Skip to main content
UploadLanguage (EN)Support
BusinessMobileSocial MediaMarketingTechnologyArt & PhotosCareerDesignEducationPresentations & Public SpeakingGovernment & NonprofitHealthcareInternetLawLeadership & ManagementAutomotiveEngineeringSoftwareRecruiting & HRRetailSalesServicesScienceSmall Business & EntrepreneurshipFoodEnvironmentEconomy & FinanceData & AnalyticsInvestor RelationsSportsSpiritualNews & PoliticsTravelSelf ImprovementReal EstateEntertainment & HumorHealth & MedicineDevices & HardwareLifestyle
SZ
Uploaded bySriwiyata Ismail Zainuddin
4,792 views

Southwest Airlines : Case Study 2016 (Group Work)

Southwest Airlines is a major US airline that has been profitable for 44 consecutive years. It aims to be the world's most loved airline through low fares, outstanding customer service, and fun-loving culture. While it has historically focused on domestic US routes, its future strategy involves international expansion into markets like Canada, Mexico, the Caribbean and Europe. It will seek to maintain its low cost leadership through measures like single aircraft type, point-to-point routes, and fuel hedging, while bringing its unique corporate culture and customer experience to new global markets.

Business◦
Ari Permadi Sakti Fadrian Jatmiko Leonie Fusban Rami Ibrahim Yannick Münzinger Sriwiyata Ismail Z. Strategic Management Group 4 Culture, Values, and Operating Practices in 2016
2. ?1. Company Introduction  History  Values  Key Figures 2. Present Analysis  KSF  Driving Forces of Industry 3. Future Analysis  PESTEL  Perceptual Map  Porter´s Five Forces  Competitor Analysis  SWOT 4. Proposed Strategy  Strategic Plans  Strategic Elimination  Balance Score Card  Proposed Strategy
Part 1/3: Case Overview
What is Airlines? World’s Largest Low Cost Carrier (LCC) Exclusively use Boeing 737 jetliners Has operated since 1971 and based in Dallas, TX, USA Since 1973, it has been profitable for 44 consecutive years Most passengers in the US and most daily departures in the world Outstanding customer service and hospitality
Company’s History 1967 1971 2014 1979 2011 2004 2001 1981 Founded by Rollin’ King and Herb Kelleher First flight out of Dallas Love- Field Airport After battling numerous legal hurdle, Kelleher took over as CEO Complete redesign of the airline visual identity and logo Kelleher stepped down as CEO, a legend in the industry The infamous Wright Amendment, limiting what airports the airline can fly into was enacted The effective abolishment of Wright Amendment Gary C. Kelly took on the role of CEO (and is still Southwest CEO up until present). 20062016 Preparation for international expansion Start of AirTran acquisition where the company was successfully merged in 2014 The Wright Amendment was repealed in court, boosting revenue from Dallas Love- Field by almost 1000%
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. To become the world’s most loved, most flown, and most profitable airline. Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel. Purpose Vision Mission Values Live the Southwest Way Warrior Spirit, Servant’s Heart, Fun-LUVing Attitude Work the Southwest Way Safety and Reliability, Friendly Customer Service, Low Costs
Transformation of the Company 1981 2001 2016 Revenue Planes Destinations Employees $270 million 27 planes 14 airports 2,100 personel $5.6 billion 350 planes 58 airports 30,000 personel $19.8 billion 704 planes 104 airports 49,600 personel Founder Herb Kelleher took over as CEO
Key Financial Figures and Ratios 2015 2014 2013 2012 2011 Total Assets $ 21,312 $ 19,723 $19,345 $ 18,596 $18,068 (***) D/E Ratio 1.896 1.982 1.637 1.660 1.627 Operating Income $ 4,116 $ 2,225 $ 1,278 $ 623 $ 693 Net Income $ 1,298 $ 1,136 $ 754 $ 421 $ 178 Earnings per Share $ 3.30 $ 1.65 $ 1.06 $ 0.56 $ 0.23 EPS (Diluted) $ 3.27 $ 1.64 $ 1.06 $ 0.56 $ 0.23 ROIC (pre-tax) 32.70% 21.20% 13.10% 7.20% 6.80% (**) WACC 9.29% 5.57% 7.57% 5.16% 6.00% * All currency in million USD (**) Prediction by analysts (***) Industry standards for DE ratio is around 7.00 to 9.00 The company uses Economic Earnings (ROIC – WACC) as one of their primary measure of financial performance.
Part 2/3: Internal and External Analysis
Key Success Factor - External Hire great People Care for customers warmly & personally, like they´re guests in our home Keep fares and operating costs lower than anybody else by being safe, efficient, and operationally excellent be prepared for bad times with a strong balance sheet, lots of cash, and a stout fuel hedge
Key Success Factor - External No hidden additiona l fees Strong Corporat e Culture Low costs Outgoing & fun atmosphe re
Driving Forces of Industry - External Technological Forces - Performance optimization - Innovations in transportation industry Social & Demographic Forces - Globalization - Changing societal concerns & lifestyles - Environmental consciousness Economic Forces - Aggregated Demand - Oil prices - Global GDP fluctuations Regulatory Forces - Regulation & Deregulations - Treaties
Attractiveness of Industry / Lifecycle Canals Rail Roads Air 1836 1800 1850 1900 1950 2000 2050 0% 1% 2% 3% 4% 1891 1946 2015 Δt= 30 years Δt= 55 years Δt= 65 years Δt= 70 years 1825 1869 1913 1969 1836 1825 Paradigm shift Peak year
1st Where to fly next?
P PESTEL Analysis - External Impact on Supply Impact on Demand Decrease in margins due to increasing competition related to deregulation Deregulation Security requirements increase operational costTerrorism Political & Legal Economic Impact on Supply Impact on Demand Deregulation allows sharp rise in routes and competition and drop in price Increased in waiting time and general unpleasantness High High Low Low E Volatility in oil price has major impact on Southwest, but overall in the long run through fuel hedging the impact could be lessen Volatility in oil price tend to encourage airline to increase price, making air traveler less attractive Low Low Fuel Prices Continued
PESTEL Analysis - External E Impact on Supply Impact on Demand Global Expansion Falling Flight Fares Economic Social Impact on Supply Impact on Demand High High High High S Introduction of JetBlue into the LCCs market put pressure to compete in price, eroding margin Increase in opportunities for growth in different market Increased demand by general flyers Increased demand by Business and Leisure Flyer Rise of Middle Class Flyers More people are now able to fly, making the industry more crowded with new airlines. Holiday Travelers High High High High Increased demand of airlines with low cost affinity Culture of holidays travel, aided by social media, necessitate the need for more routes People preferring airline with diverse assorted route in their travel
PESTEL Analysis - External T Impact on Supply Impact on Demand Drive for Innovation Lower Operating Cost Technology Environment Impact on Supply Impact on Demand High High High High E Modern aircraft are more economical to run, lowering operating costs. High cost and unpredictable results for investing in RnD. Lower operating cost reduce price, increase demand. Better on-board conditions increased demand. Online Booking Lower or even eliminates intermediation cost to airline companies. Environmental Concerns High High Low Low Lower or even eliminate intermediation cost to customer. Given how large the contribution of airline industry to climate change necessitates efforts to address environmental issue. Customer increasingly prefer eco friendly airlines.
Low Fares High Fares Poor Customer Service Good Customer Service Perceptual Mapping - External
Porter’s Five Forces - External Competitive Rivalry Threat from Substitute Products Threat of New Entrants Low Buyer Bargaining Power Supplier Bargaining Power Other modes of transportation Airplanes: Just Boeing and Airbus  High Other: Many interchangeable suppliers vs. few airline companies. Southwest offers huge volume.  Low Very low switching cost Main service (transport) highly interchangeable Difficult to maintain competitive edge Industry in maturity stage High exit barriers Large initial investments Importance of learning curve effects Strong governmental regulations Building trust takes a long time Loyal customer base High HighModerate Low
Competitor Analysis - External Low Fares Cost Efficiency Route On Time Performance (*) Mishandled Baggage Report Involuntary Denied Boardings (*) Data from reports per 1000 passengers. Higher performance mean less reports.
SWOT Analysis - Internal TO ● Centrality of customer service ● Great corporate culture (low turnover rate) ● Value Chain activity cost efficiency ● Free baggage policy ● Barely international flights ● Dependency on single airline producer ● Inefficiency of some employees due to strong corporate culture (non-firing policy) ● Growth in oversea expansion ● New aircraft technology to improve customer satisfaction and cut operational costs ● Focus on technology to enhance sustainability of company ● Market saturation (domestic) ● Cost of fuel in correlation of ticket price ● Competitors could try to imitate their strategy ● Higher gate costs and landing fees S W
Part 3/3: Strategic Implementation
Current Strategic Plans Cost Leadership  Fare Structure Strategy  Low-Cost Operations  Use of single aircraft type  Point-to-Point Route Structure  Cost efficient Value Chain Activities  Fleet modernization Expansion within US market after acquisition of AirTran Corporate Culture: Employees First Creating a fun experience for customers Growth strategy: Market penetration (more routes)
Achieve Better Operational ExcellenceOBJECTIVE Increase in RevenueOUTCOME Reduction in Costs APPROACH International Expansion More Domestic Flights Tweaking Operational Costs More routes into international destinations (e.g. Canada, Mexico, the Carribbeans, the Pacific and Europe) Abolishment of the Wright Amendment makes way for potential new destinations across the entire US. Achieving optimum cost optimization for all cost elements of their operating cost: Landing fees Rentals Fuel Advertising Administrative Maintenance Others Strategic Elimination
Proposed Strategy – International Expansion Southwest Flies International Maintain Price Leadership One model airplane policy Avoid crowded hubs Hedging on fuel prices Bring LUV Around the World Employees as KSF Strategic Alliance with Local Low Cost Carriers
Proposed Strategy – Balanced ScoreCard Objectives Measures Target Initiatives FinancialCustomer Internal Processes Learning &Growth Increase Revenue Lower Operating Cost Customer Satisfaction Fast Ground Turnaround Aligning Crew with the “Operational Excellence” Strategy Increased Profitability Seat Revenue CASM Market Value Involuntary Denied Boardings Mishandled Baggage Time on Ground On Time Performance % Ground Crew trained % Ground Crew Shareholders % Supervisor Internally 20% CAGR (25%) 10% CAGR Reduce 20% Reduce 43% to 1.50 20 minutes 90% 90% 99% 100% Cut lending fees, fuel and rental International and domestic expansion Revenue Management Algorithm Total Quality Management Cycle-time optimization program Profit Sharing Plan Increase productivity per employee Staff Training Employee Benefit Package
Thank You for Flying With !