Wednesday, April 6, 2011

Southwest Airlines strategy

Southwest Airlines strategy of focusing on short haul passenger and providing rates as low as one third of their competitors, they have seen tremendous growth in the last decade. Market share for top city pairs on Southwest's schedule has reached 80% to 85%. Maintaining the largest fleet of 737's in the world and utilizing point-to-point versus the hub-and-spoke method of connection philosophy allowed Southwest to provide their service to more people at a lower cost. By putting the employee first, Southwest has found the key to success in the airline business. A happy worker is a more productive one as well as a better service provider. Southwest will continue to reserve their growth in the future by entering select markets only after careful market research.
Southwest Airlines faced many barriers to entry from the fierce competition of other airlines in the industry. Though competition was fierce, Southwest Airlines managed to succeed by doing things differently. Their mission was to provide affordable air travel to those who would not normally fly. Contradictory to the rest of the airline industry, Southwest maintained a profit while keeping its fares low. Southwest was unique to the industry in two ways. They focused on the short haul traveler and used a point-to-point method of flight connections.
The short haul traveler is the backbone in which Southwest was built upon. The market for short distance airline flights was large enough to allow Southwest to maintain a profit for over 30 consecutive years. Shorter flight times allowed for more flights to take place per day. With the industry average sitting at one or two flights per day, Southwest set itself leaps apart by averaging 10 to 12. Maximizing utilization and minimizing ground time were the key elements to Southwest's profitability.
If the short haul passenger was the backbone of Southwest Airlines success, then their 737s were the lifelines that supported it. By choosing the 737 as the airplane for all of Southwest's flights, the company saved time and resources in training its employees. The crew could be easily substituted for one another due to the extensive training on the 737. Low costs and, therefore, low fares are an enormous competitive advantage, when combined with their high-quality and loyal workforce. A very unique culture was found at Southwest Airlines among all of its employees. The company generated a culture around prioritizing their workers over their customers. This family oriented atmosphere that was created enabled worker retention and customer service to skyrocket. Southwest was ranked number one among all major US carriers several times on a customer service as well as safety, price, on time performance, and baggage handling basis.
Though Southwest has many extravagant features to its organization, it does not go without some flaws of their own. Some of Southwest's prices cutting policies were also some of their weaknesses. Unlike their competitors, Southwest does not offer first class seats on any of their airplanes. This may have potentially caused Southwest to lose first class customers to rival airlines. Since their flight times usually run less that an hour, Southwest implemented the policy of not providing meals on their flights, another potential loss of customers. Also, around 1997, Southwest's fleet consisted of 47 737-200s. This model of the 737 has been replaced over the years with the 300, 500, and 700 series 737. Southwest's 737-200 had an average age of 17 years per aircraft. The age of their planes as well as the high maintenance costs were a considerable weakness for Southwest. Over the years, the gradual replacement of the 200 series gave Southwest the opportunity to reduce their costs by increasing fuel efficiency and slashing maintenance.
Always trying to stay a step ahead of the competitors, Southwest was the first airline to establish a home page on the Internet. The opportunity to service customers on the Internet is a great cost cutting tool for the present and future. It costs Southwest one dollar to book online versus around 10 dollars via a travel agent or somewhere in between the two for the use of their own reservations agent. Advances in technology provided many new options for the company. With the Boeing 737-700 model airplane being the most advanced of its class upon it release to Southwest in 1997, Southwest was stepping to the forefront again. These planes were quieter, more fuel efficient, and easier to maintain than their earlier 200 predecessors.
With the airline industry as highly competitive and as cutthroat as it is, the chance for the larger competitors such as United and American Airlines would follow Southwest lead by providing more short haul flights of their own. To their dismay, American and United being both in poor financial situations has made it extremely difficult for them to enter Southwest's niche in the market. A quick glance into Southwest's financial history, their net income has more then doubled between 1993 and 1997 alone.
Southwest Airlines has stood in a unique position in the airline industry since its inception. Making profits and maintaining employee job satisfaction have been the strongest aspects of their business. Southwest refuses to enter a market unless they can have at least 10 to 12 planes operating there immediately. These are examples why the company has continued to grow through their corporate strategy, using their competitive advantages, and unbeatable organizational culture to their benefit.

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