Southwest Airlines is a company that has grown from a small regional carrier in Texas and surrounding states to the largest U.S.-based airline. The primary strategy of the company is to be the low-cost, no frills option for people wanting to travel within the United States. Recently, Southwest acquired another carrier so they will soon begin international flights to the Caribbean and Mexico. This paper discusses the company, its competitive environment, how it relates to external forces, and how the company has built and maintained its reputation with a creative internal focus.
Until recently the company has maintained a spotless maintenance record, but there have been several incidents that have worked to temporarily tarnish the reputation of the airline. Due to some faulty aircraft inspections, Southwest has had to rethink it maintenance program. Since the issue was connected with maintenance, the primary recommendation of this paper is to implement new standards which will work to re-instill confidence in customers. Also, the airline should also look to upgrading its fleet of airplanes to phase out older models and acquire newer planes which do not have the stress issues of the older planes.
External Analysis of the Environment
Macro Environment Analysis
The principle method used to analyze the larger environment external to a company is encompassed in the acronym PESTEL. The six elements that are comprised in the acronym -- political, economic, social, technology, environment, legal -- are meant to give the company a view of the overriding forces that effect industry. As of right now, Southwest primarily flies within the United States, so is only concerned with U.S. government and laws. However, the company recently purchased a small airline that has routes that fly to the Caribbean so will soon have to deal with those nation's political and legal guidelines. The U.S. political system is stable, and legally there are no issues that Southwest airlines will have to deal with either. Because it is the largest American carrier, there may be of some concern regarding antitrust, but that will probably never be an issue since the FAA regulates the ability of airlines to operate and will likely keep any monopolies from occurring. The economic environment has been difficult for about four or five years, but passengers are returning as the economy shows signs of a turn around. The social environment has become more complicated as flight remains an optimal mode of transportation, but due to social media customers have more control now than they ever have. Technology increases at a very rapid rate for both computer electronics, flight systems and planes. The company has update its planes recently and continues to be an innovator as far as systems and data are concerned. The environment is of major concern to all consumers, so Southwest needs to make sure that fuel consumption, building, flight plans and every other operation take that aspect into account. Southwest already has environmental initiatives in place which will help them to minimize their effect on the global green space.
Competitive Industry Analysis
The U.S. airline industry consists of approximately seven national carriers and several smaller ones that serve specific regions of the country. This analysis speaks to how Southwest compares to others in the industry. The industry economics are encapsulated in how much cost a particular airline incurs per passenger mile. As of the first quarter 2010 (last numbers available from the case study) Southwest's costs were lower than any airline other than Jet Blue. Unfortunately, all airlines have lost passengers, first after 9/11/2001 and then after the financial crisis began in 2008. Which means that all airlines have lost revenue. However, Southwest has lost far less than the other airlines and has actually jumped far ahead in number of domestic passengers carried. As a matter of fact, Southwest carries more passengers, according to the data in the case study, than any other airline even though they did not at the time have international flights. The main reason that Southwest was able to maintain the passenger and economic lead as compared to other airlines is because it has remained low frills and allowed other airlines to have expensive first class sections and "fancy frequent flyer clubs at terminals" which has helped maintain lower costs per flight.
Probably the most used analysis for the competitive factors that affect a company Porter's Five Forces model. The competitors in the industry have to be very competitive with one another because they are trying to get as many finicky people as possible to fly with them. There are different strata within the industry and Southwest is basically a budget national carrier competing against only Jet Blue nationally for that market, but more people are flying Southwest and leaving other airlines because of the incentives Southwest offers such as the "bags fly free" campaign. As for new entrants, there is always the potential that new regional carriers will take away some of the business generally designated to Southwest, but that is actually a small portion of Southwest's business since most passengers who fly Southwest travel out of their home region. Jet Blue is a significant competitor, but they have not yet been able to gain the rider-ship that Southwest commands. The suppliers are always going to make deals with the company that gives them the most business at the best price for them. Southwest, as the largest U.S.-based airline, can provide more business to suppliers such as those tht sell jet fuel so they generally are able to make better deals than other airlines. An example is that of hedging a majority of their fuel costs which is risky, but has allowed Southwest to save vs. The other carriers overall. The transportation that Southwest provides can only be rivaled by the rail industry, and that is not real competition. The reason is that the travel takes longer, and, even though it is subsidized by the government, cost a lot more for the same length of travel. It is basically a niche that some people enjoy and will always utilize. As mentioned before, the primary source of competition is the people who fly Southwest and can opt for a competitor. Air passengers have all the leverage in the industry and have shown it in the past by moving their dollars around. Right now, the greatest percentage of passengers are opting for the service that Southwest provides, but the people are finicky as mentioned before.
Overall, Southwest Airlines is very profitable and will remain so because of the advantage that they have gained with regard to the tactics used to secure passengers from competing airlines. The margins in the airline industry are small, but Southwest stretches its budget by efficiently using employees (whom they pay more on a per employee basis than any other similar carrier), hedging their fuel costs at a higher rate of total fuel use than any of their competitors, dealing with union issues before they occur, and maintaining an overall record of safety and customer satisfaction that cannot be rivaled by competitors.
Internal Analysis of the Firm
This section describes how Southwest handles itself and its own business. The competence of the firm's management and how everyday business is conducted.
Audit of the Firm's Resources
Resources are both tangible and intangible, and Southwest had been able to grow its business by growing through both. The tangible assets and business of the company will be discussed later, this is a view of the more intangible side of doing business at Southwest Airlines. Southwest Airlines has seen that most airlines conduct their internal business the wrong way, and from the beginning they have sought to change that in their own company. Employees at Southwest are encourage to have fun through the LUV promotion. The company's founders realized that people who love the company they work for will be happier in their jobs and make the workplace better. The company allows its employees to be creative and think of ways that they can increase the value of their company. Southwest has dealt with union issues by embracing them and has been a pioneer in labor relations. Since Southwest values its employees as its most valuable resource, they have taken strides to ensure that they take very good care of the resource.
Besides the human resource the company has had a strategy to rent space in secondary airfields which allowed them to save money. The company flies out of Love Field in Dallas, and has its corporate headquarters there because, originally, the costs were cheaper that they were at the larger DFW International. This has allowed the airline to have hubs that are much closer to downtown and they have revitalized smaller, more regionally associated airports. Mainly this has allowed them to have more space and keep costs down.
Southwest has always pushed the advantage that they are a bare bones airline that is geared more for saving the customer money than anything else. Because they do not offer…