners are losing money expect a few. Southwest is one of those airlines which have remained
profitable.
Net income
Total passengers carried
Total RPMs
Passenger load factor
Total operating revenue

$241 million
63 million
45.4 billion
65.9 percent
$5.5 billion

Organization of Southwest Airlines is described as an upside-down pyramid. The upper


management is at the bottom and supports the front line employees (~35000), who are the
experts. This is Herb Kelleher's unorthodox leadership style, in which management decisions are
made by everyone in the organization, not just the head executives. The company is described to
not have much emphasis on structure; instead employees are encouraged to think freely without
constraints such as titles. Kelleher, for example, is said to know the names of virtually all his
employees.

Competitors of Southwest:
Rivalry among competitors sets the price-Southwest Airlines is a discount airliner. Rivalry is
increasing, as the market decreases, and competitors downsize, the competitors become more or

less equal in size and capacity. This means that as economic conditions worsen, competitors
downsize and then compete for the same remaining market. Southwest Airlines main
competitors are:

Continental Airlines

USAir ways

Delta

United airlines

American Airlines.

Market Share : Year 2006

Southwest Airlines PORTER 5 Forces

Reward system in Southwest:


Southwest uses a different kind of reward programs. For instance, the reward for frequent fliers
includes Free flights according to the number of flights; which means if you fly eight round trips
or sixteen one way trips, you will get one free round trip ticket.
In addition the company offers free drink coupons
Toll-free reservations phone numbers, and
Credit with a preferred partner, which means if you take fifty round trips in a year, you
can designate one person to travel with you for one year.

Geographical Segmentation
Southwest flies to 62 cities in 32 states in America
Albany

Columbus

Indianapolis

Midland/Odessa

Philadelphia

Albuquerque

Corpus Christi

Long Island

Nashville

Phoenix

Amarillo

Dallas (Love Field)

Jackson

New Orleans

Pittsburgh

Austin

Denver

Jacksonville

Norfolk

Portland

Baltimore/
Washington

Detroit (Metro)

Kansas City

North Virginia
(Dulles)

Providence

Birmingham

El Paso

Las Vegas

Oakland

RaleighDurham

Boise

Ft.Lauderdale
/Hollywood

Little Rock

Oklahoma City

Reno

Buffalo

Ft. Myers/Naples

Los Angeles (LAX)

Omaha

Sacramento

Burbank

Harlingen/South Padre Louisville


Island

Ontario

St. Louis

Chicago
(Midway)

Hartford/Springfield

Lubbock

Orange County

Salt Lake City

Cleveland

Houston (Hobby)

Manchester

Orlando

San Antonio

Spokane

Tulsa

Seattle/Tacoma

Tucson

Tampa

West Palm Beach

San Diego
San Jose

In selecting cities, Southwest looked for city pairs that could generate substantial amounts of
both business and leisure traffic

Business Strategic Analysis:

Fig: The Strategy Canvas of Southwest Airlines

Southwest Strategies
-

Low cost/low-price/no frills strategy


Tagline : Freedom to Fly
Fare promotions to stimulate ticket sales on flights that otherwise would have had
numerous empty seats
Bags fly free
Shrewd practitioner of the concept of price elasticity, proving in one market after another
Southwest designed a carefully route system to concentrate flights between pairs of city
to allow Southwest sizable number of daily flights (Point-to-point scheduling of flights)
Southwest frequent flyer program and giving a reward

Standard Awards; accumulated 1 free round-trip after 16 credits within 24 months


Companion Passes; accumulated 1 free round-trip after 100 credits within 12
months

Strength

SWOT
MATRIX

Opportunities

Strength
Opportunity

Mostly of
passengers like LCC

because of the lower

price. So Southwest
airlines still could
develop their position
in the airlines industry

The development
of technology to create
IT innovation

Threats

Rising labor cost


and fuel cost
Competitors offer
product and services
like Southwest
Airlines
The new LCC
Airlines
Terorism

The first major


airline to introduce
ticketless travel
Operated only one
type of Boeing
Point-to point
scheduling
Develop good
strategies to expand
the business
25 minutes
average turnaround
time

Still focus on LCC


Operated the other
type of
Boeing

Strength
Threats

Keep promote the


new
facilities and
features to
customers using all
kind of media
Try to find another

Weakness

Little room for


strategic
management
No establish
alliances with other
airlines
No international
flight

Weakness
Opportunity

Southwest could
strengthen its
position through an
alliance
Make innovation in
technology

Weakness
Treats

Create barriers to
entry
with
implement
innovative strategies

Government
regulatio

supplier that can


reduce operating
cost

The threat to lose some of Southwests frequent customers is caused by five factors:

Recheck-in baggage: Passengers with connected flight who are going to switch to another
airline have to pick up their checked baggage and recheck-in with the next airline.

No assigned seats for passengers: Southwest used first-come first-served system in seats
assignment, which means people who arrived first will get the better seats. This is an issue
because passengers might easily change their preferences and fly with other airlines. For
example, Liz Bast is a frequent customer of Southwest Airlines, but because she is always
busy she comes late to her flights and the company cannot offer her the seat she wanted.
Lizs problem will be solved if she could book a specific seat and this service is not valid at
Southwest Airlines.

Rewards count on trips number: there is no credit given to passengers on how many miles
they flew, but free flights are offered according to the number of trips taken. Therefore,
customers could choose Southwest Airlines for only short flights because the length of flight
is not a factor in the company reward system.

Restricted fare tickets: Passengers with restricted fare tickets cannot use their tickets if
they missed the flight without paying the difference even if they were frequent customers.
This strict policy gives the customers a feeling that the company does not value their
business.

High competition in the industry: 2001 was so difficult for airlines industry, the
Southwests competitors might be thinking of attracting its loyal customers for their benefits.

Advantages and Disadvantages of Potential Solutions


First Solution: Southwest Airlines makes an advertisement campaign, which emphasizes not
only its low fare but also high quality customer service.
Advantages:

It will help increase the companys image and awareness.

If the company construct a good advertisement campaign, it will increase its sales and
that will lead to increase the companys revenue

It will be a good communication tool for the company to reach out to its costumers and
let them know about the companys value.

Disadvantage:

The campaign might increase sales, but it would not give what frequent customers really
want.

The campaign will be costly and it is possible for Southwest to spend a fortune on it and
get a little profit.

Second Solution: Southwest changes its policies on seat assignment and ticket restrictions in
two ways:

By paying $25 extra fee, the customers can choose their seat.

For frequent customers, who have flown more than five times per year, there will be
no charge on their restricted fare tickets if they miss their flight.

Advantage:
Using this strategy we think that Southwest might retain costumers who expected to be
treated with some priorities or differentiation. Likewise, we consider that with this strategy the
company might increase its incomes, and also attract some clients of its competitors.
Disadvantage:
The company identity will be changed from an egalitarian company to a privilege one.
Therefore, this policy might confuse clients about what the real target is.

Findings
The Southwest Airlines major problem is the threat to lose some of its frequent customers. The
case illustrates two opposite kinds of frequent passengers:

The first one is William Mark, who loves almost everything that Southwest
provides such as: the opportunity to come earlier and have a great seat, the
absence of meals, and the ticket prices.

The other one is Liz Bast, who loves the policy of using minor league airports, but
has complaints related to the ways of seat assignment, the rules about upgrading
restricted tickets, and she wishes to have preferential treatment, especially
because she flies more than 100.000 miles per year.

The customers like Liz Bast might be looking for another airliner company. Therefore,
Southwest needs to figure out one strategy which helps to avoid this problem.

Recommendation:
We suggest the second solution, which is to change the companys policies on seat assignment
and ticket restrictions, for five reasons:

First, the main problem will be solved by giving clients, such as Liz Bast, the
opportunity to decide their seats with extra fee. In addition, this solution will
keep the companys customers more satisfied and at the same time increasing
their loyalty.

Second, solution number two will increase the companys revenues.


According to The Wall Street Journal1, by receiving extra fee on assigning
seats, Southwest could add seven hundred fifty million dollars
($750.000.000) in its year revenues.

Third, if you take a look at first solution, you can see that it will increase the
awareness of the company products, offers, and strengthen the companys
image. However, it will bring more costs to the company by spending more
money on its advertising campaign

Forth, it is a long-term solution. By giving an advantage to the customers who


make their reservation earlier, Southwest will strengthen its position among
competitors, and the major problem will be solved.

Finally, with the second solution, Southwest airlines should focus more on its
customers reward system and improve it. Moreover, in a very competitive
sector where Southwest operates, it must rely on customers loyalty and with
such reward system it should attract more customers.

Вам также может понравиться