The southwest airlines case study analysis essay is a unique and meaningful assignment that aims to examine southwest airlines from the perspective of an investor. In this paper, we will be analyzing southwest airlines as a company, their financial situation, and how they have been able to prosper in the past few years. We will also be investigating what factors led them to make certain decisions as an organization.
In the early days of airline travel in the United States, large network airlines were the only companies to provide air transportation. As a consequence of “intelligent customer segmentation, hub-and-spoke systems, and expensive information systems for reservations,” this multidisciplinary industry was tough to break into (Thompson 2008). Airlines’ ticket prices have been declining at an increasing rate.
Prices start at $12
Prices start at $11
Prices start at $14
Prices start at $12
Many markets were abandoned or overlooked by major network airlines; this is a market that a new “second tier of service providers” could enter into. This project showed that customers save billions each year as a result of it.
Southwest Airlines had the most domestic passengers flown by a wide margin. Southwest Airlines thrived on a first-quarter revenue and passenger load factor that was unrivaled in history. The formula for determining load factor is as follows: Revenue passenger miles divided by “the number of persons carried multiplied by the distance traveled,” divided by Available seat miles (the number of seats available for purchase times the distance travelled), divided by total flights taken during that period.
As of 2008, only parts of the United States were served by Southwest Airlines (Inkpen 2008). Dr. Grace S. Thomson explains that “a diverse mix of long and short-haul in every thing segments, passenger density, and per capita income at end points” gives Southwest Airlines a competitive edge. To establish a business in such a market as the airline business.
Southwest Airline exploited this truth to establish themselves as a national carrier (Keller 2008). Southwest Airlines has successfully served formerly insignificant areas. Southwest serves “64 cities in 411 non-stop city pairs,” according to Thompson (2008). Southwest Airlines was able to develop without straining its budget by saturating these markets.
There are four fundamental marketing concepts that any company must understand in order to succeed in the business world or environment, and they may be grouped into the 4 marketing P’s: product, price, place, and promotion. Southwest Airlines is an excellent case study for how to use the 4 marketing P’s to successfully expand a company’s customer base, income, and corporate growth while competing against other airline carriers.
Furthermore, in a highly competitive service industry such as airlines, those with creative pricing, location, offers, and products/services marketing have an advantage. The goal of this paper is to describe how Southwest Airlines distinguishes itself from the competition and how it has remained profitable despite fierce competition.
Southwest History and Background
Southwest Airlines began in 1971 after a four-year legal battle with its local competitors at Love Field airport in Dallas (Braniff and Texas International Airlines). The now defunct Braniff Airline and Texas International Airlines hindered Southwest’s entrance into the market, but it also steeled its resolve.
Southwest Airline’s reputation for fun and value was established by competing with them in court and later in a price-bruising battle, which forced the airline to create an operational model that could endure the industry’s difficulties and rivalry. And it did so, thanks to aggressive marketing tactics implemented throughout the low-fare to playful advertising centered on a “Luv” theme.
Southwest Airline was formed in 1967, with the intention of providing commuter service between Dallas, Houston, and San Antonio. Due to legal challenges filed by other Texas-based airlines including Braniff, Continental, and Trans Texas Airlines, the airline was unable to start commercial flights until 1971. When Southwest began operations to three Texas cities for the first time in 1971, it had only three aircraft and 25 employees.
In addition, the airline began to expand slowly after federal deregulation of the airline industry in 1978, gradually extending its services into adjacent southern western states and California, as well as the Midwest, East, and Southeast. Southwest Airlines also acquired Morris Air in 1993, which resulted in an increase in flight stations.
The goal of Southwest’s management was to limit the served market and offer frequent departures to a certain destination every day. To avoid the consequences of a missed flight, Southwest Airlines established an intense timetable for its flights routes, allowing the firm to retain tardy passengers. The basic strategy of Southwest Airlines, “fly eight flights and get one free,” was by far the simplest in the business.
The primary Business problem facing Southwest Airlines today is the increasing fierce competition from other airlines, such as Jet Blue, which offers cheaper fares than Southwest and is putting pressure on to remain at the top of the market in terms of price. Southwest Airline is a low-cost airline that has many rivals in the business and has successfully competed with major players such as American Airlines, Delta, and United Airlines, however it now faces new competition from a new set of airline discounters like Spirit Airways, Frontier, and JetBlue.
Strenghts of Southwest Airlines
Southwest Airline has a number of positive traits that set it apart from its competitors in the airline industry. There are, however, two key assets Southwest Airlines possesses that are both beneficial and necessary for any company to succeed and stand out: a) Human resource/talent management and b) Marketing Management/strategy. Human Resource/Staffing: Southwest Airlines is known for its outstanding recruiting efforts. The company and its employees work hard to market themselves as a firm that cares about its clients, which increases the client base of the business’s products.
Southwest Airlines also uses a few other techniques to help their employees develop. For example, the firm encourages employee initiative at all levels, and the company placed a great deal of emphasis on cooperative labor relationships, which were all managed by the company to improve its employees. To give good customer service to its customers, Southwest Airline created a unique marketing strategy or management that is suited for his business and airline industry, as well as one of their most essential marketing strategies is low fare prices that the firm provides to all of its passengers.
The company’s management discovered that there were two kinds of travelers: time- and cost-conscious leisure passengers. To cater for both types of customers, the business created a two-tiered pricing system. Southwest Airlines, on the other hand, still has some internal marketing issues to overcome due to the fact that it possesses some significant internal strengths that set it apart from its rivals.
Furthermore, integrating AirTran Airways’ lower-cost structure, operations, and culture within the Southwest organization may create difficulties in its marketing plan. In terms of the marketing problem that southwest faced when it acquired Air Tran Airways, First-class seats and in-flight amenities are unfamiliar to Southwest Airlines, posing a difficulty for the airline in promoting those new features without losing its appeal to consumers.
Southwest Airline’s prospects for growth have increased in recent years, but the company has maintained tight control over that growth. There are still opportunities for development available to the business. Southwest Airlines currently serves 98 destinations in 31 countries outside of North America, with 87 of those locations in the United States and Canada.
In 2014, the business launched its International operations and now services 11 foreign countries, with a concentration on Mexico, the Caribbean and Central America. There are a lot of options for the company to expand its international routes to another continent like South America, Europe, or Asia.
Furthermore, Southwest Airlines may choose to maintain its strategy of highly controlled growth in order to broaden its presence and compete with more competition. However, additional expansion possibilities for the firm also brings with it increased challenges in terms of company policy and competitive battles from other airline companies.
Southwest Airlines has been profitable for some time and has held a good ending position, but there are difficulties the firm must prepare for. The newly merged airlines (Delta/Northwest and Continental/United), which will face fierce rivalry, will be more efficient in their operations and services, posing a challenge to Southwest Airlines.
Furthermore, the introduction of new low-cost carriers like JetBlue, Allegiant, and Spirit Airlines, as well as increased competition from legacy carriers such as United Airlines and Delta Air Lines, will put pressure on Southwest to maintain its competitive edge without increasing fares. Another issue Southwest may have to deal with is that customers/clients have more options for flying at a lower price and in a more luxurious style than prior airlines.
Recommended Strategies and Tactics
This is a strategy for Southwest Airlines to boost sales of its services to existing customers by providing cheap fares and free entertainment on each flight, as well as free meals on routes that take more than an hour.
This strategy, which allows Southwest Airlines to expand and take advantage of new opportunities, by contacting new consumers and adapting your services to their demands, as well as creating new route markets that will entice new passengers to use the services of Southwest Airline.
Finally, I feel that adopting this strategy will assist Southwest Airlines in keeping its customers while also attracting new consumers to its services. Furthermore, I believe that short international vacation flights should be part of Southwest’s operations since they would attract new passengers who travel internationally for vacations while also keeping operating expenses low and making money.
Southwest’s main difficulty is poor management, as well as economic and airline competition in the industry. Rollin King, a San Antonio entrepreneur, created Southwest Company in late 1966. Lamar Muse was hired as CEO in 1967 and oversaw the company’s growth during its inception with Lamar Muse.
In 1971, Braniff Airways became the first airline to put its stock on the market by raising $7 million through an initial public offering. The firm acquired airplanes and airline equipment with this money. Since then, the business has grown into one of the most significant airlines in the United States, with a track record of 96.3 million passengers using its flights since inception. With 34,000 workers and services available in 64 cities in 32 states, the airline had a yearly profit margin of 9.9 billion dollars in 2007.
One of the major difficulties that the airline faced when it first began operations was political and legal ramifications on the company. In the 1970s, several legal issues were visible. When local officials from Dallas–Fort Worth regional airport in Texas filed a lawsuit against Southwest Airlines for failing to operate flights from its current location at Dallas love field to the newly established Dallas-Fort Worth regional airport, one of the legal challenges during this era was overcome.
When the airport opened in 1977, there was a need to finance the debt created during its construction. A legal dispute arose when several airlines from Texas’s smaller cities opposed Southwest Airlines’ services. The opposing airlines argued that they served these areas well and that the entrance of Southwest Airlines caused overcapacity. In 1978, Congress passed the Airline Deregulation Act, which made it more difficult for consumers to file lawsuits against carriers.
The airline’s leadership aspect, in addition to several other elements, was recognized as an essential problem that needed to be addressed. The paper presents southwest firm’s management of the situation. Kelleher assumed control of the company when he implemented a more social style of management.
He observed, listened to, and encouraged his staff. As a leader, he believed that one must treat his people as customers in order for them to provide better service to their consumers. The case study has been extensively discussed regarding Southwest Airlines’ strategic goals and implementation plan. Customer care and satisfaction, marketing and promotion, gradual expansion into new geographic markets, the introduction of flights, emphasis on safety, reliable operation and high-quality maintenance are all part of Southwest’s strategic objectives.
The company’s culture is based on the values of its employees and clients, which are recognized as the foundations for the company’s culture. The firm’s goal is to make air travel accessible while assuring job security for its workers while also providing outstanding service quality. The process of managing is concerned with recruiting, screening, and hiring new employees while maintaining good employee relations. Other activities include training, pay, and promotion. Southwest Airlines has encountered legal difficulties due to fierce rivalry in the airline industry. Rivals made numerous attempts to obstruct Southwest’s entry into the market during the company’s inception.
Another effective marketing technique is to run a low-cost airline as one of its tactics. The firm has chosen to emphasize flights that depart from less popular airports instead of congested airports, lowering costs for the business and resulting in cheaper fares for consumers. By expanding gradually into new markets, the airline may help it reach further areas with lower prices (Makishima and Paul, 2009).
By developing this plan, the firm has made sure that flight crew have excellent communication and interpersonal skills, which are critical in delivering appealing service to customers. To make passengers feel at ease throughout the flight, flight attendants have been urged to exhibit sociable traits and converse with them. Because the company has the financial means to invest in training, this may be a reality.
Case Study Report
Summary of the case study. Southwest Airlines began when Rollin King and Herb Kellerher formed it in late 1966. The company was created in 1967 by the Texas aeronautics commission. It began operations during these early phases of the airline, with services to Dallas, Houston, and San Antonio. Competitors in the airline business attempted to prohibit the new firm from operating during this period.
In 1971, the firm raised $7 million in an IPO and acquired new planes. The airline has struggled to gain market share since then. In the course of doing so, Southwest had to overcome hurdles created by its rivals. The aim of Southwest’s business strategy is for customers to receive a high level of service, marketing, advertising, and fair treatment.
Analysis of report
Industrial pressures are a major issue in the Southwest Airlines case study. The porters five forces model is a good way to illustrate these industrial forces.
Porter’s 5 Industrial Forces
Threats of new entrants: Because of the potential harm that a new firm may cause to market shares, it draws resistance from existing players and competitors. The existing businesses will respond in a manner that makes it more difficult for the new firm to grow.
Economies of scale, cost competition, and administrative hurdles may all act as barriers. Southwest Company experienced an exceptional rivalry in its efforts to enter the Texas market, for example. In Texas, rival airlines sought to block Southwest’s entry into the market in 1967, with a legal and regulatory lawsuit before the state’s Supreme Court.
Substitute product or service:
The risk of a rival’s goods or services is the most significant factor affecting customer choice. This is why threats from substitute goods and services will lead consumers to want to replace their products and adopt cost strategies. Southwest launched a twenty-dollar one-way fare that was less than the twenty-eight and seven-dollar fares charged by rivals, yet it attracted a small number of passengers.
However, the company’s ability to alter its products and services (adding new air hostesses, altering their crew’s uniform, and providing alcoholic beverages on daytime flights) attracted more customers to the airline, allowing it to build a strong brand name.
Bargaining power of buyers
Customers have a significant impact and influence on the firm’s goods and services. Customers may affect the kind of goods or services provided by individual companies when the market has strong buyers. The introduction of a twenty-dollar fare plan resulted in a tiny number of people signing up for Southwest Airlines (2009).
Bargaining Power of Suppliers
A company’s operations require raw materials, manpower, and other vital supplies to run effectively. This is why it’s critical for a firm to maintain good connections with its suppliers in order to guarantee operational consistency. In 1971, Southwest Airlines required to purchase three new 737s as the business expanded. Boeing agreed to sell the firm three jets at a reduced rate of $5 million instead of $6 million. The supplier also committed to finance 90% of the total cost of $12 million.
Rivalry among existing competitors
Rivalry among businesses operating in the same sector is caused by brand identity, market share, product distinctions, the prospect of new entrants, and periodic overcapacity, among other things. Southwest Corporation was involved in a legal dispute with another airline after competing in the market. Two rival airlines based in Texas opposed Southwest Airlines’ operations within the market and filed a lawsuit with the Texas Supreme Court.
Airlines in the 1970s protested southwest airline’s service of smaller cities in Texas, claiming it was unfair competition. The reaction of competitors is due to the danger to their market share, and they will use every means possible to keep other rivals out of their zone of influence.
Both internal and external conditions surrounding a business are evaluated in this study. Strengths and shortcomings are used to evaluate the internal state of a company, whereas opportunities and dangers are used to analyze the external environment in which it operates.
The brand’s performance has been consistently solid, with revenue reaching 9.9 billion dollars in 2007.
Because it has a workforce of 3,400 people, the firm has a substantial human resources advantage.
An expanded geographic area has services to 64 cities in 32 states, according to the airline.
There is a lot of material wealth on offer from Southwest Airlines, which has 527 planes and flies 3,400 flights each day.
Given its position as one of the largest airlines in the United States, Southwest Airlines has a well-known brand.The company culture is what you should be looking for.
- Passengers on an average weekday
- Low fares may result in low revenue.
- New flight paths that are clogged
- Expansion to new areas of the world
- New flight paths have been added.
- Competitors are putting up a stiff fight.
- Airline regulations are determined by national legislation.
- Threats of terrorism
- Natural catastrophes
- Crises, such as those that come about with predictable regularity, are another strain of calamity.
- Alternative Course of Action
It’s an essential concept to bear in mind when thinking about airline pricing. Cost leadership isn’t about producing little revenue; it’s about having a lower price than the breakeven point, where profit is realized while yet a big volume of consumers are acquired.
In order to reach a huge market, an airline must also advertise extensively. E-marketing is a cost-effective and yet effective approach to promote the airline. The airline’s brand name can be sold through internet advertisements. The company’s website may be used to make online bookings and reservations.
The company should establish a system for continuous training and development of employees in order to improve service delivery to consumers. In employee training programs, short courses on the most up-to-date best practices in customer care should be offered. The business may also pay for its staff to participate in seminars that will help them enhance their service management abilities (Wong and Nicole, 2009).
In order to compete effectively in the competitive airline business, an airline must be nimble in its operations. The development of products and services is critical. It’s a significant step for airlines to position themselves by providing free internet access and entertainment options for passengers during the flight using technology.
The finest approach for the firm to take is to begin planning methods that will guarantee consumer happiness. These tactics include product and service improvement. Any service or process that does not meet customer expectations loses value to the company since it is derived from the client that allows for revenue generation (Makishima and Paul, 2009).
The following recommendation may be effectively implemented via proper training and development in service delivery skills and procedures. Product and service innovation can also help to achieve this goal. The techniques may be carried out over a specific period, such as three years or five years, depending on the adoption strategy established by the firm.