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Module Code

Module Title Strategic Management

Module Convenor Dr. Julie Davies Academic Tutor

Coursework Title The Southwest Way Submission Date 16 August 2011

Word Count 3115

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093307 The Southwest Way 12 August 2011

2

The Southwest Way

Staying ahead of the game during a struggling economy

093307

16 AUGUST 2011

MODULE 4: 20MB04

STRATEGIC MANAGEMENT

DR. JULIE DAVIES


3

EXECUTIVE SUMMARY ___________________________________________________ 4

INTRODUCTION __________________________________________________________ 5

SOUTHWEST HISTORY AND CULTURE __________________________________________ 5

COMPANY ANALYSIS ____________________________________________________ 7

ANNUAL REPORT ___________________________________________________________ 7 PORTER’S FIVE FORCES _____________________________________________________ 8 SWOT ANALYSIS _________________________________________________________ 11

RISK ASSESSMENT & CURRENT TRENDS IN THE MARKET ________________ 13

RISING FUEL COST _________________________________________________________ 13 ENVIRONMENTAL IMPACT ___________________________________________________ 13

RECOMMENDATIONS ___________________________________________________ 14

DO NOTHING _____________________________________________________________ 15 DRASTIC OPTION __________________________________________________________ 16 MOST LIKELY OPTION ______________________________________________________ 18

BIBLIOGRAPHY _________________________________________________________ 20

APPENDIX ______________________________________________________________ 22

PORTER’S FIVE FORCES ____________________________________________________ 22 SWOT ANALYSIS _________________________________________________________ 23


4

Executive Summary

Using Porter’s Five Forces along with a SWOT analysis and Bowmen’s

Strategy Clock, this report will look at Southwest Airlines to discover why they

have survived in an industry which is notorious for failure.

Southwest Airlines started serving passengers in 1971 and has reported profit

earnings since 1973. The company adheres to a culture revolving around

keeping their employees and customers happy. Their strategy includes

making sure all employees follow these three keys in their daily roles:

1. Safety

2. On-time performance

3. Creating satisfied customers

Porter’s Five Forces model holds the Airline Industry as highly competitive

between legacy airlines such as American Airlines and Delta Airlines, yet also

makes it hard for non-US companies to enter into the market. Along with this,

consumers and suppliers hold the upper hand on bargaining power caused by

online search engines such as expedia.com and FAA regulations.

This report will also look at the risks this industry carries to see if the

recommendations can help improve these risks. The main risk factor is the

raising cost of fuel, yet the environmental impact of air traffic can cause the

airline industry to loss consumers to other forms of transportation.

This report will look at three options for Southwest Airlines that are

recommended for this organization to continue to compete in the market.

1. Do Nothing

2. Drastic Option

a. Enter into International Market

b. Enter into Ground Transportation

3. Most Likely Option

a. Enter into partnership agreements with other airlines strictly to

create bargaining power over fuel and aircraft industries


5

Introduction

The United States Airline Industry has been in decline for many years, in 2009

showing a negative growth of 13.7 percent (Datamonitor, 2009). During this

recession in the Airline Industry, one company is still making a revenue of

$10,350 million and a net income of $99 million USD. Not only has Southwest

been able to make a profit during these past few recessions, they have proven

to turn a profit for all forty years they have been running.

This report aims to take a looking into this Southwest Airlines to see how this

one organization can manage to still make a profit while most other

businesses in the industry are filing bankruptcy. While looking at the nature of

this company’s ability to maintain a profit, this report will also look at options

for this airline to continue to stay above all others in the Airline Industry.

Southwest History and Culture

Southwest Airlines opened their doors in 1971 to provide affordable air

transportation to consumers within three of the major cities in Texas –

Houston, Dallas and San Antonio. Since then Southwest Airlines has grown

to provide service throughout the United States with over 3,400 flights daily

(Southwest, 2011). In May of 2011, Southwest also acquired AirTran Airways

in hopes to expand their services further within the US market.

This American owned and operated airline prides itself on customer service,

even asking consumers to become a ‘citizen’ of Southwest. This ideal

Southwest portrays to their customers a way for them to feel more like part of

the organization instead of just a consumer. The Southwest citizen also

includes employees and suppliers to this company.

Southwest Airlines is committed to diversity in their culture, to the point that

they try to use suppliers who are ‘disadvantaged, small, minority or women-

owned businesses when they can meet our quality and cost objective’


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(Southwest, 2011). They also believe their employees and customers are ‘so

inherent to who we are as a company.’ (Southwest).

Heskett, et al. believes this way of thinking is the key to success. In a case

study done in 1994, Heskett shows how employee satisfaction increases

retention and productivity which will lead to customer satisfaction and loyalty,

turning into revenue growth and profitability. This is shown in the diagram

below.

Haskett goes on to prove this from analyzing the data of Southwest against

other major airline competitors, as Southwest is the only organization from

below which uses this type of strategy. Below are the graphs which show

even though Southwest made less revenue, they are the only company who

turned a profit.


7

This Service-Profit chain strategy correlates with Southwest’s mission

statement and is incorporated in their strategic plans to stay committed to their

mission and culture which insures there is no strategic drift.

Company Analysis

Annual Report

In May of 2011, Southwest Airline took a big step by acquiring AirTran

Airways to diversify their US market. The newest report for 2011 Quarter 2 is

the first report to include AirTran’s profits into the Southwest Airlines figures.

The total operation revenue for Q2 in 2011 increased by 30.6 percent to $4.1

billion compared to $3.2 billion for Q2 in 2010. However, total operation

expenses for quarter 2 in 2011 were $3.9 billion compared to $2.8 billion in Q2

of 2010. Southwest claims this is mainly due to the increase in economic fuel

cost per gallon which was 38.4 percent from last year (Southwest, 2011).


8

Porter’s Five Forces

Potential Entrants

The Airline Deregulation Act of 1978 (ADA) was originally meant to help

consumers by letting the US government take a step away from the industry

to let consumers determine fair market prices for airfare tickets. This Act,

however, also regulated who could enter into the US market, making it difficult

for non-US companies to penetrate. Due to Federal Aviation Administration’s

(FAA), along with President Kennedy, decision to limit the incoming non-US

based companies, this has keeps this market open for legacy airline

companies and some new airline companies.

Competitive Rivalry

Significant due to legacy airlines like Delta and

American Airlines

Buyers

In today market there are many ways for

consumers to buy the lows priced airfare. With search service such as

Kayak.com and skyscanner.com

consumers can easily find the lowest price

Suppliers

There are only two major aircraft

manufactures in the US market. Because of

this, they have a monopoly over the

industry for the larger planes and have more

name their price

Substitutes

Other forms of transportation such as bus, rail and car are prevalent in the

US, some offering cheaper alternatives

than flying

Potential Entrants

FAA has placed restrictions on foreign companies entering into the US Market

and therefore has limited potential

entrance

Bargaining Power

Treat of Substitutes

Treat of Entry

Bargaining Power


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Substitutes

There are many substitutes in the US market for air transportation. The first,

and probably most influential are cars. The US has a culture of road trips.

This along with cheap weekend deals for car rentals and an extensive

highway system, offer a direct competition to air transportation.

Bus Service is also a competitor to airlines as companies like Mega Bus offer

cheap one way tickets starting at as little as $1 USD. Also, services such as

Greyhound have an extensive service which will allow a customer to travel to

almost any part of the United States.

Although the US does not have an extensive rail service, specific regions such

as New England, contains many rail service options through Amtrak which will

allow consumers to travel along the east coast. These services stop at major

airports to offer transportation for customers to their final destination, who

might have otherwise flown.

Buyers

For the past decade, search engine sites such as kayak.com, skyscanner.com

and expedia.com have given consumers a bargaining edge. These types of

websites offer contemporary travellers the advantage to select airlines which

accommodate their needs regarding price, date & time, and which airline they

prefer to fly. Before the age of the internet, consumers relied on either their

travel agent or the airline to give them the best price possible. The growth in

technological advances has opened the doors for consumers to have a little

more of the upper hand.

Southwest, however, does not offer their flights on any of these services. By

skipping the middle man, in this case the travel agent website, Southwest can

offer lower fares direct to their customers. This has proven to be effective for

Southwest as they were considered the largest airline company in the United

States based off of passengers for 2009.


10

Suppliers

With the globalization of economies and industries, more companies are able

to offer their products to organizations they might not have been able to a

decade ago. Still, there are two key players in the aircraft industry which are

Boeing and AirBus. Although these companies do not work solely on

passenger aircrafts, they receive about fifty percent of their profits from this

part of the industry. With the FAA safety regulations, it is also difficult for new

competitors to come into this market which may be able to offer airlines better

prices (Tan, 2011).

Southwest Airlines prides themselves on supporting smaller community

groups such as minority business owners and business that adhere to their

concerns with environmental impact.

Competitive Rivalry

Legacy airliners are company which have been in the Airline Industry for a

while. Although Southwest Airlines in its self can be considered a legacy

airline, as it has been around for forty years, companies such as Delta Airlines

and American Airlines have created a significant competitive rivalry.

Although these airlines have an advantage because they are well known, they

work off a hub-and-spoke strategy. This strategy is good for long-haul

consumers, yet creates extra cost which is not accrued by Southwest Airlines.

With a hub-and-spoke strategy, most customers will need to transfer planes.

This transfer cost by adding time which the plane will need to be on the

ground to unload and reload both passengers and baggage. Southwest

works off a point-to-point strategy which uses the premise that most

customers will fly direct. By offering more non-stop direct flights, Southwest is

alleviating the need for items such as meals and drinks for long hauls. It also

reduces the amount of employees necessary to unload and reload both

passengers and their baggage.

New American based budget airlines can also enter the market to offer

competition against Southwest Airlines. These airlines, such as JetBlue,


11

follow some of Southwest’s strategic plans by flying into smaller airports and

catering to point-to-point consumers (direct flights). However, these airlines

fail to compete with Southwest for consumer relations, as they do not set the

culture which Southwest has managed to create for its company. In the US

markets, the costumer based relation is extremely important (Haskett). Off this

module, a budget airline for Europe or Asia, such as Ryanair, would not fulfil

the US markets need as they are more profit based by cutting cost rather than

profit based by creating customer loyalty.

SWOT Analysis

This portion of the report will use a SWOT analysis to take a look at where

Southwest Airline’s current stand is in the market and see where they can

improve. This analysis will help to give context to why the recommendations

for this report where chosen. This section will give an outline to pertinent

information which directly correlates with the recommendation. For a broader

overview of Southwest’s SWOT analysis, please see the Appendix.

Strengths

Southwest Airlines has many strengths, which is why they are already doing

so well in the Airline Industry market. Below is an outline of the strength for

Southwest which are relevant to the recommendations.

Customer Service Rated No.1 in Consumer Reports

Capital – Was able to acquire AirTran this year (rated No.1 in Air

Quality – Consumer Report)

2010 – 38th year of profitability

Lower expenditures by offering service to smaller airports

Average passenger load factor: 79.3 in 2010

2009 became largest airline in the world based off number of

passengers

Quick turnaround for planes on the ground reduces cost by having

less employees and offering services more often while utilizing less

aircrafts


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Weakness

Although Southwest seems to only have a few weaknesses, these areas can

provide opportunities for growth. Below is an outline of the weaknesses

related to the recommendations.

No diversification – most of their profits relies heavy on passenger

revenue

Only available to the US market

Opportunities

These opportunities below will take a look at what is currently in the market

and how the weaknesses of Southwest Airlines can take advantage of these

opportunities.

Partnering with another airline for purposes of buying fuel in larger

quantities for a cheaper price

Growth in air traffic

US Government does not let Mexican Airlines enter into the US

Market until they re-evaluate their safety protocols.

Threats

The threats listed will look at potential areas which can impact the

opportunities as well as how Southwest Airlines can utilize their Strengths and

Weaknesses to turn these threats into possible opportunities.

Strong rivalry

Fuel prices

Environmental impact of air travel is more prevalent, therefore some

environmentally concerned people


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Risk Assessment & Current Trends in the Market

Rising fuel cost

Most companies in the Airline Industry’s financial report will usually include the

rising cost of fuel as their major risk. Southwest current financial report for the

second quarter of 2011 stated the nature of their expenditures for this quarter

was largely due to the rise fuel cost. As you can see below, Brooks shows

how lucrative the jet fuel industry can be. Many airlines in 2008 tried to hedge

their cost for fuel and ended up paying a higher price.

Environmental impact

Along with rising fuel cost, there has been an up-swing in the knowledge of

the environmental impact air traffic creates. Peeters and Gossling state that,

Almost 80%of the greenhouse gas emissions released

through tourism-related transport. By 2020, the share of

outbound tourism trips based on air travel is predicted to

increase to 30%, accounting for almost 90% of all emissions

resulting from tourist travel.


14

Southwest Airlines has made their carbon footprint one of their top priorities,

stating in the 2010 Annual Report (One Report):

Our planet needs us to be good stewards of the environment.

While staying true to our low-fare brand, we operate with a

green filter, a mindset of making environmentally responsible

decisions, to do our part to preserve the planet.

Along with this, they have set up a mission statement regarding specifically

what their organization strives to do for the planet.

Recommendations

In order to determine which strategies will best suit Southwest Airlines, we will

need to take a look into where their position in the competitive market sits.

Bowmen’s strategy helps to demonstrate where Southwest holds the

competitive advantage.

1

3

4

5

6

7

8

High

High Low

Price

Perceived

Added

Value 2

The Strategy Clock: Bowman’s Strategy Options


15

This graph exhibits Southwest’s strength in the market place. They hold a low

cost yet a pretty high perceived value through their customer service. This is

easy to compare with companies like Ryanair who may be closer to option

one and two. Southwest will need to be careful not to start pricing wars where

as Ryanair is in constant price wars with other airlines such as Whizz Air and

Easy Jet. Below are three recommendations based off the Porter’s Five

Forces, SWOT analysis and Bowmen’s Strategic Clock.

Do Nothing

Since the time of Southwest Airline’s inception, the company has thrived in an

industry which is notorious for losing money. For most company, it will take at

least five years before they are out of the red (Harris, 2006), Southwest did it

in two. This is made known by the graph below which shows the Revenue

from Passengers from 1971 to 2008.

Passenger Revenue

-100

0

100

200

300

400

500

600

700

year

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Passanger Revenue

Southwest was able to achieve this by following a corporate strategy which

gives all employees the same objectives, listed below.


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1. Safety

2. On-time performance

3. Creating satisfied customers

With their current strategy, Southwest tends to be flexible and adapted to what

the customers needs are. If they were to stay with this strategic plan, they

would probably still do well in the short term. They would probably also

continue to create revenue reasonable well in the long term, but they may not

able to sustain this revenue income depending on market trends, cost of fuel

and other outside factors.

Drastic Option

Southwest has already drastically changed the airline industry by opened the

doors to a larger consumer market and tapping into customers who would

normally have used other forms of transportation such as buses, trains and

automobiles. With this is mind, there are only a few options Southwest

Airlines could follow which would be considered a drastic option while still

remaining in their core competences.

While taking a look at their SWOT analysis, Southwest’s main concern could

be that about 96 percent of their revenue is directly from passenger income.

With this strategy, if something where to happen to Southwest’s customer

base for the airline industy, they would easily lose their revenue stream. In

this case Southwest should diversify their market to incorporate other types of

revenue.

This diversification should stay within Southwest core competencies, since

they tend to do well in the area they already work in, which is passenger

travel. Therefore, there are two areas in which Southwest Airlines can

diversify their market while staying within their competencies.


17

Enter into International Markets

Since Southwest already is consistent with their airline service, they could add

short-haul flights to Canada and Mexico. The flights to Canada would only

link together areas such as Seattle to Vancouver and New York or Boston to

Montreal or Ottawa, Canada. The flights into Mexico would also only service

a few flights from either Texas or Southern California into major cities in

Mexico. As the United States government has already lowered Mexico’s

Airline Industry’s safety ranking (Borenstein, 2011).This move would allow

passengers in the US Market to travel abroad as well as open up Southwest’s

customer base to these regions.

Enter into Ground Transportation

By offering customer’s bus or train service, Southwest can compete with

services such as Amtrak and Mega Bus. This move would also allow

Southwest to enter into area where the airports are too small to use as a

point-to-point destination. The two services would work for different reasons

to offer their cliental passenger service.

The high speed train service would link destinations Southwest already flies,

into tourist destinations which Southwest may or may not already fly into.

These services, however, would not compete with Southwest current point-to-

point flights, as they would not have the same routes as the airline service

offers.

These train services would be routes such as Nashville, Tennessee to

Chattanooga, Tennessee or Memphis, Tennessee and Columbus, Ohio to

Cleveland, OH. Offering these services from a Southwest destination would

allow current customers the option to continue on their journey and still

maintain the fast plane turn over which Southwest is known for. This service

will also open the doors to new consumers who either do not like flying or did

not have Southwest service already in their region.

The bus service will provide service to smaller cities or towns which are in

more rural areas states such as Kentucky or Arizona which Southwest offers a


18

point destination to only one or two of the major cities of these states. This

bus service will pick up passengers from small cities such as Flagstaff,

Arizona and take passengers to the airports in the closest city with a

Southwest Airline destination.

These bus destinations would also cater to college students, as pick up points

can be centred on large campus in rural areas, such as Eastern Kentucky

University who nearest Southwest airline destination Louisville, Kentucky.

Both these options will help Southwest offer their consumers a more

environmentally friendly option as well as keep the company to their eco-

conscientious standard. This strategy will open Southwest to new market

bases and give these consumers a new way to travel.

Most Likely Option

The major risk of the Airline Industry, stated in most airline companies’

financial statement, is the rising cost of fuel prices and the lack of bargaining

potential. With the risk, the most likely option for Southwest would be for them

to enter into partnerships with other major airlines. As Brooks established,

hedging fuel prices is a very risk business. Most airlines had a higher price

per gallon with hedging rather than without hedge. Southwest Airlines is

obviously winning at the hedging game for 2008, but there long term contract

will soon expire and they will once again be looking for the lowest fuel cost

available.

This partnership would strictly be for bargaining power over the suppliers of

both fuel cost and with Boeing or Airbus who hold a monopoly in the Aircraft

Industry for larger planes. This partnership will help to subsidize the cost

Southwest is currently paying for these services and in turn increase their

profits.


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Conclusion

Southwest has managed to win in the game of the Airline Industry for the past

40 years. This organization has a very strong start to what seems like a long

term company. Sustainability may be able to continue with the good strategic

plan and forecast for the future. However, changes in the market can make

any business crumble and Southwest Airlines needs to be ready for it. All of

the recommendations above can help set Southwest up for success and

prepare them for the future.


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Bibliography Borenstein, S. (2011). On the Persistent Financial Losses of U.S. Airlines: A Preliminary Exploration. National Bureau of Economic Research, Working Paper 16744. Brooks, R. (2010). A Life Cycle View of Enterprise Risk Management: The Case of Southwest Airlines Jet Fuel Hedging. The University of Alabama Economics, Finance and Legal Studies Working Paper Series. [online] Available at: <http://www.cba.ua.edu/assets/docs/efl/WP_10-02-01.pdf> [Accessed 16 August 2011]. Datamonitor, (2008). Southwest Airlines Co. [online] Available at: <http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=7f03cacc-116e-4afc-87cb-befd41cb5967%40sessionmgr104&vid=6&hid=103> [Accessed 11 August 2011]. Daramonitor, (2009). Airline Industry Profile: United States. [online] Available at: < http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=6afd7b19-5763-46a9-85c0-97c6c157df06%40sessionmgr113&vid=17&hid=102> [Accessed 15 August 2011]. GAO – United States General Accounting Office, (1999). Airline Deregulations: Changes in Airfares, Service Quality, and Barriers to Entry. Reprot to Congressional Requesters. [online] Available at: <http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=b751660a-1292-49be-9317-a44d0603eb15%40sessionmgr104&vid=8&hid=102> [Accessed 15 August 2011]. Gittell, J. (2005). The Southwest Airlines Way. New York: McGraw-Hill. 3-122. [summery online] Available at: <http://scholar.google.co.uk/scholar?q=southwest+airlines&hl=en&btnG=Search&as_sdt=1%2C5&as_sdtp=on> [Accessed 09 August 2011]. Gossling, S. and Peeters, P. (2007). ‘It Does Not Harm the Environment!’ An Analysis of Industry Discourses on Tourism, Air Travel and the Environment. Journal of Sustainable Tourism. Vol. 15, No. 4, 2007, pp. 402 – 414. [online] Available at: <http://www.clima-net.com/docs/elibrary/articles/itdoesnotharm.pdf>[Accessed 16 August 2011]. Harris, T. (2006). Start-Up. New York City: Springer Heskett, J. et al. (1994). Putting the Service-Profit Chain to Work. Harvard Business Review, March – April 1994, pp. 163-174. JetBlue, (2011). Available at: < http://www.jetblue.com/flying-on-jetblue/> [Accessed 15 August 2011]. Morrison, S. and Winston, C. (1986). The Economic Effects of Airline Deregulations. Washington D.C.: Bookings Press.

http://www.cba.ua.edu/assets/docs/efl/WP_10-02-01.pdf

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http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=7f03cacc-116e-4afc-87cb-befd41cb5967%40sessionmgr104&vid=6&hid=103

http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=6afd7b19-5763-46a9-85c0-97c6c157df06%40sessionmgr113&vid=17&hid=102

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http://scholar.google.co.uk/scholar?q=southwest+airlines&hl=en&btnG=Search&as_sdt=1%2C5&as_sdtp=on

http://scholar.google.co.uk/scholar?q=southwest+airlines&hl=en&btnG=Search&as_sdt=1%2C5&as_sdtp=on

http://www.clima-net.com/docs/elibrary/articles/itdoesnotharm.pdf

http://www.clima-net.com/docs/elibrary/articles/itdoesnotharm.pdf

http://www.jetblue.com/flying-on-jetblue/


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Morrison, S. (2001). Actual, Adjacent, and Potential Competition. Journal of Transport Economics and Policy. 35 (2), 239-256. [online] Available at: <http://www.ingentaconnect.com/content/lse/jtep/2001/00000035/00000002/art00005> [Accessed 11 August 2011]. Porter, M. (1996). What is Strategy? Harvard Business Review. November – December 1996, pp. 59 – 78. Southwest Airlines. (2011). Available at: <http://www.southwest.com/html/about-southwest/index.html?int=GFOOTER-ABOUT-MISSION> [Accessed 12 August 2011]. Tan, K. (2011). The Use of Regional Airlines as a Barrier to Entry to Low-Cost Carriers. Department of Economics: The Ohio State University. June 2011.

http://www.ingentaconnect.com/content/lse/jtep/2001/00000035/00000002/art00005

http://www.ingentaconnect.com/content/lse/jtep/2001/00000035/00000002/art00005


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Appendix Porter’s Five Forces Threat of New Competitors

AirTran was a competitor and was acquired by Southwest in May 2011 JetBlue Airline also offers fares starting at $49 one way

o Only 1 free baggage (SW offers 2 free bags up to 50 lbs each) Federal Aviation Authority (FAA) regulations make is difficult for foreign

entry into the US market Threat of Substitute Products or Services

Megabus service offers cheap bus fares starting at only $1 Amtrak offers service easy accessible rail service starting at $49 in the

New England area Weekend car rental deals for half price

Bargaining Power of Customers (Buyers)

SW offers point-to-point flights to shorten the journeys o Decreases cost by not offering meals o Most customers fly direct (how many?) o Less baggage to transfer between aircrafts

No Business or First Class o Keeps the ‘Low Cost’ airline for consumers who would normally

travel via other lower cost transportation (ie bus or car) Realized the upswing of business travellers and therefore is adding

larger planes and more locations, such as Newark, to accommodate Offers special non-stop one-way deals starting at $49 Rapid Rewards to offer extra perks for loyal customers

o Many US airlines also have this scheme Search engines such as kayak.com and skyscanner.com can offer the

cheapest price tickets for most of the major airlines, giving some power back to the consumer on buying tickets

Bargaining Power of Suppliers

Two main jetliners (Boeing and Airbus) dominates the market o Gives these to organizations a competitive advantage as they

mainly need to compete against each other SW builds relations with their suppliers, saying they prefer to use

‘disadvantaged, small, minority or women-owned businesses when they can meet our quality and cost objective’

Intensity of Competitive Rivalry

SW offers point-to-point flights to shorten the journeys (rather than hub-and-spoke service)

o Decreases cost by not offering meals o Most customers fly direct (how many?) o Less baggage to transfer between aircrafts

No Business or First Class


23

o Keeps the ‘Low Cost’ airline for consumers who would normally travel via other lower cost transportation (ie bus or car)

Fast gate turn-around than rivals (only 15 minutes) Frequent departures Fewer aircrafts

o Less aircrafts to maintain o Less employees needed if there are fewer crafts

Strong legacy rivals such as Delta Airlines and American Airlines

SWOT Analysis

Strength Weakness

Customer Service Rated No.1 in Consumer Reports

Capital? Was able to acquire AirTran this year (rated no.1 in Air Quality – Consumer Report)

2010 – 38th year of profitability

Low cost by offering service to smaller airports

Average passenger load factor: 79.3 in 2010

Does not use travel agents to keep cost low which is passed on to the customer

Not many direct competitors offering service & price at similar levels

2009 became largest airline in the world based off number of passengers

Flexible jobs / positions that span boundaries

Quick turnaround for planes on the ground reduces cost by having less employees and offering services more often while utilizing less aircrafts

Does not use travel agents to keep cost low which is passed on to the customer – impacts marketing

No diversification – most of their profits come relies heavy on passenger revenue

Only available to the US market

Opportunities Threats

Business travellers

Partnering with another airline for purposes of buying fuel in larger quantities for a cheaper price

Growth in air traffic

US Government does not let Mexican Airlines enter into the US Market until they re-evaluate their

Strong rivalry

Supplier power – two main jetliners (Boeing and Airbus) dominates the market

Fuel prices

Environmental impact of air travel is more prevalent, therefore some environmentally cautions people


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safety protocols

are not flying

Business travellers – new technology such as virtual meeting

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