1. To what do you attribute the success of Southwest Airlines? The success of Southwest Airlines was mainly attributed to their innovative high-volume, low-margin business model, which included cutting flight prices dramatically, using their fleet at maximum capacity, and entertaining marketing gimmicks.
Southwest’s flight structure took advantage of low-density airports and underserved areas and was comprised of a two-tiered pricing structure that books as many seats as possible per flight, ultimately driving ticket price down. In conjunction with flying their planes at capacity, Southwest was able to further cut overhead costs by contracting two-thirds of their fuel costs and offering a no-frills flying experience. One of the biggest factors in Southwest’s ability to cut costs was its fleet utilization at maximum capacity.
Prices start at $12
Prices start at $11
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Southwest was able to reduce loading and unloading bottlenecks that were caused by pre-assigned seating arrangements, decrease flight turnaround times, and increase the number of hours planes were airborne to 12 hours, four hours longer than the industry average. Southwest positioned itself well within the airline market by having low-cost fares and the shortest flight times between destinations but further enticed its customers through their LUV program that promotes employee satisfaction and individuality.
Southwest believes that by creating a pleasurable working environment employee happiness and satisfaction will trickle down to its customers. Additionally, Southwest began creating a one-of-a-kind experience for passengers by running holiday promotions, encouraging employees to dress up for holidays, and partnering with Sea World to create a Shamu plane.
2. How significant is the 10-15 minutes turnaround time of Southwest’s aircraft in terms of savings in investment and utilization of its aircraft compared to the competitors?
The 10-15 minute turnaround time is one of Southwest Airlines largest, if not the largest competitive advantage. Southwest invested in its fleet, the most expensive part of its operation, and by doing so was able to keep its planes and equipment in top mechanical condition and streamline its changeover process. Planes are airborne for 80 per cent of the day, which provides for far more convenient travel and flights in smaller, underserved areas where its competitors cannot operate sustainably.
3. What challenges is Southwest facing in the future and how should they meet those challenges?
The biggest challenge Southwest Airlines is facing is the influx of competitors such as JetBlue. The Southwest model works, and more and more airlines are shifting their model to mimic Southwest. With the influx of competitors, comes more competition for staffing and compensation. Turnover costs will continue to rise and severely threaten the low-profit margin business if Southwest cannot stay competitive in the labour market and industry.
In order for Southwest to keep its competitive advantage, it should research and create innovative ways to save on fuel prices, become more competitive in compensation packages, reach amicable arrangements among union groups, create open lines of communication between all staffing levels, and continue strengthening the LUV program to ensure employee satisfaction and loyalty.
4. What should their business and operations strategy be for the future? Southwest’s strategy has stood the test of time and is still a force with which to be reckoned. Southwest should continue its current strategy and pursue markets that are under-served and become the low-cost leader. If financially feasible, it should acquire other airlines that are in trouble due to the economic downturn, create customer incentive programs that promote loyalty and innovate wherever possible. While the company’s no-frills attitude satisfies customers, it leaves an entry point for other airlines to impinge on profits. Southwest must have a delicate balance between comfort and cost-cutting measures.
5. Will Gary Kelly, the new CEO, be able to maintain the profitability of Southwest Airlines while ensuring the continuation of their unique culture?
If he implements the future plans and strategies Southwest could continue to be profitable and sustain its unique culture. As the current CFO, he is uniquely positioned because he understands the current culture as well as the financial ramifications of any decision. He has years of experience with the company and if he continues to promote forward-thinking and progress, the company will be able to maintain its profitability.
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