Business Case Analysis The Southwest Airlines

The Southwest Airlines

The Southwest Airlines

Brief Background

The U.S department of transport 1995 classified its passenger airlines into three categories based on the annual revenue generated. These are a "major carrier" airline that could generate up to $1 billion annually, a "national carrier" that could range between $ 100 million and $1 billion annually, and a "regional and commuter airline" that could generate less than $100 million annually (Pg, 480). Before this, the Civil Aeronautics Board (CAB) board was responsible for regulating fare, routes, and company mergers, and before any change was made, CAB approval was required. However, the CAB operated on biasedness in that they awarded highly profitable and semi-exclusive routes to individual airlines and then left the remaining to the public interests. It suppressed the price competition, and some airlines increased their fare because they were the only ones operating on those routes. However, in 1978 a new airline deregulation act was passed, allowing airlines to set their fare and enter any route they wished without CAB approval (Pg, 481). It led to the dissolving of CAB in 1985. It led to a significant career turning their attention to serving nonstop on the long-haul, densely populated routes.

Besides, there were numerous challenges. Among the other major careers, only Southwest Airlines proved to be effective in navigating through the harsh economic air travel and avoiding the financial calamity in the 1990s. The major thing that made them thrive in the market was that they had a lower operational cost than other careers. Also, unlike other airlines, they have opted to keep their business model simply because they do not fly everywhere. Their operating system is point-to-point, and they have the simplest pricing structure. Besides, they chose to use only one type of plane: the Boeing 737, which is easy to maintain, and the cost of training is also reduced and increases efficiency in crews and flight schedules. This lower operational cost made them attract a high number of customers. From 1990 to 1994, they doubled their operational revenues, making them expand further, and other airlines were triggered to adapt their strategy (Pg 486).

Furthermore, their corporate mission statement states, "The mission of Southwest Airlines is a dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit." In addition to their vision, "to become the world's most loved, most flown, and most profitable airline." It reflects their customer friendliness and branding to their competitors (EVANS, 2019). It has reflected their long-term strategic plan for global operation, making them withstand the harsh financial calamities.

Problem Statement

Since its establishment in 1967 as a low-cost carrier operator, Southwest Airlines has been the largest domestic carrier by volume. As the firm continues to grow and the ongoing integration of AirTran operations, they need to maintain the low-cost structure to continue being profitable and competitive. Despite adding the larger and more crowded destination to the Southwest airlines route, they need to retain their customer satisfaction needs to retain their market shares. To remain profitable, they have to convert AirTran to a point-to-point strategy because that adds unnecessary complexity to their operation (Hawkins et al., 2012). These strategies will allow Southwest Airlines to expand and maintain its good reputation in the market now and in the coming years. Besides the intensity of the market, Southwest has lower profit margins than some of the smaller airlines like Spirit and Alaska. Still, among the largest airlines, they are only facing intense competition from Delta, but the big question is how they can outperform their competitors.

The SWOT Analysis of Southwest Airlines

U.S airlines are very competitive and volatile. Besides, it is cyclical and heavily taxed, generating a very low-profit margin for domestic airlines. Due to the consistent rise in fuel costs, it was estimated that the tax would cost the U.S airline industry an additional $500 million annually to cover the fuel expenses (Pg, 484). This high cost has rendered other airline operators bankrupt, but Southwest Airlines maintained its low-cost carrier focusing on the profitable point-to-point routes and good customer services. This made them operate on fewer long-haul routes and avoid the more congested airports. Therefore, Southwest Airlines employed SWOT analysis in their business, whereby they intensified their strengths, looked for more opportunities, minimized their weaknesses, and were able to cope with their threats.

Strengths

Ever since Southwest Airlines began its operation, they have been a low-cost carrier, enabling them to establish a foothold in the market. Also, their mode of operation is from point to point, which is different from other airlines that employ the traditional hub, and they speak strategy. This has enabled them to gain more flexibility and has more profitable routes (Sudhakaran, 2021). Also, they have incorporated a 20 minutes turnarounds because they have luxurious and exclusive airplanes like the Boeing 737-700, which is a perennial feature for their customer services. This has been advantageous to them since it allows standardized maintenance procedures, which aids in the first service of their planes. Another factor that has enabled them to survive the harsh financial calamities is because they have good customer relations. That has helped them have successful marketing campaigns giving them a good customer reputation that has led to their continued growth.

Weaknesses

Since their business was running well, they decided to expand their business operation. As usual, numerous challenges would accompany such a move—for instance, compliance with international laws. Also, the emergence of the AirTrans fleet consisting of 88 Boeing 717-200s has posed a new challenge to Southwest Airlines since they were initially not operating the same route as Southwest (Hawkins et al., 2012). This has resulted in a congested market marking the competition stiffer. Furthermore, with the rapid growth of Southwest Airlines, it has become hard for them to maintain their reliable service.

Opportunities

Even though the AirTran emerged, it still allowed Southwest Airlines to have an intermediate expansion in the key markets like Boston and Baltimore, which paved the way for them to diversify their routes with new destinations like Atlanta. Also, the new regulation gave Southwest Airlines slot-controlled markets that previously were not there. Furthermore, this has allowed Southwest Airlines to begin operating in near international destinations like the Caribbean and parts of Mexico.

Threats

The American airline industry is very competitive, posing more threats to Southwest Airlines. If they cannot cope with the competitive market, they will witness diminishing growth. Additionally, as many airways operators enter bankruptcy, Southwest loses some of its supply advantages, mostly the labor costs. In turn, it makes them incur more operational costs, which, if it's not checked and allowed to grow faster than the competition, might diminish the market share (Pg, 482). The airline's exposure to fuel cost is a major threat because the fuel prices are highly volatile, making the airline vulnerable to these swings affecting its bottom line.

Strategic recommendations

Southwest airlines adopted a strategic plan that has made them sustainable throughout. They do not charge for the first two checked bags, which has enabled them to thrive well under market conditions even among the low-cost carriers. This has enabled them to collect fewer fees per passenger than the other largest carriers. Thus, they have maintained low ticket prices, major marketing, and a differentiation legacy, unlike their competitors. Besides, to ensure that they conquer the market, they have to increase their carrying capacity. When the acquisition of AirTran was enacted, it allowed the Southwest airline to move to more congested and more expensive airports. They will have to increase their prices or carrying capacity to remain profitable. This will work better because the crowded airports have a fixed cost regardless of the plain size; if they start operating on larger aircraft will make them more profitable if the demand can sustain it. The only risk they will be facing is filling the larger planes to help them remain sustainable.