Southwest Airlines (SWA) has been a strong growth company for the last 40 years mainly due to its focal point on cutting costs. Southwest Airlines (SWA) follows the Cost Leadership Strategy in terms of Porter's four generic strategies and is the epitome of Blue Ocean Strategy in its simultaneous pursuit of differentiation and low cost (Kim & Mauborgne, 2009.
That SWA is cost-focused is evident from Liang et al.'s (2009) analysis of strategies that a company uses to differentiate itself. A successful company stands out by its association in the public's mind, and SWA certainly stands out. Rollin King and Herb Kelleher's objective was: "If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline" (The Rise of Southwest Airlines) and its name, instinctively associated in public image, is synonymous with low cost.
Southwest currently has the lowest operating-cost structure in the U.S. domestic airline industry and consistently offers the lowest and simplest fare (The Rise of Southwest Airlines).
Over the last decade, as many airlines have been forced into bankruptcy, SWA has been able to override the recession, remain profitable, and continue to grow.
To ensure its future success, SWA needs to maintain its cost advantage as well as find a way to work through its weak nesses and deal with its environmental threats. Its weaknesses and threats (as well as strengths and opportunities) are outlined in the following essay. Recommendations are then presented for dealing with some of the weaknesses and threats that face the airline.
Southwest's endeavors to focus on low cost are a strand that runs throughout the airline in each of its four SWOT areas.
The airline is considered the best low cost carrier in recent years.
It has few unfilled seats
It dominates the short haul segment of the airline industry
It remains one of the most profitable airlines
Its low-cost, efficient operations translates to low fares/great value
In each of these ways, SWA plays on its resolution to cut-down costs and benefits as a result.
SWA also loses from its emphasis on low-cost as seen from the following disadvantages:
It offers few morning flights
No flights to international destinations
It is dependent on a single type of aircraft - the Boeing 73
It offers only one class of seating -- coach
It does not offer frills such as airport lounges, videos on board, etc.
It can only carry a small amount of cargo and freight
Since SWA represents a low-cost airline, it may well profit from the following predictable situations:
Growth of Hispanic population and the elderly generation - potential markets
Overall air travel is predicted to increase comparatively rapidly this decade
Longer flights are a growing market
New plane technology, such as the Dreamliner, will increase air travel
On the other hand, SWA's focus on low-cost also makes it vulnerable to the following predicted situations:
Fuel price increases could reduce air travel
New government regulations could make air travel more costly
Cost will likely rise since there are not many more areas for cost-cutting
Increased competition may hurt industry profitability (Southwest Airlines SWOT Analysis)
Southwest's strategic choices certainly align with their strategic strategy even to the point of disconnect with some of their other goals. For instance, SWA slants itself and has gained a reputation for its top-notch customer relationships. This was another one of Rollin King and Herb Kelleher's resolutions and SWA's brand promise is 'Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit' (The Rise of Southwest Airlines). Each and every one of its employees is aligned with this brand promise.
Nonetheless, when SWA found that some passengers had to order dual seats due to their girth, the airline pronounced that passengers who could not fit into the seats had to purchase an additional seat. This very unpopular move -- not only apolitical and potentially rendered insensitive but also contravening airline policy in general (to be polite to client at all costs), and Southwest's reputation in particular - nonetheless showed how SWA adhered to its focal strategy: to get passengers from point A to point B. with a minimum of frills in order to retain its low service. In fact, this incident just serves to highlight Algasae's (n.d.) point: the company's reactive response to competitors may make a company largely inward focused. This happened in SWA's case. Its low price strategy dominates all else. Competitors cannot match the airline's low prices, and as a result many of its competitors have been forced into bankruptcy.
The airline's challenges lie in achieving specialization whilst taking advantage of the opportunities provided by their environment and avoiding the traps that others fall for. Southwest airlines can do so by using its focal strategy to deal with its weaknesses and threats.
The weaknesses of Southwest include the following factors: the airline offers few morning flights and no flights to international destinations; it is dependent on a single type of aircraft - the Boeing 73; SWA offers only one class of seating; and it repudiates frills. All of this is due to the airline's focus on cutting costs.
Southwest Airlines can shore up its weakness and leverage its strengths by using its focal strategy to deal with its weaknesses. It can, for instance, develop a two-tier pricing system (as it did in 1972) thereby extending its flight destinations, offering more seats in the morning, and, perhaps, offering more than one class of seating thereby diminishing its risk of offending passengers. In 1972, after an experiment with U.S.$10 fares, Southwest had decided to sell seats on weekdays until 7 p.m. For U.S.$26 and after 7 p.m. And on weekends for U.S.$13. Similarly, in that same year, Southwest offered travelers the opportunity to pay U.S.$13 or U.S.$26 and receive a free bottle of liquor. As a result, more than 75% of the passengers chose the U.S.$26 fare and southwest became the largest distributor of Chivas Regal Scotch whisky in Texas (Freiberg & Freiberg, 1996). SWA can implement that same strategy now. Not only would they not lose but they may even be profitable.
In a similar way, the company can take advantage of environmental opportunities and minimize environmental threats by altering its strategic choices.
Some of the threats are the following:
1. Increase in oil prices. SWA can minimize the effect of oil prices rises by hedging their oil purchases and operating the aircraft efficiently. This would simply involve a different point of focus in its cost-cutting strategy. It needs to work on improving its non-fuel cost management and can do so by focusing on non-fuel costs such as maintenance and labor. These are easier to control than the other operational costs that SWA faces.
The airline can also control the efficiency with which it uses its fuel by, for instance, investing in newer and better equipped airplanes. In 2003, SWA added Blended Winglets to the wings of its aircrafts to help improve fuel efficiency. It can, similarly, add newer parts to old planes, or, better still, purchase new planes to replace the less efficient older models.
2. More than 40%of SWA's costs are attributable to unionized-demanded salaries, wages and benefits (more than 80% of their employees belong to unions). Given SWA's reputation for flexibility, this may well increase. SWA can take a harder position and establish a hard bargaining position from the beginning refusing to make further concessions (Bundgaard et al., 2006))
There is no doubt that Southwest Airlines has mainly succeeded due to its focus on cutting low prices. In fact, SWA has managed to topple many a competitor…