southwest airlines paper11
TRANSCRIPT
The strategic management analysis
------ Southwest Airlines
Team members:
Han Zhijun (Hannah)
Wang Zheng (Elaine)
Song Guiqi (David)
Contents
1. The situation analysis of Southwest Airlines
1) The analysis of US airline industry
2) The current organizational context
2. The SWOT analysis
1) Strengths
2) Weaknesses
3) Opportunities
4) Threats
3. Porter’s five-force analysis
1) Current rivalry
2) Potential entrants
3) Bargaining power of buyers
4) Bargaining power of suppliers
5) Substitute products
4. General environment analysis
1) Economic
2) Demographic
3) Sociocultural
4) Political legal
5) Technological
5. The future development
The strategic management analysis
------ Southwest Airlines
Southwest airlines is a domestic US airlines that primarily provide point-to-point,
low-fare, high customer satisfaction airline services. The company operates only in
the US. In airline industry, it set a record which 36 consecutive years of profitability.
Next, this article will analyze the key of success and strategic management of
Southwest from four aspects.
1. Situation analysis
The analysis of US airline industry
With high fuel costs, dire economic conditions, enhanced security measures and the
shock of September 11th, US airline industry is facing big challenges. In addition, the
emergence of the other two airline companies, America airlines and Delta airlines,
making the competition becomes more and more brutal. In such a complex and
volatile situation, Southwest has maintained its competitive leadership position. It not
only set a record that its 36th consecutive year of profitability but also continued
leadership in customer satisfaction as it once again received the fewest customer
complaints of all airlines.
The current organizational context
Southwest’s overall strategy was to minimize total travel time for customers,
including ticketing and boarding, and to provide service out of airports convenient to
doing business or vacationing in a city. In order to better implement this strategy, it
serves primarily short- and medium-haul routes with single-class service targeted at
business and leisure travelers. [1] In addition, the keys to Southwest’s success includes
the following several strategic factors.
Low-cost advantage
Southwest has enjoyed a significant cost advantage compared to the other traditional
carriers, and low operating costs continue to be one of its competitive strengths. It
mainly includes the following three factors.
One important element of low-cost is its use of a single type of aircraft-the Boeing
737-that allows for simplified scheduling, operations, maintenance, and training. At
the same time, the company also has outfitted its fleet with fuel-saving, performance-
enhancing blended winglet. [2]
Another operational strategy that has allowed Southwest to keep costs low is the use
of technology, especially automated processes. It was the first airline to offer a
ticketless travel option, eliminating the need to process and then print a paper ticket.
Moreover, as one of the first airlines to establish a Web site, southwest.com continues
to be the number one airline Web site for sales and revenues. [3]
The third factor is that it chooses smaller and less congested places as airports and it
achieves low cost by flying from less popular and expensive city airports in the USA.
Legendary customer service
The mission of Southwest is dedication to the highest quality of Customer Service
delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
[4] All employees who work in Southwest contribute to their efforts for achieving this
mission. From baggage handling and passenger safety to delays and cancellations and
getting a refund, this company has been working to perfect these details in order to
make customers satisfaction.
After 40 years of service, Southwest Airline, is the USA’s leading low-fare carrier,
continues to differentiate itself from other airlines-offering a reliable product with
exemplary Customer Service. It is the most productive airline in the sky and offers
customers a comfortable travelling experience.
2. SWOT analysis
Strengths
As one of the major low cost airline leaders, Southwest is very famous. Because
of its low price strategy, it has a batch of stable and loyal passengers.
Using technology, especially automated process in order to reduce customer
waiting time.
Southwest only purchases Boeing airplanes to reduce costs in operations,
maintenance and training and gets discount on the purchase
It is known to be one of the most profitable airlines in the intensely competitive
industry- 36 consecutive years of profitability.
It has a positive organizational culture and encourages a positive and warm
employee culture. Its people are its most valuable asset.
Weaknesses
Due to only offering single-class seating service, it lost some passengers who
prefer to business class or first class seating arrangement.
Southwest’s market positioning is short –and –medium-haul routes, so it has a
weakness in offering international flights.
Having a reduced amount of maintenance and inspection can lead to irresponsible
employees. It led to the company have the risk of litigation.
Opportunities
Facing with the globalization of world economy, Southwest has a lot of
opportunities to expand to many national and international markets that are still not
covered.
Because of technology updating, it can get the latest technology that would give it
a further cost effective lead, as well as providing new products and services.
Southwest may expand the scope of target customer to leisure or business classes.
It was the first to offer senior discounts, ticketless traveling, and services for air
freight delivery.
Threats
Due to the impact of economic crisis, the number of travelers for leisure is
reducing.
With the increasing of terrorist attacks, more of threats being made for air travel.
Annual airline security cost increment.
3. Porter’s five-force analysis
Combining with Southwest, we will use Porter five-force model to assess its specific
environment.
Current rivalry among existing firms
The airline industry is intensely competitive. Major competitors of Southwest exist
such as JetBlue, American, Delta, and United. There are four conditions that
contribute to intense rivalry among existing competitors. First, these competitors are
equally balanced in terms of size or resources. The competitors are strong, innovative
and low-cost such as JetBlue. Second, the industry growth is slow especially in
domestic. The marker share is fixed in native customers. Third, enormous fixed costs
lead competition to spread out the costs. Fourth, specialized assets lead to high exit
barriers. All the four factors result in intensive competition to Southwest.
Potential entrants
The barriers to entry are high in airline industry so that the threat of potential entrants
is low. There are two main entry barriers. First is tremendously capital intensive.
Second is government policy for example heavily regulated and taxed. The two
sectors make potential entrants to think twice when they want to enter into the airline
industry. It is opportunity to Southwest.
Bargaining power of buyers
The bargaining power of buyers is high in the airline industry. First, customers face
low switching costs. The airline industry is quite cyclical as much of passenger travel
demand is discretionary. Second, customers can get enough prices and fly schedule
information through various ways such as internet agency. These two factors can
make airline industry must pay more attention to customers requirements. Providing
low-cost and high quality service attract more consumers. It is what Southwest has
done.
Bargaining power of suppliers
Southwest face threat in bargaining power of suppliers. First, the major supplier of
aircraft is domination by Boeing because Southwest uses single type of aircraft
Boeing 737. Second, there are no substitute products to fuel the plane. Fuel intensive,
with alternative energy sources unlikely, is subject to global political events. Third,
the above two main equipment and material are important input to airline industry.
Southwest will confront the huge cost problems. Although Southwest adopts fuel
hedging, it still faces the increasing cost problems.
Substitute products
There are substitute products in airline industry such as train and car. But there are
special characters in airplane for instance fast, comfortable and timely especially
during long distance. There are not-so-good substitutes for airline so that Southwest
will face low threats.
4. General environment analysis
Now, we will analyze the general environment of Southwest from five aspects as
follows.
Economic
The economic environment will take threats or opportunities to the industry. The
macroeconomic include interest rates, exchange rate, GDP, GNP, consumer income
and consumer confidence levels and so on. [5] The economic crisis will lead consumer
income down. It will reduce the number of travelers for leisure. So the airline revenue
will reduce. The international crude oil price fluctuation will affect transportation cost
of airline. Fuel price increase will lead cost increase. Fuel per gallon in 2003 is 72
cents, while is 2.44 in 2008. Southwest revenue was up while net income was down in
2008.
Demographics
Demographics consist of gender, age, income levels, ethnic makeup, education,
geographic location, family composition, employment status, and so forth. [6]As of
July 21, 2011, the United States has a total resident population of 311,799,000,
making it the third most populous country in the world. It is a very urbanized
population, with 82% residing in cities and suburbs. California and Texas are the most
populous states, as the mean center of United States population has consistently
shifted westward and southward. [7]
Leading U.S. population centers
Rank
Core city Pop.[32]
1 New York City, New York 8,363,710
2 Los Angeles, California 3,833,995
3 Chicago, Illinois 2,853,114
4 Houston, Texas 2,242,193
5 Phoenix, Arizona 1,567,924
6 Philadelphia, Pennsylvania 1,447,395
7 San Antonio, Texas 1,351,305
8 Dallas, Texas 1,279,910
9 San Diego, California 1,279,329
10 San Jose, California 948,279
2008 U.S. Census Bureau estimatesThe strategy of Southwest is to provide short-distance transportation. The company
wants to become the “air bus” for the office workers. Customers can take the airline
fast and convenient just like taking buses. According to the characters of American
demographic, Southwest focuses on employees living and working in different major
cities as the target market.
Sociocultural
Sociocultural sector encompasses traditions, lifestyles, values, attitudes, beliefs,
tastes, patterns of behavior and so on. Different countries have different cultural.
Southwest has special irreverent, fun and goofy cultural on customers. These
customers are mostly native. Now Southwest is pursuing code-sharing deals with
foreign carriers in Europe and Asia in order to expand its market beyond North
America. So there will be diversified cultural customers. The traditional fun cultural
of Southwest will face a threat. Southwest must modify it to adapt the various cultural
customers.
Political-legal
Political stability is a given in most countries, some still face volatile and unstable
situations. Political unstable can take bad impact on the industry development. For
instance, 9/11, terrorist threats cause less people to fly. The political risk will take
threat to Southwest because it will reduce the revenue.
Major political-legal concerns include taxation, minimum wage, which can have a
significant impact on the financial performance. Airline industry is heavily regulated
and taxed. Government regulation will increase the operating costs which will take
pressure to Southwest.
Technological
Technological innovations create opportunities for Southwest. Online booking, online
check in, self-service rapid check-in boarding pass kiosks make processes automated.
Southwest have Web pages where customers can arrange flight times, destinations,
and fares. And also, these web site and blogosphere advertise the service of Southwest
and attract more customers. Automated processes generate passenger revenue.
Through the use of technology, Southwest keeps the labor cost low.
4. The future development
As Southwest’s clear strategic positioning and objective, making it stand out in
aviation industry. In order to maintain a leading position and competitive advantage,
Southwest will take this opportunity to expand to greater regions and take over more
market share. We believe giving up some of the profit to cut the ticket price even
lower and upgrade hardware can open Southwest to a much larger market that will
bring more profit in future. In addition, Southwest has a huge human capital. The
company will more use of it, develop it, enhance human resources management and
corporate culture building work, making people better service the company.
Citing references:
[1] Mary Coulter, Strategic management in action, 5th:284
[2] Mary Coulter, Strategic management in action, 5th:285
[3] Mary Coulter, Strategic management in action, 5th:285
[4] Mary Coulter, Strategic management in action, 5th:286
[5] Mary Coulter, Strategic management in action, 5th:78
[6] Mary Coulter, Strategic management in action, 5th:80
[7] http://en.wikipedia.org/wiki/Demographics_of_the_United_States