Southwest Airlines' cost leadership strategy and competitive advantages

Business

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.

Introduction:

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.

Main Body:

Southwest's endeavors to focus on low cost are a strand that runs throughout the airline in each of its four SWOT areas.

Strengths:

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.

Weaknesses:

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

Opportunities:

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

Threats:

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.

Conclusion

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 due to their inability to match the company's prices. The airline, however, still has approximately 50 more destinations that it can expand to, many of them in countries that are serviced by other airlines that are overpriced and inefficient. One of these destinations is the Minneapolis-St. Paul airport that is over-priced and under-serviced. By redirecting their focus on costs, SWA can leverage its growth, amplify its strengths and shore its weaknesses. An example was given by the recommendation of redirecting its fuel costs elsewhere. The political and social situation is, no doubt, challenging to SWA in that it threatens one of its greatest strengths -- its ability to undercut prices. Nonetheless, SWA can take steps to deal with those challenges, mainly by continuing with their strategic focus and redirecting costs elsewhere. In this way, Southwest can continue its current growth

Without having to vastly deviate from its current operational strategy.

Source

Algasae (n.d.) Promoting thought leadership...Customer focused low-cost strategy. Retrieved on August 15, 2011 from: http://www.alagse.com/strategy/s10.php

Bundgaard, T et al. (2006) Pandora Group

http://economicsfiles.pomona.edu/jlikens/SeniorSeminars/pandora/reports/southwest.pdf

Freiberg, K & Freiberg, J (1996), Nuts: Southwest Airlines, Crazy Recipe for Business and Personal Success Austin, TX: Bard Press

Kim, W.C. And Mauborgne, R. (2009), What is BOS? Nine key points of Blue Ocean Strategy. Retrieved on August 15, 2011 from: http://www.blueoceanstrategy.com/abo/what_is_bos.html

Liang, T., Czaplewski, A., Klein, G., & Jiang, J. (2009). Leveraging First-Mover Advantages in Internet-based Consumer Services. Communications of the ACM, 52(6), 146-148. Retrieved from EBSCO.

Iansiti, M. And Levien, R. (2004). Strategy for small fish. Harvard Business School Working Knowledge. Retrieved on August 15, 2011 from: http://hbswk.hbs.edu/item/4331.html

Southwest Airlines SWOT Analysis-http://www.businesstune-ups.com/Southwest-Airlines-SWOT-Analysis.html

The Rise of Southwest Airlines

http://www.advancebusinessconsulting.com/advance!/strategic-alignment/strategic-alignment-business-cases/the-rise-of-southwest-airlines.aspx