Southwest Airlines Strategic Analysis
A. the airline has the largest domestic carrier that is estimated by volume to average up to 106 million passages every year. The airline also operates in small freight divisions, for instance, it has gone further to acquire AirTran airline and integrated their operations into the Southwest Airlines. The airline has noted tremendous growth over a short period of time, for instance, it has reached out to 479 cities across the world and produces average revenue of $15 billion per year (Diermeier & Heinze, 2007, p. 46) The airline was among the objectives low-cost structure which has made them to have a history of success. However, a court order revoked the permit in 1968 but the Texas Supreme Court overturned the ban. By 1970, the Southwest Airline was unanimously allowed by the United States Supreme Court to commence their services(Moss, 2016, p.
34) During these early stages, the airline was referred to as Air Southwest Co. This name was changed to the current one, “Southwest Airline Co. ” in 1971. In 1998, “Kids Fly Free” was introduced as part of the corporate responsibility. It as a vacation program with Disneyland. The non-profit making organization also gained merely form the Southwest Airline. This was through the “Give Your Heart Wings” a program that was launched in 1999 that allowed members to donate unused tickets. Undoubtedly, in the following year, the airline was ranked the best by the Fortune Magazine titled “100 Best Companies to Work for in America”. This force can be summarized by PESTEL analysis. PESTEL refers to the political, economic, social, technological, environmental and legal factors that affect the business operations.
Competition is also an external factor that has direct impact on the uptake of any business. External forces that affect the success of a business can further be analyzed by looking at the Porters Five forces. Porter realizes that a business should keep a close watch over their rivals and put into action important actions to outsmart their competitors. It proceeded to launch new nonstop routes and introduce services in new routes. They successfully adopted a code sharing with ATA airlines and assisted the lesser remain in market until 2008 when the later became bankrupt. After being bankrupt, Southwest Airlines would then go ahead to purchase the operating assets of ATA Airlines thus making it cease her operations. By 2011 the Federal Aviation Administration approved the integration of AirTran into Southwest Airlines.
The Southwest Airlines continued to expand and even grow overseas. The refined biofuel will be in used as from 2018. Jet Fuel Efficiency, from 2005, Southwest Airlines improved their jet fuel efficiency by 29%. The most recent report by the International Council on Clean Transportation (ICCT) noted that Southwest Airlines was a leading force in terms of in-service fuel efficiency in relation to the four largest U. S. A passage airlines. There also customer service aspirants who are employed in regards to their customer experience and attitude. The economic factors have also externally affected the proper running of the Southwest Airline performance. For instance, the rise in fuel prices has been a major impact on the business of the airline. The fuel costs have been estimated at 40% of the operation of the airline.
The economic downturn has had negative effects on the airline demand on the airline. Southwest Airlines had to struggle to secure the already reserved slots for the established airlines which had higher passenger demand in the airport. Threats of substitutes, Southwest Airlines have faced stiff competition from long distance travel substitutes such as cars, trains and ferries. These substitutes are relatively cheaper in relation to the airlines charges. To remain relevant, Southwest Airlines have turned competitive due to the fact that they are faster. This way, the substitute threat has remained relatively low. Getting the same service, customers chose a cost-effective airline over a high-cost airline. Curtsey of the technological advancement, the customers is now able to compare the cost of flights at their convenience.
This has affected the operations of Southwest Airways as they have to remain at lower costs in comparison to their competitors so that the buyers can get the value for their money. Section three: internal analysis, this is a terminology that is often associated with” SWOT” (strength, weaknesses, opportunities, threat) analysis. Internal company analysis is the evaluation of all the current factors, comprising of the results form combined perspectives of operations, marketing, finance and the strategic plan. This means unlike other competitors the Southwest does not provide a connecting flight. One a customer books the flight with Southwest Airlines, he/she is sure not to get into another aircraft until he/she reaches their destination. This becomes as preferable by the customers as the flights save a lot of time.
The airline also benefits in getting better asset utilization. Strong fleet base, in the US, Southwest has the largest and strongest network of fleet. Boeing is the only supplier of aircraft and the spare parts. In the event of disagreement, the overdependence on Boeing can affect the business activities in Southwest Airlines. Lawsuit and legal litigation, Southwest Airlines has a time and again been faced with various legal charges, some of which the ruling are awaited. In the event such pending lawsuits are passed in favor of their accusers, then it can affect the financial position of the company as well as its image. Dependence on the passenger’s revenue, the company is solely dependent on the passenger’s for income.
The project to increase their customer base by reaching out internationally. Looking at the Threats in the SWOT analysis in Southwest Airlines, the following facts become crucial noting: Competition, it’s important to underscore the fact that the US airline industry is so competitive. This leads to pricing wars as each company wants to be lower in terms of costing than their competitor’s. Southwest Airlines faces competitions from such companies as American Airlines, Delta Airlines, and JetBlue. This affects their profitability. In 2014 for instance, the attempt of Southwest to withdraw from the giant supplier were impounded(Ross & Beath, 20014, p. 102) Substitute products have continued to give Southwest Airlines a nightmare. Competition from similar deals such as train, cars and bus transport has not come so well on the side of the airline.
The advantage that the airline has continued to enjoy over the substitutes is based on the speed and the ability to perform over long distance. According to Kasperski 2012, the long distance becomes cheaper per mile as opposed to the other airline substitute. The increased consumer technology means that they can find out the cost of flights at the convenience of their homes before making the final payment on the air tickets. This helps them to compare the flight costs across the airlines. On a different approach, there are large airlines that offer ipads and individual customer TVs as a relief for long flights. Southwest is slowly keeping up with such technological advancement(Krupp & Sawa, 1996, p. 123) The Southwest Airline has adopted various internal strategies to help it outmatch their competitors.
Additionally, one class of aircraft reduces the maintenance cost of the aircraft. At Southwest, they avoid the major hubs by landing in secondary airports. This reduces the docking fees and avoids the unnecessary delays for the aircraft and the passengers. Section 5: formulation. To ensure proper progress of the Southwest Airlines, a number of feasible strategies need to be employed. A second key feasible solution to the Southwest Airlines is the bargaining power of the suppliers. Suppliers have been found to dictate the business price and the cost of conducting business within Southwest Airlines. The suppliers have continued to dominate the market owing to their monopolistic nature. Boeing has been found to be the key supplier of the aircraft at Southwest airlines.
The attempts of switching to a new supplier, Airbuses have been impossible due to the high cost associated with the move. The test is conducted on the criteria that null hypothesis is rejected when F calculated is greater than F critical. Other feasibility factors in the implementation of the business strategy at Southwest Airlines include; the funding, it’s crucial that the company decide on the source of revenue. Being a service industry, as it has been noted earlier, Southwest depends on the passengers for their revenue. It’s important that they try to diversify the revenue base by increasing the freights and doing proper marketing. Lawsuits and other legal considerations also form a good feasible solution. The airline should also ensure it carries out its social corporate responsibility promptly.
This could be bait to the government agencies to remain in trust with the airline. The implementation of technological advancement should also be done from time to time. Considering the importance of technology in operations ranging from customer service to the fleet management, the airline has to move with speed to address the strategy. It’s crucial that the implementation of technology is rolled out in different departments. Necessary resources have to be set aside for the strategic implementations. On the rivalry competition, Southwest Airlines should further enhance mergers with the potential competitors. The management should approach the relevant stakeholders and express their interests on the merger. But then southwest should have enough cash to lure the shareholders to entering such deals.
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