Industry Diagnostic of Southwest Airlines Sandra Guzman Lisa Ikkanda Laura Lopez Gerame Wong June 12, 2012 MGMT 449 – Summer
IntroductionAir transportation was first introduced in 1903 bythe Wright brothers. The invention of the aircraftrevolutionized the way people travel and productsare shipped. Air travel has become a key elementin globalization by facilitating economic growth,trade, and tourism. In the United States the mostpopular airlines are Delta, Southwest, UnitedAirlines, and American Airlines. This diagnosticexplores the airline industry and examines howSouthwest Airlines fits into the industry.
US Airline Industry Overview• Wright brothers fly successfully for the first time in 1903.• American Airlines in 1928 and United Airlines in 1931.• Increased R&D of aircrafts after WW2.• Introduction of jet airplanes for commercial use in the 1950s.• FAA created in 1958 to develop an air traffic control system.• Development of wide-body jumbo jets in the 1970s.
Airline Industry Today• Approximately 100 certified passenger airlines are in operation.• Over 11 million flights depart per year.• Over $160 billion in total revenues.• Approximately 545,000 employees and over 8,000 aircrafts operating 31,000 flights per day.
Airline Industry Strategy • Markets• Products/ Services – North American – Scheduled Flights – Europe – Chartered Flights – Asia – Air Freight – Latin America – Mail • Routes• Customers – Long Haul – Business Travelers – Point to Point – Personal Travelers • Company Structure – Seniors – Independent – Families – Alliances – Government – Code Sharing• Fare Strategy • Information Systems – Low Fare – Customer systems – Premium Fare – Operational Systems – Logistical Systems – Business Systems
5. Potential New Entrants is weak•Currently no new entrants•Entry barriers are high o Other cost advantages held by industry members – Southwest is known for the low-cost provider. United and Delta have the most locations nationally and internationally. o Restrictive government policies – must gain approval from the Department of Transportation and Federal Aviation Administration (U.S.)•Industry outlook is risky and uncertain – global recession is making entry too riskyPorter’s 1. Rivalry is strong •Delta, United, Virgin, JetBlueCompetitive •Price competition – lowest fares and best deals •Buyer demand is growing slowly – less travelling because of 3. Buyer Power is strong •Easy access to information (Internet)Model the recession and high airfares •Buyer costs of switching to competing •Buyer cost to switch brands are low – since the prices of products is low – customers choose airfares are relatively close among competitors, buyers are the lowest priced airline considering other factors when deciding which airline to fly •Buyers are well informed about the2. Supplier Power is strong with. Some of these factors include baggage fees, meals, quality, prices, and costs of sellers –•Fuel Suppliers entertainment, flight schedules, and customer service online travel agencies keep consumers•Supplier products are critical to •Product differentiation is based on customer service andindustry members – FUEL, Boeing well informed about prices and airline experience – every airline basically provides the same service, customer service qualityaircrafts transportation. The thing that will set one airline apart is the •Buyers are price sensitive – the•Industry members incur high costs in experience the customer has. recession makes consumers more priceswitching their purchases to •The competition has different objectives regarding air travelalternative suppliers – it is expensive to conscious – Southwest’s main objective is providing the lowest cost withinvest in solar power, or other fuel the best customer service.supplies•No good substitutes 4. Substitutes are strong •Good substitutes are readily available – cars, buses, trains •Substitutes are attractively priced – depending on where you are travelling, driving or taking a train may be cheaper •Buyer have low costs in switching to substitutes – depends on where one is travelling. It could be more economical to drive
Competitive Weapons• Price discounting• Coupons and advertisements• Improving service features• Building a bigger network• Innovation to improve performance• Customer service
Drivers of Change• Technological Advances – New plane innovations to be more efficient – Emerging new Internet Capabilities • Southwest does not use online agencies• Fuel Costs – Increase fuel costs changes the design of aircrafts• Environmental Sustainability – Redesigning aircrafts to be more fuel efficient – Using E-tickets to become paperless – Reducing fuel consumption
Southwest Airlines• Founded in 1971 by Rollin King and Herb Kelleher.• Starting serving three cities in Texas: Dallas, Houston, and San Antonio.• Started company based on – Low Fares – Customer service – Convenient Schedules – On time arrival
Vision and Mission• Vision “ Our vision is to expand our locations both domestic and overseas by being the largest and most profitable airline company to achieve both short and long-haul carriers efficiently and with low cost. Also to be an airline carrier that has the most productive workforce to guarantee the best flight possible for each and every passenger.”• Mission Statement The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
SWOT Analysis• Strengths – Firm operating strategy – Robust fleet operations – Increasing cash flow from operations• Weakness – Class action lawsuits – Dependent on single aircraft and engine suppliers• Opportunities – Poised to benefit from the acquisition of AirTrans Holdings – Positive outlook for tourism industry in the U.S. – Growing U.S. airline industry• Threats – Intense competition – Increasing fuel prices could strain margins – Stringent government regulation could increase operating costs
Goals and Objectives• Ensure the highest quality of customer service.• Ready to help customers under any circumstances.• Every flight to depart and arrive safe.• Be the most successful low fare airlines with high frequent flights.
Core Competency• The lowest operating costs per plane• An economical point-to-point airplane network• A fanatical culture focused on customer service and costs savings• An ability to keep planes in the air more of the time than its competitors
Value ChainSupply ChainManagement Distribution Retail Service•Fuel costs •On Southwest •Via Web •Customer•Inventory management website •At airport assistance•Merchandise
Key Success Factors• Lowest possible fare (price and value)• Provide safe flights• Reputation - reliable• Short duration air service• Quality customer service• Direct flights• Employee satisfaction
Work Cited• Airwise news (May 21, 2012) Retrieve from http://news.airwise.com/story/view/1332383723.html• Boeing Corp http://www.boeing.com/commercial/news/feature/profit.html• Company profile/investor toolkit. (2012, April 25). Retrieved from http://southwest.investorroom.com/• Corridore, J. (2011). Standard & Poor’s Industry Surveys Airlines. Retrieved from http://www.netadvantage.standardandpoors.com.lib-proxy.fullerton.edu/NASApp/NetAdvantage/cp/companyIndustrySurvey.do• Campbell, S. (2012). How Southwest airlines because a model for customer loyalty. Retrieved from http://www.tmcnet.com/channels/customer-support-software/articles/87080-how-southwest-airlines-became-model-customer-lo• Dow Jones companies and Executive. (2012). Southwest Airlines Co. Financial Statements. Retrieved from http://global.factiva.com.lib-proxy.fullerton.edu/ar/default.aspx• Fact Sheet. (2012). Retrieved from http://www.southwest.com/html/about-southwest/history/fact-sheet.html#content_top• Gidman, J. (2008). The deal with online travel brands. Retrieved from http://www.brandchannel.com/features_effect.asp?pf_id=425• Hargreave, Steve (Jun 1, 2012) Retrieved from http://money.cnn.com/2012/06/01/news/economy/airlines-fuel/index.htm• Kelly, G. (2012). Quote. Retrieved from http://www.southwest.com/html/about-southwest/careers/positions.html• Karen Jacops (March 22, 2012) Retrieved from http://www.reuters.com/article/2012/03/22/uk-southwest-idUSLNE82L00M20120322• Marketwatch (2012) Retrieved from http://www.marketwatch.com/story/southwest-airlines-and-airtran-airways-announce-winter-flight-schedules-holiday-travel-now• Mouawad, J. (20120, November 20). Pushing 40, southwest is still playing the rebel. New York Times. Retrieved from http://www.nytimes.com/2010/11/21/business/21south.html?_r=1&pagewanted=all• Nicas, Jack. (May 23,2012) Retrieve fromhttp://online.wsj.com/article/SB10001424052702304707604577422520354240282.html
Work Cited (Cont…)• Robert Boyle, Director of Strategy & Business Units, British Airways (April, 2009) Retrieved from http://www.sita.aero/content/technological-trends-and-their-impact-airline-industry• Rueters. (2012). Financials: Southwest Airlines Co. Retrieved from http://www.reuters.com/finance/stocks/financialHighlights?symbol=LUV.N• Southwest Airlines Co. (2012). 2005 Annual Report. Retrieved from http://www.airtimes.com/cgat/usc/southwest/ar/wn2005.pdf• Southwest Airlines Co. (2012). 2011 Annual Report. Retrieved from http://southwest.investorroom.com/• Scott McCartney (April 1, 2012) Retrieved from http://online.wsj.com/article/SB10001424052702303338304575155813404043090.html• Southwest Customer Service Commitment Report. (2012). Retrieved from http://www.southwest.com/assets/pdfs/corporate-commitments/customer-service-commitment.pdf• Southwest Website (Jun 6, 2012) Retrieved from http://www.southwest.com/html/southwest-difference/southwest-citizenship/environmental-initiatives/index.html• Thompson, A., Peteraf, M., Gamble, J., & Strickland III, A. J. (2012). Crafting and executing strategy. (18 ed., pp. 54-71). New York: McGraw-Hill/Irwin.• Tycen Bundgaard, John Bejjani, Edmund Helmer (April 12, 2006) Retrieve from http://economics-files.pomona.edu/jlikens/SeniorSeminars/pandora/reports/southwest.pdf• "US Bureau of Transportation Statistics." RITA. N.p., n.d. Web. 5 Jun 2012. <http://www.transtats.bts.gov/>.• (May 25, 2012) Retrieved from http://www.centreforaviation.com/analysis/delta-launches-attack-on-jetblue-through-new-leisure-push-from-new-york-74417• Thompson, Peteraf, Gamble and Strickland. Crafting and executing strategy : the quest for competitive advantage : concepts and cases. Alabama: McGraw-Hill Irwin, 2012. Print. (Pg 94)• United States Security and Exchange Commission (Dec. 31, 2012) Retrieved from http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?formType=10-K• Ycharts (June 9, 2012) Retrieved fromhttp://ycharts.com/industries/Regional%20Airlines/return_on_assets,assets• Wall Street Journal (June 7, 2012) Retrieved from http://online.wsj.com/article/PR-CO-20120607-905588.html?mod=crnews