SOUTHWEST AIRLINE

Introduction

Southwest airline is US based airline and one of the leading industry in domestic market. It
established in March 16, 1967 and commenced operation in June 18, 1971. It carry highest
domestic passenger than other airline industry. Terrorist attack in September 11, most of the airline
found in problem due to the people was not willing to fly. In 1978 when President Carter signed
the Airline Deregulation Act. Due to this act, the new airline industry could easy to enter into the
market. And it creates fares to airline industry and financial impact on both established and new
airlines was enormous.

Southwest airline provide low cost fare to their customer and also flexible price system. In 1970
company purchase three Boing 737s and starts their service to three Texas cities. Southwest
management team found that there were two types of traveler one is time oriented and another is
price sensitive traveler. Southwest offers to charge $20 to fly between Houston, Dallas and San
Antonio, other industry offer $28 for same route. Southwest offer different service to their
customer like passenger pay $13 0r $20 and receive a free bottle of Liquor. Southwest was only
the only large airline to operate without major hubs. Point to point service provided maximum
convenience for passenger who wanted to fly cities, but insufficient demand could make such
nonstop flights economically unfeasible. It was not provide seat number to their customer but offer
first come first serve. This system is first and unique in airline industry and also help to manage
time and make fast service to their customer. If you can turn airplanes quicker at the gate and you
can have more fly more routes, it means you can earn high revenue. And Southwest airline catch
the opportunity and provide this system and success to earned high revenue than other airline
industry and it also help to reduce the fare charge and operating cost.

Customer satisfaction is the key success reason for any types of organization especially in the
airline industry. Southwest airline has low customer complain and it ranked fewest customer
complain as published in the Department of Transportation Air Travel Consumer Report. In 1999,
Southwest had 3300 flights per day, serving 64 cities, each plane flew about seven flight a day and
it helps to make employee cost per available seat miles was much lower than other major
competitors. Advance training provided to their employee occurred at the University of People at
Love Field in Dallas. Various classes were offered, including team building, leadership, and
cultural diversity. One of the key success factor of Southwest Airline is the employee satisfaction
and it shows in the low employee turnover about 7% is the employee turnover. It also provide the
employee profit sharing system and employee owned 10% of the companys stock. And it was
the first airline to introduce profit sharing to their employees.

Success Factors and reasons of success of Southwest

There is many reason behind the success of Southwest Airline and some of these factor explain
below:

1. Lower Fares Charges

Due to the lower fares charge led to greatly expanded demand for airline travel. In 1972 southwest
Airline was charging $20 to fly between Huston, Dallas and San Antonio whereas other airline
industries charge $28 for same destination. Hence low fare charges was the key reason to success
Southwest Airlines.

2. Low Operating Cost

About 80% of airline industry cost were fixed or semi-variable. And the only true variable cost
were travel agency commission, food cost, ticketing fees and the distance travel. Although
reducing operating costs was a high priority for airline. Due to Low turnaround time Southwest
Airline success to make maximum flight per day, about 7 fly per day through one Boing. And it
helps to reduce operating cost.

3. Two Tired Pricing Structure

Southwest develop a two tire pricing strategy. Because its management found that there were two
types of customer one was the price oriented customer and another was price sensitive customer.

4. Sell in Week Days

Southwest airline decide to sell seats on weekdays until 7:00 p.m. for $26 and after 7:00 p.m. and
on weekends for $13. And it helps to increase its sells.

5. Different Offer to The Traveler

Southwest offers to traverse the opportunity to pay $13 or $26 and receive a free bottle liquor.
Lower pricing, first come first serve, weekday pricing system and many more.
6. Point-To-Point Service

It helps to provide maximum convenience for passengers who wanted to fly between two cities.

7. Low Turnaround time

The time it take unload and waiting plane it for the next flight was about 15 minutes for southwest
and compare with other industries average of 45 minutes. And helps two make possible to operate
more flight per day and make more revenue.

8. First Come Firs Service

Southwest Airline did not provide any seat number and not wait for passenger. Traveler can seat
anywhere in the plan. It make fast service system and reduce turnaround time and help make
maximum number of flight in a day.

9. Service Change in 2007

In 2007, company introduce new services like World span reservation system, new fare categories,
include television monitors, power ports and new table and seats, corporate sales and allow high
status customers to board first.

10. Low Customer Complain

Since 1987, Southwest ranked first in fewest overall customer complain as published in the
Department of Transportations Air Travel Consumer Report.

11. Employee Trust

The employee turnover rate is 7%, it represent the employee satisfaction level. To make employee
satisfaction, Southwest provide profit sharing to their employees. Through the plan, employees
owned about 10% of the companys stock.

12. Advance Employee Training

One of the key reason behind the success of Southwest Airline is advance employee training.
Various classes were offered including team building, leadership and cultural diversity.

Hence, Southwest Airline is the US based Airline company which provide domestic service with
lower fare charges and many more facilities that make Southwest Airline success in airline industry
and make competitive advantage.
Issue and Problem of Southwest Airlines

Southwest Airline faced different problem and some of them are listed below:

1. Fuel Crisis

Due to the exacerbated by the ongoing war in Iraq and 2004 SARS epidemic, in 2004 fuel costs
were rapidly rising. And it also increase the operating cost of Airline industries.

2. Competition
October 1978 when President Carter signed the Airline Deregulation Act, it make easy for new
industry to enter into the market and it create competition in airline industry.

3. Operate Without Major Hubs

Southwest was the only large airline to operate without major hubs. It is necessary to manage their
route structure, the major airline maintained their operations around a hub-and-spoke network.
The spokes fed passengers from outlying their financial destination.

4. Labor Union

Employee unionized is not good for any company because company may face unnecessary
pressure from the external environment which is difficult to control. 87% of all employees were
unionized. Southwest pilot belong to independent union and not the Airline Pilot Association, the
union that represent the more than 60000 pilots.

5. Convince Passenger About Low cost

Southwest Airline face a problems was convincing passenger that its low fares were not just
introductory promotions but regular fares.

6. Customer Service/Safety

Southwest Airline did not provide any service to their late customer who did not willing to attain
their flight and some other reason they became late to attain their flight. Customer may discourage
and make negative image about Southwest Airline.

Above all are the key issue that faced by the southwest Airline. Southwest Airline is the biggest
airline industry in US and high revenue generate but if they want to make profit in regular basis
than they have to solve out above issue and make them success Airline Industry in US and all over
the world.

Analysis of the Issues

To solve out the above issue, we have to analyze the issue of Southwest Airline. We have to
analyze external and internal environment. We must have to use different tools and technique to
analyze the issue and problem of the Southwest Airline.

Porters Five Forces Analysis

To analyze the industrial environment of Southwest Airline and evaluate the competition faced by
the company, Michal Porters five forces analysis is very useful.

1. Competitive Rivalry

The competitive rivalry in airline industry has been increasing especially through mergers and
acquisitions. And the successful started up of JetBlue Airways in 2008 and Delta Air Lines, which
acquired Northwest Airline in 2008 and recently merged with United Airline.

2. Entry Barriers

There are high barriers to enter this industry as it require a large initial capital investment. In
conjunction with the price wars and low profit margins, it has become a difficult to make profit in
this industry.

3. Threat of Substitutes

There are many substitutes in terms of long distance travel such as cars, trains, ferries; and these
are usually cheaper. However, air travel has the absolute advantage in terms of time. Hence, the
threat of substitute is relatively low.

4. Bargaining Power of Suppliers

Boing and Airbus are the main aircraft suppliers for large airlines. Boing is the supplier of aircraft
to Southwest Airline. There are high switching costs for Southwest Airlines from Boing to Airbus
related to the training costs of pilots and training engineers to adapt Airbus aircraft. The bargaining
power of Boing is high.
5. Bargaining Power of Buyers
Consumers have high bargaining power which is mainly attributed to their price based preference.
Receiving the same service, the consumers will select the airline which offers them best value for
their money. Due to the widely available information technology tools, consumers have the ability
to compare flights services and prices before making their final selection. Since the switching
costs for customer is very low, the bargaining power of buyers is high.

Hence above all points deals about the industrial environmental analysis of Southwest Airline
industry.

SWOT Analysis

SWOT analysis explain about Southwest Airlines Strength. Weakness, Opportunity and Threat
that occur in internal environment and external environment too.

Strengths Weaknesses
Good relationship with union No flight for international
Good in safety record destination
Flexible price option Depend on single type of airline
Strong financial position Boing 737.
Opportunities Threats
Inter into international market Competition
E-ticketing fuel crisis
Longer flight are growing market labor union

Above all points deals about the internal and external environment of southwest airline and it also
represent the current situation of Southwest Airline

Solution and Recommendation

We can solve above issue by the use of different strategies and some of them are explained below:

1. Fuel Hedging

Airline Industry faced fuel crisis and to solve these type of problem Southwest have to inter into
fuel hedging. Southwest enter into hedging contract to mitigate their exposure to future fuel price
that may be higher than current price and fell secure for future fuel crisis.
2. Diversification
Diversification might spread companys resources very thin as it is faced with challenges in its
core business and thus pose high risk of failure.

3. Market Development
Company should develop their market to enter into the international market and also long
destination market. Southwest have make flight outside the US and reduce their risk of domestic
market that may occur in future.

4. Decrease Bargaining Power of Supplier

Company use only Boing 737 that why the bargaining power of Boing is higher. Hence company
also could use Airbus to decrease bargaining power of Boing.

5. Provide Hotel Facility to Delayed Customer

Southwest did not provide any facilities to late customer. Hence the customer of Southwest may
discourage with Southwest service. So the company should provide hotel facilities to their late
customer by charging certain percentage as services charge.

6. Promotional Activities

One of the key problem of Southwest Airline was convincing passenger that its low fares were not
just introductory promotional but regular fares. Hence company must arrange the promotional
activities so that customer believe the low price is not only introductory price.

7. Operate with Major Hub

To manage their route problem, the southwest maintain their operations around a hub-and spoke
network. The spokes fed passengers from outlying points into central airport the hub where
passengers could travel to additional hubs or their final destination.

Hence, above all are some strategy to solve out the above problem and issue that faced by the
Southwest Airline to continue as market leader in airline industries.

Learning Outcomes

We can learn different things by the study of the success factor of Southwest Airline industry and
the strategy that use by Southwest is not applicable for only airline industry, we can use in other
industry and make success. Some of the key learning outcome are as follows:
1. Changeable

To make success of any company then must have to change according to the changes in internal
and external environment.

2. Focus on the Need of Customer

Southwest mainly focus on the low price and compete their competitors. And the low price is the
actual need of customer. Hence any company want to be success they have to focus on the
changing need of customer.

3. Time Management

Southwest mainly focus on time management. It manage their turnaround time and make
maximum flight per day and earn more revenue.

4. Negotiation Power

87% of their employee involve on union. Hence good negotiation power maintain conflict and
restrict any intervention of union into company.

5. Focus on Customer Satisfaction

Every company have to satisfy the customer to survive into the market and compete with
competitors. Customer satisfaction is the main mantra for any company to be success in future.

6. Focus on Employee Satisfaction

Southwest the first airline to introduce employee profit sharing. Through the plan, employees
owned about 10% of the companys stock. It help to satisfy the customer and the employee
turnover rate was only 7% of Southwest Airline.

7. Resource Management

Southwest maximum manage their resources like fast loading, boring etc. and it also help to time
management of Southwest Airline.
Hence, to be a successful in any industries we have to focus on time management, negotiation
power. Resource management, changeable and the most important is change as per the change in
the need and test of customer. Southwest Airline is the US leading Airline industry because of
them focus on the changing need of customer like price structure. They found that the customer
have two types one is price-oriented and another is price sensitive. So we always focus on the
customer satisfaction and time management to be a leader in market.