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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:
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.
Forth, not offering assigned seating and preferential treatment on frequent fliers,
has led the company to have better ticket price.
Company History
1967
1971
Airline launches first route, connecting Dallas, Houston, and San Antonio
1973
1975
1976
1977
1978
1979
1981
1982
1990
1994
1996
2000
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
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.
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
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
Omaha
Sacramento
Burbank
Ontario
St. Louis
Chicago
(Midway)
Hartford/Springfield
Lubbock
Orange County
Cleveland
Houston (Hobby)
Manchester
Orlando
San Antonio
Spokane
Tulsa
Seattle/Tacoma
Tucson
Tampa
San Diego
San Jose
In selecting cities, Southwest looked for city pairs that could generate substantial amounts of
both business and leisure traffic
Southwest Strategies
-
Strength
SWOT
MATRIX
Opportunities
Strength
Opportunity
Mostly of
passengers like LCC
price. So Southwest
airlines still could
develop their position
in the airlines industry
The development
of technology to create
IT innovation
Threats
Strength
Threats
Weakness
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
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.
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.
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
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.