Southwest Airlines Paper

[pic 1]

[pic 2]

[pic 3]

Business model

Based out of Dallas, Southwest is known for their low fare flights, fast turnaround times, nonstop point-to-point routes, and unique management style. Their flights are often shorter and more direct than other airlines, averaging 65 minutes and fly between major cities. The airline flies 737’s exclusively and doesn’t offer traditional services other airlines do such as priority seating, inflight movies/television, or inflight meals. These factors allow for cost saving measures that in addition to their efficient crew and customer focused outlook, have led to their rise to one of the top airlines in the country.

Value Propositions

Flying with Southwest over their competitors offers many benefits to their customers:

• Low fares – the airline offers often the lowest fare price on nonstop, short haul flights
• Reliable on time departure and arrivals – consistently recognized for their reliability
• Simple – with only two fare options (regular and off-peak) prices are easy to understand with no hidden fees or complicated systems. No checked baggage fees
• Friendly – the organization stresses the importance of people, both those who work for them and those they serve. Flying with Southwest and intended to be friendly and fun
• Frequent Fliers – rather than a traditional rewards program, Southwest’s frequent flier club is based off of the number of flights you take rather than the number of miles – better catered to their business model of short haul flights (it would take much longer to earn free flights through a traditional approach based off of miles)

Strategy

Southwest has relied on the same strategy for many decades that many have tried unsuccessfully replicate: “low costs, low fares, and frequent flights”

• Minimizing costs: the firm has revolutionized minimizing costs time and time again, they do this through multiple steps:
• Crew – averaging 81 employees per air craft compared to 157 (United) or 152 (American). Utilizing 1 agent and <6 crew members for turnaround vs 3 agents and 12 crew members (leading competitors)
• Turnaround – quick turnaround of <15 minutes upon arrival compared to competitors average time of 35 minutes means more flights and more profits
• Overhead and Wages – both are kept low leading to larger profits: by not offering inflight meals or movies costs are kept low
• Geography: focusing on major cities and underutilized airports, Southwest is able to take advantage of highly trafficked areas
• Fleet: maintenance costs are kept under control by simplifying things and only flying one kind of aircraft – Boeing 737’s
• Low fares: simple two tiered low fare structure allows for quick, easy decisions
• Frequent flights: quick turnaround time of < 15 minutes allows for more frequent flights and more options for customers who need more flexibility
• People: one of the main areas of focus is the people hired to work for Southwest. The company is looking for color outside the lines type of people to represent their individual spirit and take care of their greatest commodity: their customers

major issues

• Competition: is heating up! Leading competitors United and Continental are outwardly trying to replicate the successful business model of Southwest by offering their own low fare/short haul flight services:
• Continental Lite: offering flights priced lower than Southwest’s. Struggled in its first year with many complaints from customers, flight attendants, and pilots. Turnaround times still too long at 30 minutes, no inflight services offered angering customers.
• United’s Shuttle: focusing in on west coast operations alone, the United Shuttle option was intended to cut costs for by 30%. However the internal culture is proving to be the biggest obstacle causing strife amongst workers and management.
• Growth: the company is growing so much that it is beginning to become difficult to control the ‘spirit’ of Southwest that the company relies on
• Outside Environment: How is the company going to handle the issues of rising fuel costs, industry wide hardships,

finacial analysis

From the onset, Southwest has managed to establish a competitive advantage with its low air fare and low internal costs. Due to their many cost effective approaches such as quick turnaround, low wages, simplified fleet, and lack of fringe benefits, they have been able to run at 20-30% lower cost than their leading competitors. On average Southwest operates at a 7.1 ¢ per mile cost structure, while their competitors are operating at 10¢ or higher per mile.