Southwest airline analysis

Sample Case Study: SOUTHWEST AIRLINE ANALYSIS
By: Muhammed G Mubarak Kenawy

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TABLE OF CONTENTS
INTRODUCTION .................................................................................................................. 3
MISSION............................................................................................................................... 4
VISION ................................................................................................................................. 4
SERVICE OFFERED ............................................................................................................ 4
BUSINESS SECTOR............................................................................................................ 4
OPERATING GEOGRAPHY................................................................................................. 4
TARGET MARKET............................................................................................................... 5
BOARD OF DIRECTORS OF SOUTHWEST AIRLINES ...................................................... 5
CORPORATE GOVERNANCE GUIDELINES ...................................................................... 5
WHO ARE SOUTHWEST AIRLINES MAIN COMPETITORS?............................................. 8
WHAT IS SOUTHWEST AIRLINES REVENUE? ................................................................. 9
PESTLE ANALYSIS FOR SOUTHWEST AIRLINES!! ....................................................... 10
PORTER’S FIVE FORCES (INDUSTRY + SOUTHWEST AIRLINES)................................ 14
EXTERNAL FACTOR ANALYSIS SUMMARY EFAS TABLE............................................ 17
BARNEY VRIO FRAMEWORK OF ANALYSIS FOR THE SOUTHWEST AIRLINES ........ 18
WHAT IS SOUTHWEST AIRLINES BUSINESS MODEL................................................... 20
AIRLINES INDUSTRY EVOLUTION .................................................................................. 20
VALUE CHAIN ANALYSIS OF SOUTHWEST AIRLINE .................................................... 21
VALUE-CHAIN ANALYSIS FOR THE AIRLINE INDUSTRY.............................................. 24
INTERNAL FACTORS ANALYSIS SUMMARY EFAS TABLE .......................................... 26
WHAT IS THE SWOT ANALYSIS FOR SOUTHWEST AIRLINES?................................... 27
STRATEGIC FACTOR ANALYSIS SUMMARY ................................................................. 32
TOWS MATRIX .................................................................................................................. 33
SWEET SPOT FOR THE COMPANY................................................................................. 34
RE-EXAMINATION OF AN ORGANIZATION’S CURRENT MISSION ............................... 35
WHAT IS THE APPROPRIATE BUSINESS STRATEGY FOR SOUTHWEST AIRLINE?.. 35

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INTRODUCTION
Don’t you know Southwest airlines!
Southwest Airlines Co., American airline founded by Herbert Kelleher and Rollin
King in 1966 and incorporated in 1967 as Air Southwest Company. The current
name was adopted in 1971. Southwest Airlines was incorporated in Texas and
commenced Customer Service on June 18, 1971, with three Boeing 737 aircraft
serving three Texas cities—Houston, Dallas and San Antonio The company
features low-fare, no-frills air service with frequent flights of mostly short routes.
Costs are kept down by the exclusive use of Boeing 737 aircraft, which allows for
low maintenance costs and quicker turnaround times for flights, and by an
emphasis on ticketless travel. Headquarters are in Dallas, Texas.
The company grew to become a major airline in 1989 when it exceeded the
billion-dollar revenue mark.
In 1994, Southwest became the first major airline to offer ticketless travel. In
1996, Southwest became the first major airline to post a website with the launch
of our "Home Gate."
In the early 21st century, because of increasing financial difficulties in a
struggling airline industry, Southwest underwent a period of major restructuring.
This included the appointment (2001) of a new president, Colleen Barrett, the
first female to serve as president of a major airline; new initiatives such as self-
service check-in kiosks (2002) and online boarding passes (2004); and cost-saving
measures such as flight cuts and employee buyouts. The airline also participated
in the television reality show Airline, which aired on the A&E Network from 2004
to 2005.
In 2013, Southwest started its Southwest service to a destination outside the 48
contiguous states with service to Puerto Rico. In July 2014, Southwest became
an international airline with its first flights to Nassau, Bahamas; Montego Bay,
Jamaica; and Aruba, and continues to expand. In March 2019, Southwest began
serving the Hawaiian Islands, , it operates a total of 723 Boeing 737 aircraft
across 101 destinations in 40 states of the USA, and nine international countries
near the USA, Southwest Airlines continues to differentiate itself by
extraordinary customer service flying 130 million passengers annually and
employs around 60,800 employees as of January 2020.
Southwest Airlines USP or unique selling proposition lies in being the largest low-
cost carrier in the United States, pioneering ticketless travelling, offering free
baggage bags-fly-free service (first 2 checked pieces of luggage with size and
weight limits applicable) to everyone.

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The airlines vision is "To become the world’s most loved, most flown, and most
profitable airline
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.
MISSION
What is Southwest’s Mission? What is the reason of organization existence?
pertaining to its corporate mission for its commercial aviation and related services, Southwest
Airlines states, “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.” This corporate mission statement is a reflection of the company’s approach
to customer relations as well as its branding relative to other airline companies. The following
are the main points of Southwest company's mission statement:
•Highest quality of aviation customer service
•Employees’ warmth, friendliness, individual pride, and company spirit
VISION
What is Southwest’s Vision? What do they want to achieve in the future?
Southwest Airlines’s corporate vision is “to become the world’s most loved, most flown, and
most profitable airline.” This corporate vision statement reflects the company’s long-term
strategic plans for global operations, and guides strategic decisions in growing the enterprise,
especially beyond its current main market in the United States. The following points are
notable in Southwest’s vision statement:
• Global scale of airline operations
• Best commercial aviation brand image
• Highest popularity among passengers
• Highest profitability in the airline industry.
SERVICE OFFERED
What is the service offered by the company?
Southwest's product is to offer low fares flights to compete all other airlines and also all other
modes of transportations, it is direct, nonstop, frequent, conveniently timed flights.
BUSINESS SECTOR
What is the Business Sector of Southwest Airlines?
Aviation
OPERATING GEOGRAPHY

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What is the Operating Geography of Southwest Airlines?
United States, North America, Global near USA
TARGET MARKET
What is the target market of Southwest Airlines?
Southwest Airlines advertises itself as a low-cost, low-frills carrier with frequent flights to
many destinations around the United States. The airline focuses its marketing efforts
on middle-class families, small business owners, those traveling short distances, and young
adults.
BOARD OF DIRECTORS OF SOUTHWEST AIRLINES
Board of Directors
David W. Biegler John G. Denison
Former Chairman, President, and Chief Executive
Officer
Former Chairman of the Board
Southcross Energy Partners GP, LLC Global Aero Logistics Inc.
Retired Vice Chairman of TXU Corp. Thomas W. Gilligan, PhD
J. Veronica Biggins
Senior Fellow at the Hoover Institution at Stanford
University
Managing Partner Gary C. Kelly, Chairman of the Board
Diversified Search LLC Chairman of the Board and Chief Executive Officer
Douglas H. Brooks Southwest Airlines Co.
Former Chairman of the Board, President, and
Chief Executive Officer
Grace D. Lieblein
Brinker International, Inc. Former Vice President, Global Quality
William H. Cunningham, PhD, Lead Director General Motors Corporation
James L. Bayless Chair for Free Enterprise Nancy B. Loeffler
The University of Texas at Austin Red McCombs
School of Business
Former Consultant for Frost Bank and member of the
Frost Bank Advisory Board
Former Chancellor of The University of Texas
System
Longtime advocate of volunteerism
Ron Ricks, Vice Chairman of the Board John T. Montford, J.D.
Southwest Airlines Co. President and Chief Executive Officer
JTM Consulting, LLC
CORPORATE GOVERNANCE GUIDELINES
Independence of Directors
A majority of the members of the Board must be “independent” (“Independent Directors”),
within the meaning of the rules of the New York Stock Exchange (the “NYSE”). Only
Independent Directors may serve on the Company’s Audit, Compensation, and Nominating
and Corporate Governance Committees.

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The Company will not make any personal loans or extensions of credit to Directors or
executive officers, other than consumer loans or credit card services on terms offered to the
public.
Size of Board and Selection Process
In accordance with the Company’s Bylaws, the number of Directors shall be determined from
time to time by resolution of the Board of Directors. Directors are elected at each annual
meeting of Shareholders to hold office until the next succeeding annual meeting of
Shareholders and until their successors shall have been elected and qualified or until their
earlier death, retirement, resignation, or removal for cause.
The Board shall annually propose a slate of nominees to the Shareholders for election to the
Board, based on the recommendations of the Nominating and Corporate Governance
Committee. The Board also has the authority to fill Board vacancies that occur between
annual meetings of Shareholders.
Board Leadership
The Independent Directors will select the Chairman of the Board annually. The Independent
Directors will review the propriety of combining or separating the offices of Chairman and
CEO and may select the Company’s CEO to serve as Chair. The Board does not have a formal
policy respecting the need to separate the offices of Chair and CEO. The Board believes it is
important to preserve the flexibility to determine the most appropriate leadership structure
at any given time, based on an assessment of the Company’s circumstances at that time.
When the Board selects the CEO to serve as Chair, the Independent Directors will select a
Lead Director from among the Independent Directors, who shall be the Board’s Presiding
Director for purposes of complying with NYSE rules. In addition to the duties set forth
elsewhere in these
Corporate Governance Guidelines, the functions of the Lead Director shall include, but not
be limited to, the following:
• fostering an environment of open dialogue and constructive feedback among Independent
Directors.
• calling meetings of Independent Directors.
• serving as a liaison, along with Board committee chairs, between the Independent
Directors and the Chair; provided that this shall not in any way diminish the CEO’s
accountability to the Board in its entirety or the ability of any individual Board member and
the CEO to communicate directly with each other.
• being available to the CEO for consultation on issues of corporate importance that may
involve Board action, and in general serving as a resource to the CEO on an as-needed basis;
• at the standing invitation of the Board’s committees, attending meetings of Board
committees on which the Lead Director does not already serve;
• assisting the Nominating and Corporate Governance Committee with its oversight of the
annual evaluation of the Board and its committees and communicating results of individual
Director assessments to individual Board members;
• consulting with the Nominating and Corporate Governance Committee with respect to
recommendations for the assignment of Board members to the Board’s committees;
• assisting with and communicating (along with the Chair of the Compensation Committee)
the results of the Board’s evaluation of the CEO;
• subject to the requirements set forth below under “Public Communications,” when
deemed appropriate, representing the Independent Directors in engaging with

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Shareholders; and performing such other duties as the Board may determine from time to
time.
In performing his or her duties and responsibilities, the Lead Director is expected to consult
with the Chairs of the appropriate Board committees and solicit their participation in order
to avoid diluting or conflicting with the authority or responsibilities of such committee
Chairs.
Director Responsibilities
The fundamental responsibility of members of the Company’s Board of Directors is to
promote the best interests of the Company and its Shareholders by overseeing the
management of the Company’s business. In doing so, Board members have two basic legal
obligations to the Company and its Shareholders: (a) the duty of care, which requires that
Board members exercise appropriate diligence in making decisions and in overseeing
management; and (b) the duty of loyalty, which generally requires that Board members
make decisions based on the best interests of the Company’s Shareholders and
without regard to any personal interest.
Directors are expected to attend all meetings of the Board and committees of which they
are a member, and to review all meeting materials provided to them in advance of
meetings. Directors must maintain confidentiality of the Company’s non-public information
and abide by applicable
laws.
In addition to the general oversight of management, the Board is expected to perform a
number of specific functions including the selection and evaluation of the CEO, with the
CEO’s compensation determined by the Compensation Committee (as directed by the Board
and to the extent consistent with any applicable plan documents or law). The Board shall
annually review a succession plan for the CEO and the CEO’s direct reports, based upon
recommendations from the Compensation Committee. The Board shall also (i) oversee the
selection, evaluation, development, and compensation of senior management; (ii) assess
major risks facing the Company and review options to mitigate such risks; (iii)
review, approve, and monitor significant financial and business strategies and major
corporate actions; and (iv) oversee the processes to maintain the utmost integrity and
proper management of the Company. The Board of Directors may exercise its authority
through Board committees in accordance with the Company’s Bylaws.
Board Self-Evaluation
The Nominating and Corporate Governance Committee is responsible for overseeing an
evaluation at least annually of the performance of the Board and the Board’s committees
and reporting its conclusions to the Board. The Nominating and Corporate Governance
Committee will make appropriate recommendations to the Board following such
evaluations, including areas in which the Board,
including individual members of the Board, can better contribute to the governance and
long-term success of the Company. The Nominating and Corporate Governance Committee
may use the results of its evaluation in determining the criteria for Directors to be
considered to fill any vacancies on the Board or on its committees and for inclusion in the
slate of Directors to be recommended by the Board at the
Annual Meeting of Shareholders.
Resignation Policy

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Any notice of resignation by a director must be given in writing concurrently to both the
Chairman of the Board and the Corporate Secretary. Any such resignation shall take effect at
the time specified in the notice or, if not so specified, immediately upon receipt.
Director and Senior Management Compensation
The Compensation Committee of the Board of Directors is responsible for reviewing the
compensation and benefits for non-Employee Directors and recommending to the Board
any appropriate changes thereto. The Compensation Committee shall annually evaluate the
CEO's salary, bonus, and other incentive and
equity compensation. The committee shall also annually evaluate and approve the
compensation structure for the Company's officers, and shall evaluate the performance of
each of the Company's other executive officers who are subject to §16(b) of the Securities
Exchange Act of 1934, as amended, before
approving their salary, bonus, and other incentive and equity-related compensation.
The Company’s compensation structure should seek to promote and reward productivity
and dedication to the overall success of the Company. Compensation decisions should take
into account, among other factors, Company and individual performance and market
conditions. The Compensation Committee
shall have sole authority to retain and terminate any compensation consultant to be used to
assist in the evaluation of Director, CEO, or executive officer compensation. The
Compensation Committee shall have the right, in its sole discretion, to determine the nature
and extent of its use of any information received from consultants.
Share Ownership
The Board believes that, in order to align the interests of Directors and Shareholders,
Directors should have a financial stake in the Company. Each Director is expected to comply
with the share ownership guidelines set forth by the Compensation Committee. The Board
will evaluate whether exceptions should be made for any Director on the basis of financial
hardship.
WHO ARE SOUTHWEST AIRLINES MAIN COMPETITORS?
Southwest Airlines’ top competitors include JetBlue Airways, Alaska Air Group,
United Airlines, Delta Air Lines, American Airlines and Air France KLM.

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WHAT IS SOUTHWEST AIRLINES REVENUE?
Southwest Airlines Annual Revenue
(Millions of US $)
2020 $9,048
2019 $22,428
2018 $21,965
2017 $21,146
2016 $20,289
2015 $19,820
2014 $18,605
2013 $17,699
2012 $17,088
2011 $15,658
2010 $12,104
2009 $10,350
2008 $11,023
2007 $9,861
2006 $9,086
2005 $7,584

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PESTLE ANALYSIS FOR SOUTHWEST AIRLINES!!
Political
1. Political interference and control: Domestic operations of Southwest airlines
are controlled by The Federal Aviation Administration (FAA). In 1979 ‘Wright
Amendment’ promulgated by the USA government, restricted Southwest
Airlines to fly non-stop or provide through-plane service from Dallas Love
Field to any other than 7 designated cities. This impacted business for almost
over 26 years and the law was repealed only recently in 2014. Southwest
wanted to fly all between states from Love Field Airport which was quite close
to downtown Dallas. Apprehensions over Southwest to acquire larger market
share prompted rivals to conspire with Fort Worth Congressman Jim Wright
and block inter province flights from Love Field Airport. Southwest fought
against this injustice and finally arrived at an understanding with the courts
which is known as Love Field Compromise. It enabled Southwest to operate
from Love Field airport non-stop flights cities in and around Texas viz.
Louisiana. Arkansas. Oklahoma. and New Mexico, but at the same time the
jurisprudence restricted South West to publish agendas or menus or look into
luggage of any airlines flying from Love Field.
Social

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1. Seasonality of demand: The Company’s business is seasonal. In some seasons in
most of the markets, demand is high in summer, thus leading to higher revenues in
the second and third quarters than the first and fourth quarters of the financial year.
Hence, the company’s operations
reflect this seasonality. Factors that could alter this seasonality include, among
others, the price of fuel, general economic conditions, extreme or severe weather,
fears of terrorism or war, or changes in the competitive environment. Therefore, the
company’s quarterly operating results are not
necessarily indicative of operating results for the entire year, and historical operating
results in a quarterly or annual period are not necessarily indicative of future
operating results
2- Surge in disposable income in United States: Real Disposable Personal Income is
defined as earnings retained after payment of taxes and mandatory charges. An
increase generally means that citizens are more willing to spend on luxury goods
and experiences. According to the data from U.S. Bureau of economic Analysis, the
Real Disposable Personal Income in the United States is generally on the rise and
this will drive growth in experiential travel opening up new opportunities for
Southwest.
Technological
1. Increasing dependence on technology to operate its business: Continuous
revamping is applied to Southwest's internal systems, to introduce newer
technologies which help improve and optimize operations. Disruptions in them tend
to affect the company’s operations owing to its dependence on technology for
operations. This poses significant challenges in terms of costs, human resources,
and effective internal controls. Southwest has also introduced its latest ticketing
reservation system for better customer experience. It also presents the risk of
operational or security inadequacy or interruption, which could materially affect the
company’s ability to effectively operate its business and/or could negatively impact
the company’s results of operations. In most cases, the company is also reliant upon
third party performance for timely and effective completion of many of its technology
initiatives.
2. Integrate digitization to offer holistic experiential packages: In order to capture top
line growth, airlines will have to look at selling experiences to the consumers, just
beyond their flying needs. This would include employing enhanced merchandising
applications that would permit cross selling lodging, call cab, hired cars,
entertainment, and personal shopping that will help them grab the plump slice of
ancillary revenue that surrounds the flight. This will involve building extensive digital
marketing capabilities which could be done via partnerships with global distribution
systems and big data analytics which will help convert the data of billions of global
passengers into insights of compelling offers
Legal
1. Pending litigations whose results can affect the image of the company: Adverse
judgments in pending litigations can affect Southwest’s operations. These litigations
can be disrupted in Southwest’s operations and drain its resources in the future.

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Should the company fail to prevail in these or other matters, the company may be
faced with significant monetary damages or injunctive relief that could materially
affect its business, financial condition and operating results.
2. Consumer Protection Regulation: “Passenger Protection Rules,” which addresses
a wide variety of matters, including flight delays on the tarmac, chronically delayed
flights, denied boarding compensation, and advertising of airfares, among others
have been instituted by DoT. The Passenger Protection Rules also subject airlines to
potential DOT enforcement action for unfair and deceptive practices in the event of
chronically delayed domestic flights. It also requires paying a lump sum
compensation of up to $1,350 to a passenger if he or she is not allowed to board the
flight because of overselling on the part of the airline. It also requires to mandatorily
refunding checked baggage fee for lost baggage. Airlines must disclose all fees for
ancillary services prominently on their websites and ticket selling platforms. They
must also refund fess paid for ancillary services in case of cancellation or overselling
by the airline and in case the passenger is
not able to use the same.
3. Aviation Taxes and Fees: The U.S. Congress considers comprehensive tax reform
legislation, which could result in a lower corporate tax rate, the elimination of certain
tax deductions and preferences, and impacts to the international tax environment.
Grants to airports and/or airport bond financing may also be affected through future
legislation, which could result in higher fees, rates, and charges at many of the
airports the company serves. Thus, the change in taxes and fees directly affects the
profitability of the airline as a whole.
4. Operational, Safety, and Health Regulation: Southwest is also under the purview
of several occupational safety, health administration, and food and drug regulations
at the federal, state and local levels. So, the company collaborates with
Governments to provide its customers with these
security measures.
Environmental
1. Regulations by the Government and respective changes: The company is subject
to various federal laws and regulations relating to the protection of the environment,
including the Clean Air Act, the Resource Conservation and Recovery Act, the Clean
Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental
Response, Compensation and Liability Act, as well as state and local laws and
regulations. The airlines deal with drinking water supplied on the aircraft, emissions,
storm water release, aircraft decibel levels, disposal of materials such as jet fuel,
chemicals, hazardous substances, and aircraft deicing fluid from its daily operations.
Southwest uses a lot of new technologically advanced components to minimize
adverse effects on the environment. In order to minimize the release of these into the
environment it has installed “blended winglets” to reduce drag and enhance fuel
efficiency. It also uses electric ground power for aircraft
air and power support, auto throttle and fuel-efficient initiatives.
Economic

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1. Volatility in fuel prices: Historically, aviation industry profitability has been
particularly susceptible to fuel price volatility; however, in FY2020 industry
experienced a relatively stable and moderate fuel environment as compared with
earlier years. Fuel expenses accounted for about 22.3% and 14.4% of Southwest’s
operating expenses in FY19 and FY20 respectively. Therefore, irregularities and
anomalies in the fuel supply can impact the airline’s operations negatively. Hence,
the company’s strategic plans and future profitability are likely to be impacted by the
company’s ability to effectively address fuel price increase, fuel price volatility and
availability.
2. Challenges in maintaining cost structure with rising competition: A look at FY20’s
finances would show that salaries, wages and benefits represent about 52.9% of the
company’s expenses in day-to-day operations. Southwest’s competitive advantage
of being a low-cost airline can be under threat if it is unable to control these costs.
Thus, its ability to control labor costs is limited by the terms of its collective-
bargaining agreements, and increased labor costs which have negatively
impacted the company’s low-cost competitive position. 83% of the employees of the
company are a part of unions. With the increase in contractual rates, their pay scale
has increased. This has led to pressure on the company’s finances and is a threat to
its low-cost structure. The advantage that Southwest used to enjoy has already been
surpassed by some other ultra-low-cost carriers at a better cost per available seat
mile. They have expanded and added competition to Southwest.
3-Impact of Covid-19 pandemic on the economy and Southwest Airlines: The Covid-
19 pandemic has led to lockdowns of economies across the globe and the damage
caused will have long term consequences on the tourism and aviation industry. The
aviation industry has been severely affected by the travel restrictions put in place
which has caused a phenomenal drop in passenger demand. The resultant cash flow
blockage has been intense enough to potentially drive several airlines to bankruptcy.
The US federal government has sought to work around this problem by proposing
bailout packages for the industry. Southwest Airlines received $3.4 billion in FY2020
as federal stimulus and loans through the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). Out of this around $2.3 billion will be a direct cash grant,
which the company won’t have to repay. The company will utilize this grant mainly to
pay employees. The remaining amount will have to be returned to the government as
it will be given in the form of a long-term low interest loan.

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PORTER’S FIVE FORCES (INDUSTRY + SOUTHWEST AIRLINES)
Entry barriers
Entry barrier – an obstruction that makes it difficult for a company to enter an
industry.
• Some of the possible barriers to entry are:
• Economies of scale.
• Product differentiation.
• Capital requirements.
• Switching costs.
• Access to distribution channels.
• Cost disadvantages due to size.
• Government policies.
Entry barriers for the aviation industry are fairly high due to the high set up
costs involved. The starting capital required is high and there is also a strong
requirement for a steady customer base to keep the business afloat. Without these,
showing any kind of profit is extremely difficult. New entrants as new competitors
are therefore a low level threat within the industry. Moreover, to make matters
difficult for new entrants, existing players often leverage their high capital as a
tool against new competition by either lowering prices or even accepting
losses. Strong airlines like Southwest Airlines find it easy to do so as they do not
really risk losing customers as new entrants will not be able to match their prices.
New entrants in the aviation industry can only be a major risk for Southwest Airlines
as they bring with them innovation and large amount of initial investment that forces
the company to respond by reducing pricing and bringing out new offers to

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customers. The possibility of the same is low considering the domestic and regional
aviation industry with respect to the United States. Thus, Southwest Airlines faces
low threat from new entrants
Rivalry among Existing Firms
According to Porter, intense rivalry is related to the presence of several factors, including:
• Number of competitors.
• Rate of industry growth.
• Product or service characteristics.
• Amount of fixed costs.
• Capacity.
• Height of exit barriers.
• Diversity of rivals.
The aviation industry has long since reached its mature stage of the business
cycle, making the industry a stagnant industry. This stagnation leads to high
competition amongst the players. As the aviation industry has a high entry barrier,
competition within the industry remains the same with very few changes and so does
not get under or over capacitated. Fixed costs are also high for the aviation industry
which discourages players from leaving the industry mostly because they are unable
to do so due to financial reasons. Most airlines are set up with long term loan
agreements and leaving the industry therefore does not remain an option.
Other than these, competition within the industry is further intensified because of the
multifaceted products and airplanes involved. Southwest Airlines faces rivalry on two
fronts. One is the competition from the domestic low-cost-carriers and the other is
from global giants in the Middle East such as Emirates, Etihad and Qatar Airways.
Other global players such as Lufthansa, Ryanair, Singapore Airlines are also
expanding their global reach and making inroads into markets served by Southwest.
Thus, rivalry faced by Southwest Airlines can be said to be medium to high.
Substitute product
Substitute product – a product that appears o be different but can satisfy the same
need as another product. The identification of possible substitute
products mean searching for products that can perform the same function, even
though they have a different appearance and may not appear to be easily
substitutable.
As per the Five Forces model, a substitute can only be called so if it can act as a
replacement for the product or service being offered. It is not a product or service that
competes with another company’s products or services. High speed rail is seen as a
major substitute to airlines. United States continues to expand its high-speed rail
network which will have an impact in the domestic aviation market, however it will not
be a major threat on the longer routes as passengers look to save time. Further, United
States currently does not have international railway networks apart from Canada due
to geographical and logistical reasons which insulates the international aviation market
from this threat. Moreover, there aren’t any major passenger shipping routes from
United States which can compete with the aviation industry. Thus, Southwest Airlines
faces low threat from substitute methods of travel.
Bargaining Power of Suppliers
Suppliers can affect an industry through their ability to raise prices or reduce quality
of purchased goods and services.
•A supplier or supplier group is powerful if some of the following factors apply:

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• Industry is dominated by a few companies;
• Unique product or service and/or has built up switching
costs;
• Substitutes are not readily available;
• Ability to forward integrate; and,
• Unimportance of product or service to the industry.
The external environment plays an important role as far as supplier power in the aviation
industry is concerned. This supplier power is dependent on a number of factors like labor,
infrastructure, fuel and aircraft. Fuel prices are determined by global economic and
political scenario and demand-supply changes. Thus airlines have a little say in this aspect.
Coming to the aircrafts used, in this case the major suppliers are the airplane manufacturers
with top global players such as Boeing, Airbus and Bombardier.
As a leading supplier for Southwest, Boeing enjoys high bargaining power. Overall, the
bargaining power of Boeing in this case if moderately high. To some extent, the higher
purchasing power of Southwest airlines helps control the suppliers’ bargaining power
Long term contracts with suppliers mean that airlines cannot readily change suppliers and as
inputs are mostly the same for all airlines with only different amenities on offer, the
bargaining power of suppliers remains high.
This is true also for Southwest Airlines. Economic power is another factor which plays an
important role. This power not only allows airlines to negotiate with airports but often
also allows them to impose ticket rates on passengers. Therefore, considering all factors it
can be concluded that the bargaining power for suppliers for Southwest Airlines is between
moderate to high.
The Bargaining Power of Buyers
Buyers affect an industry through their ability to force down prices, bargain for higher
quality or more services and play competitors against each other.
Increased availability and distribution of online tickets has reduced the dependency of the
buyer upon intermediaries, agents or even the airlines.
Apart from, the entry of low-cost carriers in United States such as JetBlue, other major
American carriers such as American Airlines, United, Delta; and middle eastern carriers such
as Emirates, Etihad and Qatar Airways are offering broad range of options
This has triggered internal pricing competitions amongst the airlines that have benefited
customers.
Apart from this, the presence of demand based regulations within the aviation industry has
caused the balance of power to be in the favor of the customers.
This means that Southwest Airlines can impose prices upon passengers only if it holds a
monopoly on a specific route with no chance of any other airline entering on that same
flight route.
Thus, bargaining power of buyers can be said to be medium to high with respect to
Southwest airlines in the aviation industry.
Relative Power of Other Stakeholders
A sixth force should be added to Porter’s list to include a variety of stakeholder groups from
the task environment.
• Some of these groups are:
• Government which have the upper hand to create and edit the aviation regulation and
rules
• Local communities.

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• Creditors.
• Trade associations.
• Special interest groups.
• Unions, Southwest's 83% employees are represented by labour unions; thus, the
company stands to be exposed in the event of any labour-related tussles. These would
impact the company’s operations, some of which are negotiated items, like hiring or
retention rates, pay rates, outsourcing costs, work rules, health care costs, and retirement
benefits.
EXTERNAL FACTOR ANALYSIS SUMMARY EFAS TABLE
External Factor Analysis Summary EFAS Table
External Factors Weight Rating Weight Score
Opportunities
1. Upgrading Reservation System (Amadeus IT Group) 0.06 2 0.11
2. High ability to Expanded Destinations - domestically and locally 0.05 2.5 0.13
3. Use of the latest technologies 0.05 2 0.10
4. Expanding the freight cargo services 0.10 4.5 0.45
5- Expanding Fleet 0.08 3 0.23
6- Selecting another aircraft Provider 0.08 3.5 0.26
7- partnerships between or among airlines 0.10 4.5 0.45
Threats
1. Impact of volatile fuel prices 0.08 3 0.24
2. Stringent government regulations and related costs/Taxes 0.05 2 0.11
3. Intensely competitive industry 0.07 2.5 0.16
4. Prolonged pandemic impact hurting the company and the industry 0.10 4 0.40
5- Rise in Labour Cost 0.08 3 0.24
6- Terrorist attack 0.06 2 0.12
7-Society is accustomed to virtual meetings/Closed societies. 0.07 2.5 0.16
Total Score
1.00 3.15

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BARNEY VRIO FRAMEWORK OF ANALYSIS FOR THE SOUTHWEST AIRLINES
• Value: Does it provide customer value and competitive advantage?
• Rareness: Do no other competitors possess it?
• Imitability: Is it costly for others to imitate?
• Organization: Is the firm organized to exploit the resource?
VRIO Analysis is a resource-based analysis of the southwest airline using the details that are
available in the public websites, previous case studies, academic articles.
This analysis brings into light whether the resources as described under can be helpful in
providing Southwest airlines a sustained competitive advantage as compared to the rivals so
it can bring more profit or not, If yes, It will be added later as strength point in SWOT
analysis
Bags Fly Free
As far as U.S. airlines go, only two permit their passengers to check bags for free.
These are Cape Air and Southwest Airlines. based on the claim from the airline
operator that the first and second bag always fly free with the traveller). This is in
contradiction with the normally accepted procedure that most of the airlines do
which is they charge a fee for bags over and above the normally accepted limit for
weight of personal items bag. However, Southwest airlines has been able to
circumvent this trend and is presently known as the “bags fly free” airline tagline.
This has not only increased brand recognition among the customers but has also
added to delivering customer value. This is a rare feature as well as very few airlines
allow baggage for free. When imitability is considered then this can be imitated by
other airlines, but they do not allow this because of the additional revenue that
baggage brings to the airline operator. Southwest airlines is very organized to exploit
Resource Valuable Rare Can't be imitated Organized
to Exploit
Competitive Advantage to be added
to (S) in SWOT
Bags Fly Free YES YES No (Further explanation) Realized Yes
International Presence,
robust Network, and
highest domestic market
share
YES YES YES Realized Yes
Low-Cost Strategy YES YES YES Realized Yes
Brand Value YES YES YES Realized Yes

19 | P a g e
this capability because they have innovated in this aspect and have invested in other
areas of revenue generation.
International Presence, robust network, and highest domestic market share
The second attribute being analysed is the increase in international presence of
Southwest Airlines. There has been multiple acquisitions, mergers and partnerships
that Southwest Airlines has done which has improved its area and region coverage).
For instance, the acquisition of AirTran has helped the company to increase its fly
locations in Mexico, United States, and Caribbean etc. This international presence is a
competitive advantage for the company as most of the airline organizations have
become global organizations because of globalization and Southwest Airlines is not
left behind. The company has larger geography presence than many of its competitors.
Being a dominant player in the market has its own benefits . The company has a
domestic market share in the US of above 16%. The only two companies that are
above in market share than southwest is American Airlines and Delta Airlines. It is an
established fact that an airline company is able to generate as much revenue as much
the airline is able to fly. The company can operate more than 4000 flights a day and is
a large operator that way
Low-cost strategy
It is the third factor in VRIO analysis. This is known as one of the lowest cost airlines
and very few airlines have this reputation. This is a rare attribute this way and is not
imitable to a huge extent. The company has a ‘low fare calendar’ through which the
passengers can book tickets for their flight a low fare of $45 for single flight. Since the
start of the company Southwest airlines have been using Boeing 737s for all the
operations and as per 2020 figures the company had as many as 747 Boeing 737s.
Thus, having a single type of aircraft has contributed to keeping the costs low. This
allows for simple training processes for the staff, pilots and ground officers apart from
unified processes related to flight operations, scheduling, maintenance and aircraft
utilization
Brand value
It is the fourth point as this is a valuable as well as rare competitive advantage. The
company has been ranked as the 11th most admired company globally according to
Fortune and has also been ranked as one of the best employers in the America, With
a Forbes rank of #2 in the year 2019. This is not an imitable characteristic as other
airline companies have to strive hard to enjoy the brand value to the level of
Southwest airlines.

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WHAT IS SOUTHWEST AIRLINES BUSINESS MODEL
A business model is usually composed of five elements:
• Who it serves?
• What it provides?
• How it makes money?
• How it differentiates and sustains competitive advantage?
• How it provides its product/service?
Southwest Airlines Business Model is based on the low-cost business model. It can
offer cheap flight tickets by creating an extremely efficient operation. The
economic crisis resulting from the Covid-19 pandemic is putting multiple
companies out of business – and that is certainly reflecting on the commercial
flight industry as well. However, against all odds, Southwest Airlines Business
Model is holding this American Airline as one of the strongest airlines in the
world. Over the last 20 years, Southwest Airlines, unlike many other airlines, has
been surfing stability, due to its consolidated business model – and that’s precisely
why the company may survive the coronavirus crisis without greater efforts
AIRLINES INDUSTRY EVOLUTION
oligopoly
The United States airline industry today is arguably an oligopoly. An oligopoly exists when a
market is controlled by a small group of firms, often because the barriers to entry are
significant enough to discourage potential competitors.
Consolidated industry – domination by a few large firms, Consolidated industry – domination
by a few large firms,each struggles to differentiate products from its competition.

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VALUE CHAIN ANALYSIS OF SOUTHWEST AIRLINE
According to Porter: “Differences among competitor value chains are a key
source of competitive advantage”.

22 | P a g e
Primary activities
There are five types of primary activities that include operations inbound logistics, outbound
logistics, sales, and marketing, after sales services
Inbound logistics
Activities of Southwest Airlines that is associated with storing receiving and disseminating the
product inputs. These include material handling, storage of customer information,
warehousing facilities, fuelling acquiring aircrafts and ticket management system. Most of the
inbound logistical activities at Southwest Airlines have been outsourced. This also include the
planning for flight routes and shortest distance selection between two locations.
Operations
these are the set of activities that helps Southwest Airlines to transform the raw materials
into finished products. For the airline operator this is a broad concept and includes activities
like usage of customer data for targeted advertisements and promotions to manufacture and
transport of finished goods.
The company mainly emphasizes on self-operations so that it can bring in improvements in
customer knowledge.
Southwest Airlines has a strong web-based provision for airline services to ascertain that the
customers can benefit from efficient and quick self-service in a majority of service requests.
There has been automation in service desk, check-in services, boarding, and baggage handling
and so on.
Sales and marketing
This part of the value chain typically include pricing, sales marketing, channel selection,
promotion etc. The tagline of the company is "Low fares.
This has helped to create and maintain an impression of cost-effective services among the
travellers who are budget conscious.
Many of the advertising programs are run through regional, national and international
television through internet etc. The company also has intensive marketing and promotional
strategies that include mass media advertisements, advertisement through billboards and so
on. The company also takes safety very seriously.
After sales service
The after sales services of the company include part supply, installation services,
maintenance, software alignment, training and so on. The company also has tie-ups with

23 | P a g e
hotels for lodging services, reward points for travellers, car rental services and so on that fall
under the after sales services
Outbound logistics
The outbound logistics at Southwest Airlines typically include distribution of finished product
to final buyers.
Southwest airlines has sky cargo services which is a part of outbound logistics and helps to
create additional value for its services. This is the freight business segment
Support activities
These are the activities that support the primary activities of the airline. There
are four broad categories under which the support activities at Southwest
airlines can be classified: Firm Infrastructure: this includes activities like
planning, legal services, quality management, accounting.
The planning and finance at Southwest Airlines is managed at the corporate
Human resource: the HR space in Southwest airlines include the activities
related to recruitment, people planning, selection, training and development etc.
the company manages these at both corporate level and business level. The
company has many employee rewards programs.
Technology Development: The Company has in house flight scheduling and
inflight systems. There is a technology research Centre where various areas are
researched upon like component designing, process engineering, and feature
design and so on. Southwest is transitioning to a single reservation system on
Amadeus’ Altéa reservation solution for both domestic and international
reservations.
Procurement:
the inputs for business are purchased through the procurement system. These
include inputs ranging from supplies and raw materials to laboratory equipment
and software. Food and beverage also form a part of the procurement.
Procurement is an important part of the whole set of support activities as it
enables movement of required raw materials as well as necessary aviation
software that helps keep the airline profitable and sustainable in the long run.

24 | P a g e
VALUE-CHAIN ANALYSIS FOR THE AIRLINE INDUSTRY
Operations
This has to do with everything that concerns equipment maintenance, assembly,
packaging, testing and every other activity that transforms inputs to the end
product. it is including maintenance of the aircraft and constant repair or
replacement of any specific part.
Airlines hire special companies that have the ability to assemble and maintain
equipment and also ensure efficiency and safety of the airline, those companies
may be under the shell of the manufacturer
This should not only be for equipment, but also for airport services, the runway,
and the service training for workers.
Outbound Logistics
These are the activities that must be undertaken to enable the finished product to reach the
customer .
For the airline industry, these include services such as making sure that those customers who
order tickets on the phone or on the internet receive them, distributing branches of the same
airline evenly around the world so as to make life easier for customers
Marketing and Sales
These are the activities that the airline industries take to ensure that the buyers purchase their
products. They include such factors as the promotion of the product, retail management,
which deals with the small-scale customers, and the channel selection
. Marketing and sales also include pricing and selling of commodity through advertising. The
development of using the Internet as the major distribution channel of the airline services has
resulted in multiple benefits. A lot of tickets are sold through the direct online sales. The
airline companies also have a lot of online marketing for their services.
These are highly efficient because as one logs on to other pages on the internet, these
advertisements pop up on the screen. These adverts are able to meet very many potential
customers. Selling tickets online has certainly helped the airlines significantly cut distribution
costs. Customers are also able to compare the products and the fares of different airlines.

25 | P a g e
Inbound Logistics
Inbound logistics concerns receiving goods, storage of goods, inventory control and
scheduling of transportation.
In the airline industry, there are extremely many companies that come into play in order to
make it a success. These include aircraft manufacturers, food service companies, airports,
local transportation service, fuel companies, aircraft leasing companies and labor unions. In
case there is a breakdown in the accessibility, supply and storage of items from any of these
above-mentioned companies, then there can be a break down in the airline industry.
After sales service
These are activities that are aimed at enhancing the value of the product, support of the
customer, repair of services, installation of new plans, in-service training, spare parts
management and upgrading of the existing systems to the level of the current technology
available elsewhere .
Every airline company in the industry is making a substantial effort to maintain their
standards. Upgrading of systems begins with the internet upgrades to the latest applications
available. These include the online purchase of tickets, keeping records of tickets sold online
and proper communication with the customers that enable the organization to meet all its
needs effectively. There is also upgrading of equipment used in flying. Very many
innovations are emerging every day, and all airlines make an effort to have the latest
technology possible.
Customer support helps the customers receive the right service that they are going for. Most
airlines have employed customer service providers who are available on the phone and online
for any questions that customers may have. The airlines also incorporate the in-service
training of their personnel whenever they bring in some new form of the machine or
technology. This increases the efficiency of the airline industry.

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INTERNAL FACTORS ANALYSIS SUMMARY EFAS TABLE
Internal Factors Analysis Summary EFAS Table
Internal Factor Weight Rating
Weight
Score
Strength
1. Consistent profitability, revenue growth and a strong brand image 0.06 5 0.28
2. A robust network and highest domestic market share 0.05 2.5 0.13
3. Lowest operating cost in the airline industry 0.05 2 0.10
4- Bags Fly Free 0.10 4.5 0.45
5- High Qualified staff 0.08 4.5 0.34
6- High customer satisfaction 0.08 2.5 0.19
7- Political balance Towards both parties 0.10 3 0.30
Weakness
1. Heavy dependency on Boeing 0.15 3 0.45
2. Single type of seating offered 0.05 5 0.25
3. Highly labour-intensive business 0.15 4 0.60
4. Less than 1% of revenues in freight cargo 0.08 1 0.08
5- 83% of the employees of the company are a part of unions 0.06 2 0.12
Total Score
1.0 3.27

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WHAT IS THE SWOT ANALYSIS FOR SOUTHWEST AIRLINES?
Strength
1. Consistent profitability, revenue growth and a
strong brand image
2. A robust network and highest domestic market
share
3. Lowest operating cost in the airline industry
4- Bags Fly Free
Weakness
1. Heavy dependency on Boeing
2. Single type of seating offered
3. Highly labour-intensive business
4. Less than 1% of revenues in freight cargo
Threat
1. Impact of volatile fuel prices
2. Stringent government regulations and related
costs
3. Intensely competitive industry
4. Prolonged pandemic impact hurting the
company and the industry
Opportunity
1. New Reservation System
2. Expanded Destinations - domestically and
locally
3. Use of the latest technologies
4. Expanding the freight cargo services
1- Strength
Consistent profitability
The year 2020 was an exception due to the severe impact of pandemic which saw
the trend broken with Southwest registering a net loss of $3.1 billion
with operating revenues at just $9.0 billion. However once impact of pandemic
subsides the company is expected to be on track again, for the 47th consecutive
year, southwest was profitable, earning $2.3 billion net income for the year 2019.
Operating revenues rose to a record $22.48 billion in FY19.
Revenue growth and a strong brand image
Southwest has a legacy of strong profits year on year and also growth in revenues.
This indicates the good overall profitability of the airline. Moreover, the strong brand
image that the airline has built over the years has built great customer loyalty as
well. It is one of the major airlines who pioneered ticketless travelling and the only
airlines in the United States to offer bags-fly-free service to everyone, no change fess
As launch Customer of the Boeing 737 MAX 8 in North America, Southwest Airlines
boasts of the largest fleet in the world of Boeing aircraft, all of which are equipped
with satellite-based Wi-Fi. Passengers using the Wi-Fi network through personal
devices are permitted to engage in on-demand content streaming i.e., view movies

28 | P a g e
and television shows, as well as nearly 20 channels of free, live TV. Southwest has
been named to Fortune’s list of World’s Most Admired Companies in 2020, coming in
at #11 and has been consecutively featured on the list since 2009.
A robust network and highest domestic market share
A robust network and highest domestic market share: Southwest Airlines have effectively
implemented the model of point-to-point network of connecting destinations as compared
to the hub and spoke network of other airlines. As of January 2020, it serves 720 nonstop
city pairs, serving 101 destinations with 747 aircraft in its fleet. As per records of the U.S.
Department of Transportation, "Southwest was the largest domestic air carrier in the United
States, as measured by the number of domestic passengers boarding it”. In 2019, Southwest
Airlines was the leading airline in the U.S., with a domestic market share of just over 20
percent. This indicates a very successful network connecting destinations that has indeed
contributed to its industry leading
market share in a highly competitive market. In spite of it being a low-cost no-frills airline,
it persistently wins the passenger-satisfaction awards year after year. Southwest flies 4000
flights on weekdays to about 100 locales in America and 10 additional countries during
surges in peak travel period.
Lowest operating cost in the airline industry
Southwest has operating costs which are lowest in the industry. It has the world’s largest
Boeing fleet of any airline. Southwest is able to achieve this distinction by being able to
keep costs low. They have done this by including a single aircraft type, the Boeing 737, in
their fleet. Similar operations requirements for the fleet ensures operating an efficient
point-to-point route structure, ongoing work, reduced fuel consumption, and highly
productive employees as there is no variation in the maintenance of the fleet. The low-cost
structure is one of the competitive advantages, as it has enabled southwest to offer low
fares, drive traffic volume, and grow market share year on and also lead the industry in the
segment.
Bags Fly Free, Low fares flights
As far as U.S. airlines go, only two permit their passengers to check bags for free. These are
Cape Air and Southwest Airlines. based on the claim from the airline operator that the first
and second bag always fly free with the traveller. This is in contradiction with the normally
accepted procedure that most of the airlines do which is they charge a fee for bags over and

29 | P a g e
above the normally accepted limit for weight of personal items bag. However, Southwest
airlines has been able to circumvent this trend and is presently known as the “bags fly free”
airline tagline. This has not only increased brand recognition among the customers but has
also added to delivering customer value. This is a rare feature as well as very few airlines
allow baggage for free. When imitability is considered then this can be imitated by other
airlines, but they do not allow this because of the additional revenue that baggage brings to
the airline operator. Southwest airlines is very organized to exploit this capability because
they have innovated in this aspect and have invested in other areas of revenue generation.
Also The company is now one of the United States biggest airline companies, offering low
cost fares to their clients. The company offers the lowest combination of aircraft fares to its
customers making it one of the most attractive airline carriers in the continent.
2- Weakness
Heavy dependency on Boeing
Heavy dependency on Boeing: Southwest Airlines' business would be affected if it were
unable to obtain additional equipment or procure support from any of its suppliers in case
of a mechanical or
regulatory issue associated with their equipment. The Company is highly dependent on
Boeing as its sole supplier for aircraft and many of its aircraft parts. The company’s
operations can be affected
adversely if Boeing fails to or withdraws on delivering aircrafts, Southwest is unable to
purchase the aircraft, or there is improper and irregular supply of products and services.
Single type of seating offered
Southwest offers a fare structure that is competitive. Lower fares are available on a
restricted basis. Some airlines also have better seating options and passenger associated
amenities than Southwest, including first-class, business class, and other premium seating
and related amenities. Thus, Southwest’s competitors can charge a premium for the
premium class of seats. But Southwest, due to its strategy as a low-cost carrier cannot
charge for premium seats.
Highly labour-intensive business
A look at the 2019 finances would reveal that salaries, wages and benefits constitute
about 42.6% of the company’s operational expenditure. In FY20 the above cost-segment
represented about 52.9% of the company’s expenses. If Southwest is not able to maintain
favourable relationships with employees or representatives of employees, the company’s
operations can be impacted. Southwest's 83% employees are represented by labour

30 | P a g e
unions; thus, the company stands to be exposed in the event of any labour-related tussles.
These would impact the company’s operations, some of which are negotiated items, like
hiring or retention rates, pay rates, outsourcing costs, work rules, health care costs, and
retirement benefits.
Less than 1% of revenues in freight cargo
Freight revenues for 2019 decreased by $3 million compared to 2018, primarily due to
sluggish demand. FY20 was an exceptional year due to the Covid-19 impact. Higher
dependency on passenger transportation revenues means that if in any scenario, this source
of revenue falls, the company cannot depend on freight as a substitute source of revenue. It
would be better for the company if it can also increase its income from freight revenues to a
greater extent.
3- Threat
Impact of volatile fuel prices
Fuel expenses accounted for about 22.3% of Southwest’s operating expenses for FY19.
Therefore, irregularities and anomalies in the fuel supply can directly dent the
airline’s operations negatively. In FY20, industry experienced a relatively stable and
moderate fuel environment in 2020. The company’s strategic plans and future profitability
are likely to be impacted by the company’s ability to effectively address the rise, volatility
and availability of fuel prices. Moreover, as it has the perception of a low-cost carrier, it
would be tough to increase ticket prices if there is a fuel price rise
Stringent government regulations and related costs
Regulations in the airline industry introduced by the respective Governments, Government
and legislative agencies can impact the airlines’ operations and finances. Some of the
regulations include – “Consumer Protection Regulations, Aviation Taxes and Fees,
Operational, Safety, and Health Regulations, Security Regulations, Environmental
Regulations and International Regulations”. The incidence of terrorist attacks and security
concerns increase the overall security costs and thus can impact the airlines’ operations.
This has resulted in increased safety and security costs for the company and the airline
industry generally. Safety measures create delays and inconveniences and would likely have
a further significant negative impact on the company and the airline industry.

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Intensely competitive industry
There is immense competition from domestic, regional and entry level players that
Southwest is facing. Also, other physical transportation modes, including surface,
underground and water modes and a flurry of virtual modes like internet voice calls, and
videoconferencing pose a threat to the airline industry at large as they are seen as a
substitute for physical meetings. This reduces both cost and time. The Company’s revenues
are sensitive to what the other carriers do with respect to pricing, routes, frequent flyer
programs, scheduling, capacity, customer service, comfort and amenities, cost structure,
aircraft fleet.
Prolonged pandemic impact hurting the company and the industry
The coronavirus COVID-19 pandemic began to spread throughout the United States since
March 2020 and it was a long painful year for the aviation industry. The year 2021 has not
brough much respite, though with the increasing vaccination there is some hope ahead. The
pandemic led to dramatic decline in passengers and revenues, and aviation players including
Southwest took a number of steps to protect the financial health and boost cash reserves.
Southwest aggressively reduced its flying capacity, with available seat miles declining 34.2
percent for all of 2020. Tourism has considerably dwindled due to stringent quarantine rule
and travel bans. Further it may take many years for business travel to recover to pre-
pandemic levels, especially considering the swift, forced move to remote office work
enabled by online collaboration tools and video/audio conferencing technologies.
Opportunity
New Reservation System
New Reservation System: Southwest is transitioning to a single reservation system on
Amadeus’ Altéa reservation solution for both domestic and international reservations. This
new reservation system is expected to generate an improvement in EBIT of approximately
$500 million by 2020, through added functionality and operational capabilities. This would
replace the existing reservation system in place and can attract more customers
Amadeus is a computer reservation system (or global distribution system, since it sells
tickets for multiple airlines) owned by the Amadeus IT Group with headquarters in Madrid,
Spain. The central database is located at Erding, Germany
Raise customer experience, improve efficiency, and boost revenue. This innovative revenue
and schedule management technology puts you in charge, with advanced availability
management techniques, dynamic customer segmentation, and sophisticated airline policy
controls.
Expanded Destinations Domestically and locally
Southwest has already launched services to nine near-international countries. Its count of
total destinations stands at 101. It is also expected to launch services to newer airports and
international destinations like Cancun, Mexico; Montego Bay, Jamaica; and Grand Cayman.

32 | P a g e
These expansions can provide Southwest with an expanding reach of customer base and
thus room for increasing revenues.
Expanding the Freight cargo service
Southwest can develop its capabilities as a cargo carrier as well. In that way it can also
utilize the opportunities available for cargo revenues. Revenues from freight for 2016
decreased compared with 2015, primarily due to decreasing demand. If Southwest can
expand its freight cargo, then it can add to its revenue numbers.
STRATEGIC FACTOR ANALYSIS SUMMARY
Strategic Factor Analysis Summary
Code SFAS Weight Rating
Weight
Score
Duration
Short Intermediate Long
S1
1. Consistent profitability,
revenue growth and a strong
brand image
0.06 5 0.28
x
S2
2. A robust network and highest
domestic market share
0.05 2.5 0.13
x
S3
3. Lowest operating cost in the
airline industry
0.05 2 0.1
x
S4
4- Bags Fly Free, offer low fares
flights to compete all other
airlines
0.1 4.5 0.45
x
W1 1. Heavy dependency on Boeing 0.15 3 0.45 x
W2 2. Single type of seating offered 0.05 5 0.25 x
W4
4. Less than 1% of revenues in
freight cargo
0.07 1 0.07
x
W5
5- 83% of the employees of the
company are a part of unions
0.06 2 0.12
x
O2
2. High ability to Expanded
Destinations - domestically and
locally
0.05 2.5 0.13
x
O3 3. Use of the latest technologies 0.05 2 0.1 x
O4
4. Expanding the freight cargo
services
0.08 4.5 0.36
x
O6
6- Selecting another aircraft
Provider
0.08 3.5 0.26
x
O7
7- partnerships between or
among airlines
0.1 4.5 0.45
x
T7
7-Society is accustomed to virtual
meetings/Closed societies.
0.07 2.5 0.16
x
Total Total Score 1 3.29

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TOWS MATRIX
Internal Factor
External Factors
S1. Consistent profitability, revenue growth and a strong brand image
S2. A robust network and highest domestic market share
S3. Lowest operating cost in the airline industry
S4- Bags Fly Free, offer low fares flights to compete all other airlines
S5- High Qualified staff
S6- High customer satisfaction
S7- Political balance Towards both parties
W1. Heavy dependency on Boeing
W2. Single type of seating offered
W3. Highly labour-intensive business
W4. Less than 1% of revenues in freight cargo
W5- 83% of the employees of the company are a part of unions
O1. Upgrading Reservation
System (Amadeus IT Group)
O2. High ability to Expanded
Destinations - domestically
and locally
O3. Use of the latest
technologies
O4. Expanding the freight
cargo services
O5- Expanding Fleet
O6- Selecting another
aircraft Provider
O7- partnerships between or
among airlines
SO1-As explained Southwest airlines is the Lowest operating cost in the airline
industry so it can compete also if the company Expanded Destinations Domestically
and locally,
Using the advantage of low-Fare will also give the company priority in the list of
customer options specially that the company has a good name in the field of
customer satisfaction
SO2-Company also can use the advantage of having good brand name and its revenue
growth to select another aircraft provider with long lead contracts to expand the fleet
SO-3 Company can use its robust network to do a partnerships between or among
airlines. Within these collaborations, airlines can share resources, pick up or extend
partner routes and even offer the ability to earn and redeem miles through each
other’s rewards programs which will attract more customers and decrease the
operation cost
SO-4 Also one of the opportunities to southwest to merge with another well-known
medium size carriers which are covering some areas out of southwest airline zones,
the company already has sufficient resources from employees, fleet, capital and
brand name to start occupying another uncovered zone like middle east, west
Europe, and East of Asia which have high intensive of transportation requirement.
WO-1 company can use another aircraft provider away from Boeing which will decrease
the threat of using sole provider
WO-2 Company can go with partnerships between or among airlines. Within these
collaborations, airlines can share resources, which will decrease the threat of Highly
labour-intensive business also it will decrease the cost of operation and also will give the
variety of the human resources which will limit the power of labour unions towards it.
T1. Impact of volatile fuel
prices
T2. Stringent government
regulations and related
costs/Taxes
T3. Intensely competitive
industry
T4. Prolonged pandemic
impact hurting the company
and the industry
T5- Rise in Labour Cost
T6- Terrorist attack
T7-Society is accustomed to
virtual meetings/Closed
societies.
ST-1 The company could use its political weight to balance the Democratic and
Republican Party against passing new tax laws or any law restricting the company or
at least limiting the impact of any potential law
ST-2 Company can use its good training program to train multi-Task employees and
to optimize their performance which can limit of any new recruitment to avoid any
additional high labour cost
ST-3Society is accustomed to virtual meetings/Closed societies, because of pandemic,
Company can use the benefit of low fares flights to break the Ice and offer more
discounts to companies and Tourist groups
WT-1 ensures operating an efficient point-to-point route structure, ongoing work, which
will reduce fuel consumption, Also searching for low consumption carrier through
another aircraft providers away from Boeing which is the sole provider to southwest
WT-2 FY20 was an exceptional year due to the Covid-19 impact. Higher dependency on
passenger transportation revenues means that if in any scenario, this source of revenue
falls, the company cannot depend on freight as a substitute source of revenue. It would
be better for the company if it can also increase its income from freight revenues to a
greater extent.

34 | P a g e
SWEET SPOT FOR THE COMPANY
Southwest Rewards Program
When compared to other rewards programs, the point value of Rapid Rewards outpaces most. Because the points you earn on the Southwest
Priority card are so valuable, you get a decent rewards value out of every dollar you spend – despite a lower earning rate.
Southwest Airlines Rapid Rewards is one of the most accessible and easy to use frequent flyer programs around. Because every seat on a
Southwest flight is available as an award seat if you can buy it with cash, you won’t have to endlessly hunt for a flight where you can redeem
your points. And Southwest’s online low-fare calendar makes it easy to find the cheapest time to fly to any city.
Southwest Rapid Rewards points Value's at 1.4 cents apiece. However, you can increase that valuation on certain flights by using the low-fare
calendar website that Southwest provides.
The best redemption rates for those points on short hop flights between major cities.
Southwest will not face an intense competition in Rewards Program Field

35 | P a g e
RE-EXAMINATION OF AN ORGANIZATION’S CURRENT MISSION
WHAT IS THE APPROPRIATE BUSINESS STRATEGY FOR SOUTHWEST AIRLINE?
Business strategy asks how the company, or its units should compete or cooperate in
each industry, Southwest Airlines is always offering unique selling proposition lies in being
the largest low-cost carrier in the United States which will be categorized under
competitive strategies/ Cost leadership which means that company is able to design,
produce and market a comparable product more efficiently than its competitors.
Mission Checklist Y/N Comment
1.It must be short so that every
employee can remember the
statement. Y
Customer experience is the most important factor in
philosophy of mission statement,
It is measurable, easy to understand and correlated with
the way of how to attract more customers and those
customers will be the best marketer for southwest using
the "word of mouth" which will reflect their great
experience with Southwest.
2.The design must be simple so that
everyone in the company can
understand what the senior
leadership team desires. Y
3.It has to provide direction to the
activities of company employees. Y
4.The statement should enable
employees knowing exactly what the
company does and what it does not
do. Y
5.The statement should be
measurable so that the company can
visibly see progress Y

Southwest airline analysis

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