The airline industry has been one that has consistently lost money during the last decade. Even before that, if an airline did not have a good business strategy, they were most likely doomed to failure. Many people do not remember Braniff, TWA or Pan American, but for a long time they were among the largest air carriers in the world. He present model, for airlines as well as other businesses, is to determine what they can do to streamline their costs, and the costs to their customers, while still remaining profitable. This may seem like what companies have always done, but that has not been the case. When the economy is doing well customers do not care as much about pricing and carriers offer more for the price of a ticket. Unfortunately this balance has been destroyed by the economic downturn, and many businesses have not been able to survive.
There are some that have either learned the lesson of survival, or they were able to continue a business model that was consistent with the equilibrium that has been established since the crisis. Southwest Airlines has always prided itself on the fact that it is a low-cost alternative to the big name international airlines. Southwest started as a regional carrier and has become successful nationally because they have maintained a pricing strategy that is consistent with the way customers now behave. Like businesses such as Wal-Mart and thrift stores, the low-cost alternative has become the industry reality. Southwest has been able to grow its business through this economic period because of savvy decisions that were made decades ago. With new initiatives (that are actually old ones repackaged) such as "bags fly free" and new ones such as hedging fuel costs, Southwest Airlines has been able to thrive at a time when other airlines are at the brink of bankruptcy. This paper details the culture and values that have made Southwest one of the more revered and copied companies in the United States.
Southwest Airlines is an air carrier that specifies low cost travel for all of its patrons. The carrier serves the continental United States with non-stop service to and from all of the airports it serves, and it guarantees that air fares will be the lowest non-stop fares of any other carrier. The main goal of the airline is to make air travel affordable to all who wish to fly. At the outset, the founders of the airline, Rollin King and Herb Kelleher, said that "they began with one simple notion: 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" (Southwest Airlines, 2012). They have tried to maintain their promises despite rising fuel and other transportation costs while other national and international carriers have consistently increased their prices over the last decade (Southwest Airlines, 2012).
The company originally flew only routes in Texas, and that was the plan going forward. The competition within the state was not heavy because Southwest, then called Air Southwest, offered flights at a very discounted rate. The flights were so cheap that they actually competed with bus companies for passengers. The only issue they had early on was that if they wished to expand beyond the state of Texas, they were only allowed to fly to other states that touched Texas. This restriction, called the Wright Amendment, was meant to govern air traffic at Dallas's Love Field. The reason for this restriction was to both decrease the competition between Love and Dallas/Fort Worth International, but also because allowing full operation of both airports would cause an airspace nightmare for the FAA. However, Southwest established its headquarters at Love Field despite the restrictions, and, over time, was allowed to fly to any destination within the contiguous United States.
The airline remains specifically a U.S. carrier (the largest U.S. carrier as of 2011 data), but with the recent purchase of AirTran Airways in 2011, Southwest may begin international flights to the Caribbean and some destinations in Mexico and other Central American countries. As of right now, Southwest has agreements with other airlines that allow passengers to book international flights through their website, and use the additional carrier to continue the flight after the passenger leaves U.S. soil.
The airline is also known for its specificity of airplane type. Southwest has, almost exclusively, used the Boeing 737 in its flights. However, when the airline purchased AirTran, they also acquired its fleet of Boeing 717's. The airline has implied that they will continue to operate these airplanes also, but new orders for an updated fleet did not include new 717's (Southwest Airlines, 2012). The reason that Southwest wants to maintain a limited number of aircraft types is because it makes reduces the overall costs to the company, and thus to the passenger.
The original desire of the airline was to offer the lowest possible prices to all destinations that they served. The company has tried to maintain that position as a central value because they believe that customers will be loyal to a company that tries to remain loyal to them. The idea behind this is not to be a "cheap" airline, but a low cost alternative to the large international carriers (Southwest Airlines, 2012). The mission of the company "is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit" (Southwest Airlines, 2012). This affirmation sets the tone of both what the company values and the culture that has been instilled. The company website says that the culture "is all about working hard and playing harder" (Southwest Airlines, 2012). Since its beginnings the top executives have tried to make the mission of the company one that supports its employees and values its customers. The company also works its values statements into its goals for customers and employees by saying that they
"are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer" (Southwest Airlines, 2012).
The airline seems to believe that if they treat their employees with respect, the employees will forward that to the customers. Since the company has consistently ranked as one of the most admired companies both to work for and do business with in the past three decades, this mission seems to be working.
Maximizing Profit Opportunities
Southwest Airlines has become the number one carrier in the contiguous United States because the company has taken advantage of the profit opportunities that have presented themselves. In the beginning, as described above, the company has expanded slowly, but it has always done so regionally and then nationally. Instead of trying to compete with more established carriers such as U.S. Air and Continental on all of their routes (both national and international) which would have been difficult to accomplish, Southwest has tried to grow profits by staying "small" (Smith, 2010).
The history of the company describes how they have tried to maximize profits in several different ways. Southwest airlines started as a small company that wanted only to serve customers in a small area. Thinking globally, that is what they continue to do. Southwest is not interested in the international market the way other carriers are. Companies such as British Airways, U.S. Air and other international carriers have expanded their businesses by gaining more international routes and by engaging in partnerships that will help them to serve more routes. This can be seen in the recent British Airways merger with Iberia Airlines (British Airways, 2011). Through the parent company International Airlines Group (IAG), British Airways now has access to more routes and the ability to grow stronger as an international carrier. IAG recently tried to incorporate Lufthansa's Heathrow business also, but was unable to complete the sale (British Airways, 2011). This is how the international carriers are able to grow their business, and Southwest has followed the same model on a national scale. Through the acquisition of several smaller, regional airlines, Southwest has been able to gain slots at LaGuardia in New York and Hartsfield-Jackson in Atlanta (Southwest, 2012). These are two major destinations that Southwest has not been able to offer passengers because of airway restrictions. However, Southwest realized that they needed to add direct service to two of the largest metropolitan areas in the United States. This strategy, acquiring smaller, failing airlines that have coveted/hard-to-obtain routes, has allowed Southwest to grow its business over the past three decades.
Hedging Fuel Prices
Another strategy that the airline has used which has caused both controversy and some interest from other carriers, is their practice of hedging…