Business Strategy: Southwest Airlines
Introduction
Southwest Airlines has established its brand as a lost-cost air transport service provider spreading its wings across 58 states in the United States and the nearby international market. Herb Keller, the founder of Southwest Airlines, started the airline project with the ideology that getting passengers to their destination in time and at the lowest fare possible will always make them fly the airline. With this simple notion, the Southwest Airlines was born and has been able to gather traction in the US Airline industry catapulting it into the top five largest commercial airlines today.
Operating Revenue, Net Income, Load Factor and Trips Flown for 2014 to 2010 (Figures in $M except load factor)
Data derived from Southwest Airlines Annual Report 2014
Entry strategies used by Southwest Airlines Co.
Southwest Airlines biggest competitive advantage is its cost pricing strategy. The corporations cost leadership strategy that has enabled SWA to soar quickly through the ranks and be successful within a short time. The Airline industry normally does not experience revenue problems, but its main challenge is the cost problems. The Southwest Airlines curbs these costs by employing unique package such as no in-flight meals. In addition, the company’s fleet only consists of only Boeing 737s and provides coach seats rather than business and first class tickets like their rivals. These alterations to their operation enable the company to price its services very much against the transportation and the existing competition. SWA can go as much as 60% below competitive pricing points (Southwest, 2014). Despite these minor let-offs, the company does not compromise on quality and delivers top of the line services to its customers. The core competencies of the Southwest Airlines in establishing a market entry strategy revolves around increasing the number of passengers that travel a certain route. This enables the company to appeal to a different niche within the new market. Additionally, the company can also tweak the load factors to increase efficiency. Some of the tweaks may include higher than normal load factors and additional services to balance demand and supply. A good example where Southwest Airlines exercised their entry market strategies is on the Oakland-Burbank route. By quadrupling the passenger market, the Southwest Airlines were able to drive US Air and United in less than 3 years.
Industrial Life-Cycle stage of the Southwest Airlines Company
The industry life cycle of a business comprises of four stages; the introductory stage, the growth phase, the maturity and eventually the decline phase. The Southwest Airlines are quite dated but not as old as the KLM Airlines. Categorically the Southwest Airlines falls in the Maturity Stage of the industry life cycle. The SWA was established on 15th March 1967 in Texas and has started experiencing reducing sales growth. The company has ventured out in trying to find product mix and modifications by introducing the Southwest Cargo Services. Characteristics of the Maturity Stage are showing up in the Southwest Airlines with excess capacity and price markdowns, which consequently lead to a reduction in the price per unit.
Southern Airlines Corporate Culture
The corporate culture exhibited by a firm greatly affects the company’s performance in the long run. First, with the Southwest Airlines a team-oriented culture allows and encourages employees to collaborate and work together. In their employee training, the company puts specific emphasis on teamwork and pays little attention to individual work. Inspiring employees to work together whenever necessary has its positives and its negatives. On the downside, the employees may gravitate towards work relationships and neglect work related duties, eventually leading to poor performance, bad reputation, and low productivity. On the contrary, teamwork can enhance productivity when the employees strictly adhere to company protocol and perform work duties well. Secondly, like teamwork innovation in products and services is two-fold. Poorly implemented innovation can lead to failure while true innovation brings development into an organization. Finally, the customer-oriented culture shown by Southwest Airlines requires a high degree of fairness and support. The company identifies the customer as the most priced organizational asset and strives towards achieving a fun atmosphere in the workplace and employee recognition. In most cases, this translates to high customer turnover and high profits for the company.
Implementation of business strategy for Marketing, Human Resources and Other Operations
The Human Resource Department at SWA is committed to employing top performers who work and perform office duties as a team. In the urge to keep the employees happy as per their people’s policy, employee performances are recognized and reimbursed accordingly. Moreover, the company also offers professional development to their employees. SWA believes that a happy employee base would serve for longer periods reducing training and recruitment costs.
Besides these two sections, other crucial Operational Functions accompany the low-cost strategy and simultaneously attracts the customer. These include the use of one aircraft- the Boeing 737, product bundling policies that provide extra travel deals or hotel and car discounts. The bags fly free and pets allowed policies lure more customers towards Southwest Airlines. With more customers, the Airline can implement economies of scale to choke struggling rivals.
Why Southwest acquired AirTran Airways
Following the recent sluggish air travel industry, Southwest Airlines acquired the AirTran Airways to expand and to reduce the competition for few passengers. Airline analyst (Yang, 2007) establishes that eventually the fight between airlines would settle at 3 or 4 major airlines servicing the United States. By expanding further, the Southwest Airlines sought to put increased pressure on the larger international airlines who have long dominated the Northeast. This deal has seen the Southwest increase its network by 25 percent, attain an international foothold and debut in Mexico and the Caribbean. The merger or acquire trend is dominant in the air travel industry in order to stay alive, and it makes economic sense because a large fleet would make economies of scale feasible.
References
Southwest. (2014). Southwest airlines co. 2014 annual report to shareholders. Retrieved from http://www.southwestonereport.com/2014/
Yang, H. (2007). Airlines’ futures. Journal of Revenue and Pricing Management, 6(4), 309–311. http://doi.org/10.1057/palgrave.rpm.5160105
