Critical internal analysis of Southwest Airlines strengths and weaknesses

Southwest is a strong performer in the U.S. airline industry. There are a number of reasons for this success, based on the strengths that the company has cultivated over the years. Southwest's strengths include its organizational culture, which is a source of sustainable competitive advantage and supports virtually every other strength that the company has. The other strengths are its management team and leadership; its financial situation and its operational excellence. These strengths are counterbalanced by weaknesses such as poor political relations, maintenance and safety issues and ongoing issues with the integration of AirTran into the company. Overall, however, Southwest's strengths are both intense and permanent, while the weaknesses are not particularly intense in nature, and are for the most part transient.

Introduction

Southwest Airlines is one of the market leaders in the U.S. airline industry, and one of its best performers financially. The company trails Delta and United Continental in terms of market share with its 14.8% (RITA, 2012). Southwest has achieved this level of success based on a number of different internal factors that have allowed the company to be less susceptible to changes in the external environment. This report will outline some of those factors, and also some of the weaknesses that the company has.

Strengths

One of the most important strengths at Southwest is its corporate culture (Smith, 2005). This culture drives most of the key elements of Southwest's strategy. The culture facilitates the company's strategy of cost leadership by emphasizing cost reduction. However, the culture is also important for delivering a superior customer experience, because the airline's staff has a higher commitment level than does the staff at other airlines. Not only does the corporate culture bring these benefits to Southwest, but the culture is something that is difficult for other airlines to replicate. In that, the organizational culture at Southwest may be its single greatest source of sustainable competitive advantage.

Another strength for Southwest is its management team, which remains led by the inspirational leadership of Herb Kelleher. While Mr. Kelleher is retired from active duty as CEO, he remains very much a part of the organization. His influence on the company was critical during its early years, when many competitors sought to eliminate Southwest, and it continues to be an influence today. The current management team under Mr. Kelleher has been able to maintain the company's culture and its other strengths as well, something that is testament to the quality of leadership the firm has, and how well these managers understand the company's business.

There are other strengths as well at Southwest. Financially, the company is in a strong position compared with other airlines in the U.S. The company has a cost leadership strategy, and is able to execute this strategy not only because of operational efficiency but because it does not have the high legacy costs that other airlines have. In particular, major U.S. airlines are often burdened not only with uncompetitive structures but with high pension obligations, something that Southwest has never really had. This allows the company to undercut the competition, something that has proven attractive to American flyers.

A further strength on which Southwest can draw is operational competency. It is nearly impossible to execute a cost leadership strategy without operational excellence. The company has tight turnarounds on its flights, fewer issues with maintenance and delays, and is able to generally keep costs down. Pilots are generally paid more than competitors' pilots, and worked more hours, to reduce the average pilot cost per flight. Southwest is strongly focused on minimizing its costs per revenue mile, a key metric in the industry, and remains one of the most successful airlines in the U.S. with that strategic objective.

Lastly, the Southwest brand is strong now. The company's track record of on-time flights, good service and low prices has allowed it to build one of the best brands in the airline industry. Southwest's customer base is loyal and passengers seek out the company when they travel. The brand strength is difficult to lose, although there have been challenges to the brand strength of Southwest in the past couple of years. The company has worked hard to create positive associations with its branding, and in general has been successful in doing so, leading to a high level of success over the course of the past four decades.

Weaknesses

Despite its successes, Southwest still has a few weaknesses that in all likelihood hold it back from maximizing its profit. The first of these is its relationship with government. The company's growth has long been constrained by the Wright Amendment (AP, 2006), one of the most egregious government infringements on the free market in the history of the United States. Brought in to protect American Airlines' monopoly at DFW, the Wright Amendment strictly limits flights in and out of Love Field, where Southwest sought to set up its home base. The airline built its hub there anyway, but after being in business for forty years is still subject to this amendment. There remains four years on the Amendment, but more important is the idea that such a law could a) have ever been passed and b) was not immediately repealed, given the nation's increasingly pro-business climate.

Perhaps the low-cost approach to maintenance has caused Southwest problems. The airline industry is heavily-regulated, mainly in order to ensure safety of the airline travel system. Southwest, however, has had problems recently with its safety record (Unger, 2011). Not only does this expose the company to increased risk of action from regulators, but it also exposes the company to increased risk of accidents, and damages the reputation of the company. Southwest therefore has to make improvements in its safety processes in order to remedy the recent issues and make sure that any systemic problems are addressed to their fullest.

The company has also struggled to fully integrate AirTran, which it purchased in May 2011. The slow process of integrating AirTran has created a drag on Southwest's operations, created confusion among customers, and caused trouble operationally. Customers often expect Southwest-level service on flights with that brand, only to find AirTran crews incapable of delivering that high level of service.

Overall Analysis

Overall, Southwest has more strengths than weaknesses. Some of its major weaknesses are temporary, and most are fairly low intensity. By contrast, the strengths at Southwest are permanent, and contribute in multiple ways directly to the organizational objectives. There is even some synergy in addressing key weaknesses with the strengths. For example, integrating AirTran will be easier over time, as AirTran's employees are brought into the Southwest culture. Presumably, those who cannot adapt will leave the company, and eventually the AirTran culture will disappear completely. This is because Southwest is the dominant culture and this force is much stronger than any inertia on the part of AirTran's employees.