Introduction
Southwest Airlines is a major US based airline that provides high frequency short-haul services. The airline began its operations in 1971 with a few Boeing aircrafts serving only three cities in the US. Today, Southwest Airlines is one of the largest airlines in the United States, and operates close to 300 aircrafts to 60 cities. The airline’s rapid growth is partly due to its low-cost strategy and efficient customer services. Although the air travel industry has previously suffered a series of drawbacks, Southwest Airlines has always remained resilient. The company’s mission objective is to embrace high quality of customer service with a sense of personalized attention and friendliness.
Southwest Airlines was established when its founders realized there was demand for frequent travel between cities. They quickly exploited the opportunity by providing a quick and convenient form of transport. To date, the airline has weathered through several competitive barriers, economic risks and legal challenges to be a leader in the industry. Southwest Airline’s primary source of competitive advantages and success is the low cost strategy. The company’s goal is to provide the cheapest air travel services between any two cities they serve. Motivated by the idea that customers can be satisfied when offered cheap options, Southwest Airlines has attained unparalleled success in a market dominated by large and well established airlines. Most of the company’s customers are price sensitive travelers, who are willing to forego fancy seats, direct routes and in-flight meals to cut costs. However, the company provides direct routes for a selected class of customers at a premium price. The bargaining power of customers is very low because Southwest Airlines flights are the cheapest in the industry (Jody, 2003).
The organizational structure of Southwest Airlines can be described as an inverted pyramid. The company’s executive management is at the bottom and plays a crucial role in supporting frontline employees who number about 35,000. This unique leadership style allows management decisions to be made by all employees in the company regardless of their positions. The company encourages junior employees to interact freely with senior management and to cultivate a spirit of innovative thinking without such constraints as title. The airline considers its employees the most important strategic resource, and has initiated a profit-sharing plan with them.
The company’s current strategic plan is to operate the most cost effective and highest number of point-to-point flights in profitable markets in the US. In the past, this strategy has generated strong returns despite stiff competition from rival industry players. In order for this strategy to remain significant in future, the company needs to enter new markets and increase the range of available seat miles. Already, the company has ventured into some of the most high-demand markets and established unmatched dominance on the major profitable routes. The long-term solution for the company’s success is to look beyond the US for more lucrative markets. For example, the company can enter into Mexican and Canadian markets because they can be serviced with minimal change to the company’s operational strategies (Alan & Mark, 2010).
Despite the company’s success in the domestic market, it is not without failures. The greatest weaknesses is that it serves only 29 states and therefore lacks the capacity to compete against large airlines which offer coast to coast flights or even international services. Moreover, Southwest Airlines has not adopted the hub system, which enables large airlines to cover more markets. Another weakness is that the airline has a preference for only one type of aircrafts, the Boeing 737. By being limited to a single aircraft type, the company lacks flexibility in case the aircraft model gets a bad reputation. For example, if a critical flaw is discovered in the Boeing 737 planes and they are recalled, Southwest Airlines will ground its operations and incur heavy losses. Thirdly, Southwest Airlines has failed to make its strategy difficult to duplicate. A possible drawback with the airline’s cost leadership strategy is that it can be easily emulated and duplicated by competitors to the point where it can no longer be a source of competitive advantages (Southwest Airline Website, 2006).
In addition to the above failures, Southwest Airlines face a number of risks that may make it difficult to achieve strategic objectives in future. One of these risks is the frequent increases in global oil prices. Jet fuel has been a major driver of profit margins in the airline industry, especially for low cost carriers like Southwest Airlines. Since 2011, oil prices have been increasing to the disadvantage of airlines as they are forced to increase air prices. Another risk is economic depression in the domestic market. Over the past few years, the US economy has been hit by a recession, making it difficult for most people to travel through air. Another risk is that the low-cost model adopted by the airline is not sustainable in the long run. High operational expenses can cut directly into the company’s profits because of the low cost strategy. Moreover, if major competitors introduce a similar strategy, they will eat into Southwest airline’s traditional customer base and cause a substantial loss of customers.
Southwest Airlines is in a strong financial position, which cushions its capital needs. In 2015, it recorded another year of consecutive profit in more than three decades. Since the global economic crisis of 2008 when most airlines have struggled to remain in business, Southwest Airlines has been able to maintain strong financial performance. Compared to the domestic industry average, Southwest Airlines’ cost per seat is 35% (ex-fuel advantage). This puts the company at a very competitive position over its major competitors including those that offer international travel services. Because of its high profit margins, the airline has a strongly favorable capital structure and thus has high growth prospects (Lauer, 2010).
Conclusion
Southwest Airlines has been a very successful company ever since it founded. Using its low cost, point-to-point and customer friendly operational strategies, the airline has been able to sustain considerable competitive advantages and remain profitable despite setbacks in the industry. Today, Southwest Airlines is positioned as a leading industry player and one of the strongest airlines in the US domestic market. While most of its competitors have reported massive losses, Southwest Airlines has recorded impressive profits and continues to grow. To ensure future success, the airline needs to maintain its cost leadership strategy and focus its vision on new opportunities for growth. In particular, the company should expand the number of states it serves and the aircraft models it operates. It is also important that the company considers foreign markets especially in the neighboring countries of Mexico and Canada.
References
Alan, R. & Mark, E. M. (2010). Pacific Southwest Airlines. Chicago: Arcadia Publishing.
Jody, H. G. (2003). The Southwest Airlines Way. New York: McGraw Hill Professional.
Lauer, C. (2010). Southwest Airlines. Boston: ABC-CLIO.
Southwest Airline Website (2006). Company History. Accessed 21 March, 2016 from http://southwest.com/about_swa/airborne.html
