The Strategy Analysis of Southwest Airlines Company

Résumé du document

In 1996, Southwest Airlines was a successful and profitable low-cost airline company, operating in south-eastern US markets. After entering the Florida market, the company had to face certain strategic challenges. It was a big challenge to maintain the profitability while competing with all the north-eastern airlines in a highly competitive area.
In a bid to figure out the major challenges and strategic alternatives for the Southwest airlines, firstly, we studied the external environment of the company, in order to analyze their position and relation with the different players in the industry. Then, we analyzed Southwest Airlines' internal environment, such as its main resources and capabilities, in order to define the core competencies they could rely on to face their strategic challenges. Finally, we figured out what were the strategic alternatives they had, which would help them to maintain their successful position in the US market

Extraits

[...] Another strategic alternative could be to create a partnership with one of the airlines already operating in the north-eastern US market. The other airline would thus benefit from Southwest's clients while helping Southwest widen its range of destinations. This partnership could be done in the following way: the airline partner and Southwest could share planes, or fly in turns, and reservations could be made through both the companies. Southwest's interest here would be to associate with a company which doesn't have big a market share, and thus could be willing to experiment this. [...]

[...] Secondly, people developed a higher interest for travelling, in their own country or in the rest of the world. As travelling by plane had become much easier than before, with more cities served and a highly enlarged network, the time factor became more important and people wanted to travel faster, which was only possible by travelling by plane. Socio-cultural changes had a huge impact on the attractiveness of the airline industry and led to an increasing travel demand Political/legal The Airline Deregulation Act, signed in the end 70sby the American President stands for a complete change in airline industry. [...]

[...] With time, labor became more expensive in all sectors and in air craft industry as well. A service oriented business like the airline industry is very much personnel-intensively and therefore, increasing costs for wages and salaries has much impact on the airlines revenues, especially because the airline industry has quite a low profit margin. To summarize the economic influencing factors, airline industry is a rather cost-intensive business and there are several factors, which strongly affected the success of airline companies in a negative sense Global Increasing travel demand and stricter air traffic control lead to air traffic delays, which, for short distances, reduce the advantage of travelling by plane. [...]

[...] Fuel costs, one of the main cost factors, were not controllable and airline companies were highly dependent on fuel suppliers. The fuel crisis of 1979 and increases of the fuel price had high impact on the companies' profit. Facing high capital requirements for investing in additional airplanes, equipment in airports and administration facilities, airline companies' debt and therefore, long-term debt-to-capitalization ratios considerably increased. Furthermore, operation costs were highly dominated by fixed costs. Almost 80 percent of the costs were fixed or semi variable costs and not dependent on the number of passengers per flight. [...]

[...] The Southwest Airlines spirit with its ‘Positively Outrageous' service is also a source of good reputation. Architecture The airlines gives more importance for its employees' behavior : they can be rewarded for a good behavior or a great initiative, are subject to a training program, and profit-sharing for employees was decided as to involve more employees in the success of the company Capabilities and Core Competencies The combination of some of the tangible and intangible resources lead to the firm's capabilities: - The fact that the company has a fleet exclusively composed of Boeings 737 combined with highly motivated and trained employees and multi task crews creates the firm's ability to operate rapid turnaround at airports and therefore frequent flights (time management). [...]