Southwest Airlines focuses on providing low-cost air travel to midsize cities. It enters competitive arenas like business travelers, leisure travelers, and students seeking low fares. Southwest uses vehicles like acquisitions and website development to standardize its low-price, reliable service. Its strategy of fast turnarounds through standardized operations and high aircraft utilization allows it to save over $750 million annually in interest costs, representing over 100% of its annual net income. However, threats remain to the long-term sustainability of this strategy.

1. SOUTHWEST AIRLINES
Presented by
Sayantan Biswas
IIM Sambalpur

2. DISCUSSION
• Arenas of competition
• Vehicles used to enter the arenas
• Differentiators
• Staging
• Economic logic of the Southwest’s strategy
• Is the strategy sustainable and what threats are on the horizon

3. ARENA
S
• Core Technologies: Developed website for easier ticket
bookings
• Geographical areas: Midsize cities
• Market segment: Businessmen, leisure traveller and
students
• Product Category: Low fare air carrier
• Value-creation stages: Highly valued among its customers

4. VEHICLES
• Acquisition: Morris Air and AirTran Airways
• No partnership with any other airlines
• Development:
• Standardisation of products and services
• Website to sell tickets

5. DIFFERENTIATORS
• Standardised products and services
• Company Image: Value and low-fare air carrier
• Pricing: Lower prices compared to the competition
• Reliability: High because of its frequent departures
• High aircraft utilization
• Lean, highly productive ground and gate crews
• Access based positioning: Limited passenger services

6. STAGING
• Standardised products and services
• Company Image: Value and low-fare air carrier
• Pricing: Lower prices compared to the competition
• Reliability: High because of its frequent departures,
High aircraft utilization
• Lean, highly productive ground and gate crews

7. ECONOMIC LOGIC
• Turnaround time was reduced by 67% which resulted in each plane making
an average 7 trips daily means 12 flying hours per day for each plane
• Point to point flights
• Tickets were booked via online and reservation centres, promoting
ticketless flying for frequent flyers
• Some customers can pay extra to board the plane first
• Purchased fuel in advance to hedge fuel prices letting them save 2 billion
dollars
• Operated only one model of aircraft that simplified trainings for pilots,
attendants and mechanics

8. ECONOMICS OF FAST TURNAROUND
• 3605 Flights per day
• (-) 515 Flights with overnight turnaround
• Non-overnight turnarounds per day
• 3090x 0.5 Hours faster
• ≈ 1545 Hours saved per day
• Utilization per plane, 13 hours per day = 118.6 planes
• 118.6 Planes * $80Million Cost per plane
= $9.489 Billion
• @ 8% Interest (average cost of capital)
– $759 million saved in interest on investment
– The airline’s net income in 2007 was $645 million, thus, the
turnaround savings represent = 117.7%

9. THANK YOU