Strategic Management Assignment 2 Southwest Airlines 2002: An Industry Under Siege

Youngsik Han (20114203) Due Date: September 27, 2011 1. Is this an industry that you would want to be in? Why or why not? - Airline Industry is very competitive. And the return on the investment is low as much as 2.5%. From the one of the most profitable airline, Southwest Airlines, they have the ROA in 2001 6.5%. (Exhibit2 in case) The fixed cost to operate an airplane is very high and getting even higher because of the rising the fuel price. But the threat of new entrants is small because of the governments regulations of airlines after 9.11 incidents, high scale threshold and competitive price-war environment. Southwest Airlines shows that small player in the industry can make profit and grow continuously with its unique strategy. Southwest airlines low cost flights undercut the competition, which would fit under the threat of substitutes. However, after the 9.11, lots of airlines are having difficulties in operating including Southwest Airlines. Few of them make profit. Rising cost of the fuel, the environmental issues, the social problems like terrorism make the industry even harder. It is a very cool industry to be in, but I would like to be in a more profitable, less competitive industry. 2. What are the most important contributors of Southwest Airlines success? - Southwest Airlines competitive advantages are their point-to-point services which are generally targeting the frequent business traveler. They have the several regular flights per day, so that the customer can take the next flight if they miss the flight to destinations. This can be done because that the Southwest Airlines minimized the time of turnaround. The great efficiency operating the airplanes with a short turnaround could bring the lower fixed cost and more frequent flights. Southwest Airlines also used unique booking system, SABRE

system. This system made the customers book their tickets directly without having to check with an agent. The customers got the reusable plastic boarding passes instead of the paper boarding passes. They got their seats available based on the first-come first-serve rules. I believe that this simplicity and motivation helped Southwest Airlines to meet their departure time. This business strategy was something new in the industry and could have been the strategy which distinguished them from other airlines for a while because of the point-topoint routes and their culture. 3. How should management respond to its declined performance in 2002? - Southwest Airlines had difficulties to maintain their offerings because of the security matters mostly. They had to board extra luggage because the customer couldnt carry extra bags. They had to cross-check the names at the gate before boarding. These issues led them to take more time to get ready for fly. For short term, the managers should put more employees to help with these matters for customers. Even though the cost would increase for a short period of time, employee would be comfortable and require less man-power doing the same processes required. They also should tell customers that this extra inconvenience was for the customers security. They could compensate the customers inconveniences with extra snack or beverage offerings. 4. Do you recommend that it resume its historic growth rate? Why or why not? - (Long-term) Discuss SWA's long-term growth options and their trade-offs Yes. Southwest Airlines unique point-to-point routes business model has the advantages on this. They dont feel the much burden of over-growing. They dont have to care about the Hub that should be larger in capacity because they are growing so fast. They just can spread to more flights to more cities. The new cities and growth will not affect the business model and the strategic advantages they have. But this growth should be carried out when they are stabilized with the new short term challenges after the 9.11. In the long term, they have to be

careful with their loving culture and working environments. Their employees are the key success factor in their cost effective business model. If the company gets larger and larger, it could have problems of maintaining their own culture and be consistent with their business strategy. 5. Should it pursue a greater portion of long-haul flights? Why or why not? - For the recognition as a National-wide Airline, the long-haul flights are necessary. They will have some problems to pursue a greater portion of long-haul flights because it takes more time to get ready for flights. Passengers can feel uncomfortable without any offerings to fly at least 5~6 hour flight. However, the long-haul flights will attract new types of customers for Southwest Airlines. This also put some burden off from the short distance flights which could been replaced for a new long-haul flight. Passengers could have been taking 2~3 different flight to get to the long distance destination. The new long-haul flights will give the sense of the national wide service provider for Southwest Airlines.