Resource-based view analysis of Southwest Airlines' competitive advantage

RBV

One of the criticisms

A resource-based view of the firm:

A report on Southwest Airlines to the Board of Directors and CEO

We can be proud that Southwest Airlines has been able to weather the ups and downs of the 21st century economy even while other carriers have struggled. Our airline is a budget, regional carrier with an edgy attitude and an almost cult-like following amongst its loyal patrons. However, consistently sustaining a value-enhancing corporate culture from year to year can be a challenge. This paper will enable Southwest to have a better sense of its internal resources as well as external threats. It will offer a resource-based view (RBV) analysis of Southwest Airlines' superior competitive position followed by a SWOT (strengths, weaknesses, opportunities, and threats) analysis.

Introduction

Southwest began as a regional carrier that gradually has tried to expand its offerings nationally and internationally. It pioneered budget-based flying, offering no meals (only snacks) but counterbalancing that deficit with cheerful staff members who would often break into song and who were very helpful to flyers. Its NYSE symbol of 'LUV' exemplifies its fun attitude and also the genuine love that its employees have for the company they serve, the customers, and one another.

The RBV suggests that the firm's services must be rare, valuable, unable to be imitated, and unable to be substituted. "By specifying a resource profile for a firm, it is possible to find the optimal product-market activities" (Wernerfelt 1984: 172). The RBV suggests a way to optimize firm activities by capitalizing upon what it does best. In the case of Southwest, there are obvious 'substitute goods' in the form of other airlines to provide transportation; thus it must strive to fulfill these requirements of the RBV view of the firm based upon areas such as quality of service and price.

RBV: Overview

Rareness

Southwest's attitude and quality of service in an era are noteworthy in which flying is increasingly unpleasant. This is one critical way in which the firm tries to make its services 'rare.' "In this case the nature of the market for the resource generates the resource position barrier. It is much easier to pioneer a position than to replace someone else who already has it" (Wernerfelt 1984: 174). Early on, Southwest was an upstart airline that broke the mold of its traditional, larger rivals. Southwest was an early market mover in the budget air travel business. However, it did not compete based upon price alone, but also on service. "If you've flown with Southwest more than once, it's likely you have heard a flight attendant tell a joke, sing, or have a little fun over the public address system. At Southwest they don't take themselves too seriously. They are being true to their culture of having fun. Here's the amazing part to me. Southwest has been able to maintain this culture for nearly 40 years" (Oswald 2009).

Unable to be imitated

Southwest hires and promotes primarily based upon personality and the employee's ability to enjoy the airline's freewheeling corporate culture while still working hard. While a certain level of technical expertise is required of its workers for many positions, Southwest takes the point-of-view that while skills can be taught, character cannot. Its corporate culture has been described as mold-breaking. "what a mold: a startling amount of office hugging and kissing in lieu of handshakes; elaborate practical jokes; and on-the-premises beer drinking at headquarters, as long as it is after 5 pm" (Bailey 2008).

Along with its corporate culture, another significant value conveyed by Southwest's business model is its fuel-hedging plan, which "has saved Southwest $3 billion. And at current oil prices, it will save an additional $2.4 billion over the next few years. That essentially is what kept the company out of deep trouble in recent years," given spikes in the cost of crude oil (Bailey 2008). According to the RBV, "what a firm wants is to create a situation where its own resource position directly or indirectly makes it more difficult for others to catch up," which has been the case with Southwest's fuel hedging (Wernerfelt 1984: 174).

Unable to be substituted

In the airline industry, there is a certain limit in terms of an inability for flights to be substituted when travelers must go long distances. However, given the intense competition between carriers, travelers have many opportunities to comparison-shop. Even in the budget market, Southwest must continually keep its eyes upon rivals Jet Blue and Spirit Airlines. And the Internet makes it easier for travelers to comparison-shop fare prices than ever before. A relatively small price deferential may cause a price-sensitive consumer to switch his or her traditional carrier, and since Southwest consumers are particularly price-sensitive, this may be more of a factor for Southwest than for other, standard airlines. Southwest has tried to counterweight this through its Rapid Rewards program.

SWOT

Strengths

Southwest's corporate culture is its greatest strength. Customers enjoy flying the carrier because of the good attitude of both Southwest pilots and flight attendants (Bailey 2008). It has also avoided many of the labor disputes that have stymied its competitors. Southwest regards its employees as true 'human resources' and the superior service employees provide customers conveys value in a manner that transcends small differentials in price. Southwest Airlines philosophy is "take care of your employees and they'll take care of the customer" (Mueller 2012). "Southwest and American Airlines are headquartered in Dallas and pull from the same labor pool, yet their financials and customer satisfaction levels show they are not close to being brothers" (Mueller 2012).

Weaknesses

Some customers prefer more amenities, and some airlines are attempting to outflank budget carriers by offering roomier seats and other luxuries that make long-distance flying easier. Southwest was recently forced to give up its no-assigned seating policy, because of customer frustrations (Bailey 2008). Although the airline has expanded its range of destinations it currently does not offer international flights and only recently signed an agreement with Amadeus IT to venture into international travel in 2014 (Southwest and Amadeus, 2012, Press Release).

Opportunities

The Internet also offers the opportunity for Southwest to promote its products through advertising its low pricing and special offers.

Offering superior service in terms of its attitude could enable Southwest to outmaneuver its luxury counterparts and demand for international service remains an unexplored market.

Threats

Economic uncertainty in the United States could significantly impact the leisure travel market. Southwest's destinations are more limited than other carriers, which curtails the number of passengers that will travel the regional airline. Although Southwest offers a rewards program, so do other major carriers, and the availability of online comparison travel sites is likely to reduce price-sensitive customer loyalty.

Conclusion

Southwest has sustained a considerable competitive advantage, based upon its effective hiring, training and cultivating of employees with a customer-friendly attitude who understand the focus of the company. This is Southwest's greatest asset. Combined with expanding Southwest's flights and keeping fares low in a competitive fashion with its main rivals, Southwest is well-poised within the industry to build upon its past, 'fun-LUV-ing' success.