Southwest Airlines innovation strategies and competitive differentiation

Southwest Airlines

Air travel is still the preferred means of transport in the United States of America largely because it is faster. However, it has in the recent times experienced decreased growth from the peak in before the 1990s. The period between 1980 and 1990, there was a sharp increase in the number of people travelling by air. Today, major carriers have cut costs in the face of intense rivalry and low profit margins. Nonetheless, the economic downturn experienced in the U.S. has not made the situation any better for the aviation industry. Many airlines have greatly been affected by the increase in fuel prices and demand for high cost of labor. However, through product and service differentiation innovation strategy of low cost, reward and convenience, Southwest has successfully distinguished itself from market competitors in a bid to maintain profitability in this excessively aggressive industry.

Differentiation Innovation Strategy

Products and services can be differentiated in a number of ways for them to stand out as distinct. Southwest Airlines has two main differentiation innovation strategies in place, pricing and convenience. Southwest Airlines charges the most affordable fore in the market and is still able to make a profit. The low fare strategy, as made Southwest formidable in the airline industry and competitive in the transport sector as a whole as many opt to fly than drive. In addition, the airline has secured a prominent market position by defining a business model that adopts one type of aircraft; this has made operations and maintenance manageable. They are able to train their mechanics on the Boeing 737, they stock inventory for the same aircraft and the onboard and ground crew are familiar with it (Stevenson, 2012). In addition, SWA makes it possible for "bags to fly free" this limits time wastage before departure. The aircraft has short hauls, secondary airports and point-to-point (Acap, Feng, & Mattu, 2007). Nonetheless, the airline also differentiates services by not assigning seats as the other airlines, this helps turn the airplane faster at the gate thereby saving time. It is apparent that by faster turning of the airplane increases route flown daily thereby generating more revenue to facilitate lower fares.

Growth Industry Innovation strategy

It is noted that Southwest Airlines has an effect on the airline market. It is noted that the entry of the airline into a market significantly reduces the airfares while increasing traffic (YouSigma, 2008). Southwest Airlines gets frequent petitions by residents and politicians alike to fly into their cities. When SWA enters such cities the residents become frequent travelers to mainstream destinations. In addition, SWA adopts a product distribution Strategy that eliminates travel agents. The bookings are done through direct marketing by phone as well as the internet. The airline does not provide joint fares; neither does it have commuter feeder partnership with other airline companies.

Furthermore, the airline has a lean fare structure that features unlimited daily coach fares. It is the airline that initiated the ticketless travel option, an innovation that was created out of the need to bypass the computer-based reservation. The innovation made reservation easier for the customers and was cost effective for SWA due to the reduction of paperwork. Southwest Airlines continues to adopt very simple forms of pricing strategies including the frequent flyer program that rewards customers based on number of flights and not miles. According to SWA, after every three trips, the fourth one is free (Southwest Airlines, 2005).

Innovation Evaluation

The airline, has adopted a basic cost structure that is categorized into three main bundles;

Wanna Get Away fares: these are the lowest fares; they are non-refundable and also can be used for future travels.

Anytime fares: these are refundable, changeable and can be used for future travel

Business Select: These are refundable, changeable and can be used for future travel. "This fare also includes priority boarding, bonus frequent flyer credit, priority security access in select airports, and one complimentary adult beverage (United States Securities and Exchange Commission, 2010).

It is noted that before Southwest opened the Louisville, Chicago route, the capacity of the route was 8000 as opposed to the 26,000 after the introduction of Southwest, this is because the fare was introduced at $49 as opposed to TWA's $250 (YouSigma, 2008).

According to the United States Securities and Exchange Commission (2010), Southwest Airlines continued to benefit from the aggressive promotion of low fare brand and points of differentiation. The airlines use low fares to stimulate traffic, SWA customers fly because of the consistent delivery of low fares (Southwest Airlines, 2005). However, in the face of hard hitting economic times, it is restricted from increasing these fares by factors such as reputation, the competiveness of the industry as well as decrease in demand (United States Securities and Exchange Commission, 2010).