Southwest Airlines has consistently been profitable since 1973 while most other airlines have struggled. It focuses on low fares and has maintained this strategy despite rising costs. While Southwest's passenger numbers and market share have increased, its operating profit declined slightly from 2006-2009. To improve profits, Southwest will need to ensure revenue exceeds operating costs while continuing its strategy of slow expansion into new markets.
This is a recent brand audit some classmates and I did on Southwest. It\'s always interesting to dig into a brand you know and respect. We found some interesting insights about where the airline has been and where they are going.
Southwest Airlines Co. (NYSE: LUV) is an American low-cost airline. The airline has its headquarters on the grounds of Dallas Love Field in Dallas, Texas.
Southwest is the largest airline in the world by number of passengers carried per year (as of 2009) Southwest maintains the third-largest passenger fleet of aircraft among all of the world's commercial airlines. As of May 3, 2009, Southwest operates approximately 3,510 flights daily.
Southwest Airlines has carried more passengers than any other U.S. airline since August 2006 for combined domestic and international passengers according to the U.S. Department of Transportation's Bureau of Transportation Statistics. Southwest Airlines is one of the world’s most profitable airlines, posting a profit for the 37th consecutive year in January 2010.
This was a research project that our Business Strategy class completed in 2007. This is an evaluation of Southwest Airlines and its position in the market. We evaluated growth and future prospects with a heavily consolidating industry.
This book examines how Southwest Airlines, the largest carrier of passengers in the largest market in the world has become the envy of financial performance, customer, and employee satisfaction for the airline industry. For those of us who are involved in Organization Development or Human Resources and toil under the belief that people make a bottom line difference, this is our book. For leaders this is also your book, the lessons learned at Southwest are transferable not only to the airline industry but to any industry. A word of caution, the book is based on an academic/statistical study of the airline industry and reported more as an academic treatise than a captivating book. Don't let the style of writing get in the way of the important message:
Southwest's most powerful organizational competency--the "secret ingredient" that makes it so distinctive--is its ability to build and sustained high performance relationships among managers, employees, unions, and suppliers. These relationships are characterized by shared goals, shared knowledge, and mutual respect.
Over time Southwest Airlines has developed 10 organizational practices to facilitate coordination among 12 distinct functions: pilots, flights attendants, gate agents, ticketing agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fuelers, aircraft cleaners, and caters by building relationships of shared goals, shared knowledge, and mutual respect. The heart of this book is the description of these 10 practices and how managers in any setting can implement them to improve their business performance.
This is a recent brand audit some classmates and I did on Southwest. It\'s always interesting to dig into a brand you know and respect. We found some interesting insights about where the airline has been and where they are going.
Southwest Airlines Co. (NYSE: LUV) is an American low-cost airline. The airline has its headquarters on the grounds of Dallas Love Field in Dallas, Texas.
Southwest is the largest airline in the world by number of passengers carried per year (as of 2009) Southwest maintains the third-largest passenger fleet of aircraft among all of the world's commercial airlines. As of May 3, 2009, Southwest operates approximately 3,510 flights daily.
Southwest Airlines has carried more passengers than any other U.S. airline since August 2006 for combined domestic and international passengers according to the U.S. Department of Transportation's Bureau of Transportation Statistics. Southwest Airlines is one of the world’s most profitable airlines, posting a profit for the 37th consecutive year in January 2010.
This was a research project that our Business Strategy class completed in 2007. This is an evaluation of Southwest Airlines and its position in the market. We evaluated growth and future prospects with a heavily consolidating industry.
This book examines how Southwest Airlines, the largest carrier of passengers in the largest market in the world has become the envy of financial performance, customer, and employee satisfaction for the airline industry. For those of us who are involved in Organization Development or Human Resources and toil under the belief that people make a bottom line difference, this is our book. For leaders this is also your book, the lessons learned at Southwest are transferable not only to the airline industry but to any industry. A word of caution, the book is based on an academic/statistical study of the airline industry and reported more as an academic treatise than a captivating book. Don't let the style of writing get in the way of the important message:
Southwest's most powerful organizational competency--the "secret ingredient" that makes it so distinctive--is its ability to build and sustained high performance relationships among managers, employees, unions, and suppliers. These relationships are characterized by shared goals, shared knowledge, and mutual respect.
Over time Southwest Airlines has developed 10 organizational practices to facilitate coordination among 12 distinct functions: pilots, flights attendants, gate agents, ticketing agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fuelers, aircraft cleaners, and caters by building relationships of shared goals, shared knowledge, and mutual respect. The heart of this book is the description of these 10 practices and how managers in any setting can implement them to improve their business performance.
Southwest Airlines in 2014: Culture, Values, and Operating Practices (CASE)Tran Thang
In 2014, Southwest Airlines was the market share leader in domestic air travel in the United States; it transported more passengers from U.S. airports to U.S. destinations than any other airline, and it offered more regularly scheduled domestic flights than any other airline. Southwest also had the enviable
distinction of being the only major air carrier in the United States that was consistently profitable, having reported a profit every year since 1973.
This presentation encompasses the classic case study of Southwest Airlines, USA.
Explaining why they have been so successful even in recession period.
It is a part of case-study based lectures at Symbiosis Institute of Business Management, Bangalore.
Assignment 1 of the marketing internship by Prof. Sameer Mathur of IIM Lucknow where I have performed a mini case analysis on Southwest Airlines present at the at the end of Chapter 13 of Marketing Management, 14th Edition by Philip Kotler.
SouthWest
SouthWest
Company name, website and industry
The company I would be analyzing is Southwest Airlines which operates in the Airline industry. The website of the company is https://www.southwest.com.
Background and history of southwest Airlines
Southwest Airlines was founded in 1967 and it stands as the premier low-cost air carrier in the United States. The company was incorporated by Rollin King and Herb Kelleher on March 16, 1967 (Lauer, 2010). As of 2013, the company had a fleet of 579 planes and flies between eighty-nine destinations. It has the reputation of being the highest utilized airline by American citizens for domestic flights with an operation of about 3,400 flights each day. In 2012, the company had an annual revenue of $17 billion (Hill & Jones, 2013). Its current chief executive officer is Gary C. Kelly who has received several honors, including being the best CEO in the US for 2008, 2009 and 2010 (Hill & Jones, 2013).
Analysis of Southwest Airlines using Porter’s Five Forces Model
Competitive rivalry-High. Southwest Airline’s direct competitors comprise of six major low-carriers operating in the domestic market with similar services such as Delta Air Lines, American Airlines, United Continental Holdings, JetBlue Airways, US Airways Groups and Allegiant Travel. This offers a strong competition., considering their operation in the domestic market and provision of similar competitive packages such as low-cost flights (Flouris & Oswald, 2016).
Threat of new entrants-Moderate. New low cost Airline firms could enter the industry and attract customers. As much as entry into the market is minimized by the huge capital investments required for venturing into the industry, there are no barriers to entry (Flouris & Oswald, 2016).
Bargaining power of suppliers-High. Planes suppliers in the industry include Airbus and Boeing. Supply of fuel in the Airline industry is extremely volatile and unpredictable. This makes the bargaining power of suppliers high.
Bargaining power of buyers-High. Most of the competitors or low cost carriers in the industry offers similar services and limited differentiation. Buyers have a high bargaining power due to availability of alternatives with similar benefits. In order to address the high buyers’ bargaining power, the company can decide on less cancelations, lower price, fewer delays and more amenities (Flouris & Oswald, 2016).
Threat of substitutes-Low. Alternative means of transport such as vehicles, ship and train do not significantly compete with air transport owing to their high speed, comfort and time savings.
Strategy used
Michael Porter presented generic strategies that can be employed by a company to overcome the five forces and accomplish competitive advantage. The first strategy presented is the overall cost leadership which is based on creating a low-cost.
Southwest Airlines in 2014: Culture, Values, and Operating Practices (CASE)Tran Thang
In 2014, Southwest Airlines was the market share leader in domestic air travel in the United States; it transported more passengers from U.S. airports to U.S. destinations than any other airline, and it offered more regularly scheduled domestic flights than any other airline. Southwest also had the enviable
distinction of being the only major air carrier in the United States that was consistently profitable, having reported a profit every year since 1973.
This presentation encompasses the classic case study of Southwest Airlines, USA.
Explaining why they have been so successful even in recession period.
It is a part of case-study based lectures at Symbiosis Institute of Business Management, Bangalore.
Assignment 1 of the marketing internship by Prof. Sameer Mathur of IIM Lucknow where I have performed a mini case analysis on Southwest Airlines present at the at the end of Chapter 13 of Marketing Management, 14th Edition by Philip Kotler.
SouthWest
SouthWest
Company name, website and industry
The company I would be analyzing is Southwest Airlines which operates in the Airline industry. The website of the company is https://www.southwest.com.
Background and history of southwest Airlines
Southwest Airlines was founded in 1967 and it stands as the premier low-cost air carrier in the United States. The company was incorporated by Rollin King and Herb Kelleher on March 16, 1967 (Lauer, 2010). As of 2013, the company had a fleet of 579 planes and flies between eighty-nine destinations. It has the reputation of being the highest utilized airline by American citizens for domestic flights with an operation of about 3,400 flights each day. In 2012, the company had an annual revenue of $17 billion (Hill & Jones, 2013). Its current chief executive officer is Gary C. Kelly who has received several honors, including being the best CEO in the US for 2008, 2009 and 2010 (Hill & Jones, 2013).
Analysis of Southwest Airlines using Porter’s Five Forces Model
Competitive rivalry-High. Southwest Airline’s direct competitors comprise of six major low-carriers operating in the domestic market with similar services such as Delta Air Lines, American Airlines, United Continental Holdings, JetBlue Airways, US Airways Groups and Allegiant Travel. This offers a strong competition., considering their operation in the domestic market and provision of similar competitive packages such as low-cost flights (Flouris & Oswald, 2016).
Threat of new entrants-Moderate. New low cost Airline firms could enter the industry and attract customers. As much as entry into the market is minimized by the huge capital investments required for venturing into the industry, there are no barriers to entry (Flouris & Oswald, 2016).
Bargaining power of suppliers-High. Planes suppliers in the industry include Airbus and Boeing. Supply of fuel in the Airline industry is extremely volatile and unpredictable. This makes the bargaining power of suppliers high.
Bargaining power of buyers-High. Most of the competitors or low cost carriers in the industry offers similar services and limited differentiation. Buyers have a high bargaining power due to availability of alternatives with similar benefits. In order to address the high buyers’ bargaining power, the company can decide on less cancelations, lower price, fewer delays and more amenities (Flouris & Oswald, 2016).
Threat of substitutes-Low. Alternative means of transport such as vehicles, ship and train do not significantly compete with air transport owing to their high speed, comfort and time savings.
Strategy used
Michael Porter presented generic strategies that can be employed by a company to overcome the five forces and accomplish competitive advantage. The first strategy presented is the overall cost leadership which is based on creating a low-cost.
United Airlines is facing a crisis in customer service. This plan will address three audiences and will explore ways to see an increase in customer loyalty, increase in sales, word-of-mouth recommendations, employees making measurable change, and the FAA not intervening with United Airlines regulations.
1 The Commercial Airline Industry October 17t.docxjoyjonna282
1
The Commercial Airline Industry
October 17th, 2014
Ben Cohen
Z23106977
Global Strategy and Policy
Man 4720
Professor Harry Schwartz
Finance Major
2
In this paper, a Porter’s analysis will be conducted on the commercial airline
industry. The Porter analysis is a means of measuring the intensity of the competitive
forces associated with an industry. The competitive forces consist of threat of new
entrants, rivalry among existing firms, threat of substitute products or services,
bargaining power of buyers, bargaining power of suppliers, and relative power of other
stakeholders. Each of these 6 competitive forces will be analyzed and rated high, medium
or low in strength based on their intensity.
Threat of New Entrants: Low
Companies that are considering or attempting to enter the airline industry will
have extreme difficulty, as a result of the many entry barriers they will encounter. These
entry barriers are why the threat of new entrants in the commercial airline industry is
considered low. Airline companies operating in today’s industry have a large inventory of
aircrafts and offer many flight availabilities. They are able to use economies of scale to
effectively provide flexibility to travelers. The existing airline companies will capitalize
on their economies of scale as a competitive advantage and entice travelers with their
low-cost fares for the same service. This is why in the airline industry many companies
seek to gain strategic alliances with other companies. Forming strategic alliances allows
companies to add new routes and increase sales revenue, without substantially increasing
their capital investment. An example of this is the joint venture agreement between Delta
Air lines and Virgin Atlantic Airways Ltd. This agreement allowed them to form a “fully
integrated joint venture that will operate on a “metal neutral” basis with both airlines
sharing the costs and revenues, from all joint venture flights” (Delta Air Lines, 2012).
This agreement will allow these two airlines to provide a seamless network between
North America and the U.K. for their customers. These alliances have changed the
dynamic of the industry.
Another barrier to entry into this industry is the extremely high capital
requirements. It takes a large amount of initial capital to buy inventory of large
commercial aircrafts. However, it is not just the initial capital that is crucial; it is also the
steady capital needed to maintain these aircrafts. “Domestic carriers spent $11.6 billion
3
last year on capital improvements. Over the past five years U.S. airlines have retired
nearly 1,300 planes” (Mayerowitz, 2014). This is substantial evidence of the financial
intensity associated with entry into this industry.
Another barrier to entry is government policy. Government policy in the past
played a much larger role, how ...
NOTE This Industry overview is only a starting point for your an.docxhenrymartin15260
NOTE: This Industry overview is only a starting point for your analysis. Environment and industry issues can change rapidly and some of the information here may therefore be out-of-date.
You MUST supplement this information with additional research.
The Airline Industry
4940- Summer, 2014
Few inventions have changed how people live and experience the world as much as the invention of the airplane. During both World Wars, government subsidies and demands for new airplanes vastly improved techniques for their design and construction. Following World War II, the first commercial airplane routes were set up in Europe. Over time, air travel has become so commonplace that it would be hard to imagine life without it. The airline industry certainly has progressed. It has also altered the way in which people live and conduct business by shortening travel time and altering our concept of distance, making it possible for us to visit and conduct business in places once considered remote.
The airline industry exists in an intensely competitive market. In recent years, there has been an industry-wide shakedown, which will have far-reaching effects on the industry's trend towards expanding domestic and international services. In the past, the airline industry was at least partly government owned. This is still true in many countries, but in the U.S., all major airlines have come to be privately held. The U.S. airline industry has been in a chaotic state for a number of years. According to the Air Transport Association, the airline industry’s trade association, the loss from 1990 through 1994 was about $13 billion, while from 1995 through 2000, the airlines earned about $23 billion and then lost about $35 billion from 2001 through 2005. Against this backdrop of poor financial performance, dramatic changes in industry structure have occurred. Growth in air passenger traffic has outstripped growth in the overall economy and the U.S. airline industry remains in the midst of an historic restructuring. Over the last five years, U.S. network airlines have reduced their annualized mainline costs excluding fuel by more than 25%, or nearly $20 billion.
While some of the cost savings realized in the industry were the product of identifying greater operational efficiencies, most of the savings were generated by renegotiation of existing contractual arrangements with creditors, aircraft lessors, suppliers and airline employees and achieved either through the bankruptcy process itself or under threat of bankruptcy. A portion of industry capacity still operates in bankruptcy. But, it is down from a high of 46 percent in 2005. As a result, several carriers that were near liquidation now have lower cost structures that should allow them to show improved performance.
Economic profile of the Air line industry: The airline industry has always exhibited cyclicality because travelers' demand is sensitive to the performance of the macro economy yet airl.
Capstone Experience in Integration & Strategy B6028-T A02 M2 A.docxwendolynhalbert
Capstone Experience in Integration & Strategy | B6028-T A02 | M2 A2 | Eric Speechley
In the first module I choose to discuss the airline industry. This has been something that I am passionate about as well as have studied for the last 5 years. Using firsthand experience, management guidance and research on the web, I will continue this paper for the external environmental scan. As a potential future leader of the company, it is important to evaluate many factors of business to remain successful. Economic, geographical, technological, social, and political trends are all a concern when a leader of a successful business. This will be imperative to profiting from an industry that already has very low profit margins. Let’s get started.
First we are going to look at the current economic trends of the airlines as a whole. Reading the last document, we have established that the airlines are the first to show recession and the last the recover. Since the tragic day of September 11th the economic factors of the airlines has decided. Since then the aviation market has returned to a profitable business. There has been a 20% increase in domestic flight traffic since 2010. With over 87,000 flights a day air travel is the way to go. Although less than half of those fights are commercial, that equates to 1.73 million passengers a day. The economic trends have continued to claim and over the next 5 years aviation is projected an additional 27% increase. (Notis, 2015)
Political factors affect every profession. In the airlines it has been a problem. The biggest political issue that is facing the airlines today is Federal Aviation Regulation. In 2009 Colgan Air 3407 crashed killing all 50 people on board. The National Transportation Safety Board released a statement stated that it was pilot error due to inexperience. The FAA then changed pilot regulation from pilots needing 495 Hours of total flight time to 1500 hours to get in entry level position in the airlines. This has created a problem because 4 year graduating pilots only have about 300 hours. Every position requires more hours which makes it difficult for young pilots to join the airlines. With an increase in air travel and decrease in pilots due t regulation it has created a pilot shortage. Since September 11th there as been a further decrease in pilots as they were furloughed and found other positions. With changing politics and pilots from dessert storm ready to retire, political trends have created a major shortage over the next 5 years.
Currently regulation and political factors drive part of the societal trends. Do to the recession and change in regulation. There have been political changes. Due to low profit margins the attacks on the twin towers put commercial aviation into a tailspin. Not only has that but more recently, the Malaysia Airlines effected how people see air travel. Airlines have been merging to stay profitable and it really takes a huge toll of customer relations. The top 5 U.S. ...
Southwest Financial note by - Jean Lemercier, Cécilia Cosnard des Closets, Charline Poher, Derek Fleck and Violaine Lièvre. Including risk assessment, peers comparison, internal financial analysis and environmental analysis.
Revenue management first appeared in the airline industry in the early 1980s. It arose from the need for accurate demand estimates and profit-generating resource allocations in a newly deregulated environment. We begin this program and this module with a look back at the main causes and consequences of airline deregulation in North America. We describe how the deregulated North American airline industry has encouraged a trend toward deregulation, or at least liberalization, worldwide. We then move on to introduce the basic concept involved in airline revenue management.
1. Page 1 of 8
CASE STUDYANALYSIS:
SOUTHWEST AIRLINES IN 2010
Matthew Tyler Harman
MBAA-635 Business Capstone Course
2. Page 2 of 8
Southwest Airlines has had an interesting history in the aviation marketplace. Thompson
as stated that, “the U.S. airline industry had lost money in 15 of the 30 years from 1980 through
2009, yet Southwest had reported a profit every year since 1973” (Thompson, et al.). This airline
has a uniquely different corporate strategy that is primarily focused on offering a low-cost
service to consumers.
Southwest has maintained the same image that they entered the market with, a low cost
domestic carrier. Despite competitors introducing add-on fees, Southwest has kept the same all-
inclusive price. This has developed a large following and is typically offset with the
nonrefundable policy. This strategy is interesting as the company has remained profitable
despite rising external costs. This constant profitability can be attributed to the fact that a lower
cost airline may be able to generate a higher load factor. Competitors may be offering higher
prices to offset the rising outside costs but may not be filling their capacity. Thompson
illustrates this by saying, “Southwest was a shrewd practitioner of the concept of price elasticity,
proving in one market after another that the revenue gains from increased ticket sale and the
volume of passenger traffic would more than compensate for the revenue erosion associated with
low fares” (Thompson, et al.).
Southwest has provided consumers with a clear understanding of their business structure.
This has been outlined in a mission statement that addresses employees, communities, the planet,
and stakeholders. The company is best known for its, “bags fly free” policy allowing consumers
to not have additional costs when flying. The company has specifically targeted business
travelers in regional routes by offering low cost flights with a range of flight times. They have
combined their lost cost options with several promotional programs that target, “frequent fliers”.
Southwest has also indicated that they have develop other strategies including, “gradual
3. Page 3 of 8
expansion into new geographic markets, adding flights in areas where rivals were cutting back
service, curtailing flights on marginally profitable routes where numerous seats often went
unfilled and shifting planes to routes with good growth opportunities, and putting strong
emphasis on safety and maintenance” (Thompson, et al.).
The airline transportation industry is a highly competitive market with a diverse number
of competitors with differing strategies. The fight for market share is an ongoing struggle within
this division of the market and carriers are always searching for new ways to stand out. In the
past, Southwest has attempted a few methods to gain market awareness. These methods include:
1. The introduction of hostesses wearing colorful pants and white knee-high boots
2. Offering free alcoholic beverages during daytime flights
3. Use of the “Now There’s Somebody Else Up There Who Loves You” slogan
4. 10 minute plane readiness turnaround
5. Relocation to the Houston Hobby Airport
6. Realization of market serving business who were, “more time sensitive than price
sensitive”
“Southwest has developed the low cost domestic strategy to increase their market share in
the U.S. market. As costs continue to rise, Southwest has maintained a relatively low cost with
comparison to the competition. Thompson Southwest Airlines has drastically improved their
annual domestic passenger count over the past 10 years. As seen in Graph 1, they have become
the market leader in total number of domestic passengers.
4. Page 4 of 8
While Southwest has been reporting profits over the past 40 years, their operating profit
has shown a decline in the reported data from 2006-2009. The company’s operating profit has
decreased on an average of 2.6% over the reported period. Thompson indicates that, “operating
profit shows how much profit is earned on each dollar of sales which should have an upward
trend showing a higher number every new year” (Thompson, et al.). This trend is shown in
Graph 2 below.
0
20000
40000
60000
80000
100000
120000
Graph 1. Domestic Enplaned
Passenger Summary
2000 2002 2004 2006 2007 2008 2009
0
0.02
0.04
0.06
0.08
0.1
0.12
2005 2006 2007 2008 2009
Graph 2. Historical Operating Profit
Margin
5. Page 5 of 8
Southwest has successfully been permitted to offer a low pricing structure because of
their need for fewer aircraft. This need is developed directly from the airlines aircraft turnaround
program in which they are able to utilize the same aircraft on several flights in a relatively short
time. The company has consistently been the launch customer for Boeing which allowed them to
generate father savings. Technology has played a large role in the cost savings of the business.
Southwest has sufficiently realized the need for “ticketless” flights which has reduced the need
for paper products and staff. The costs per passenger miles reported by the market leaders from
2009-2010 can be seen in Graph 3.
Overall, the entire airline industry has seen a downward trend since the events of
September 11, 2001. This event has forced airlines to adhere to strict security measures on top
of higher overhead costs. These costs are also being realized as the consumer market continues
to rebuild their confidence in air travel. Another outside factor affecting the market as a whole is
the rise in fuel costs. While these outside factors limit the market profitability, the reported data
0
5
10
15
20
25
Graph 3. Cost per Passenger Mile
2005 2008 2009
6. Page 6 of 8
shows some variability in the difference between the load factor and total number of passengers
illustrated in Graph 3 below.
The internal management team appears to have a wide range of experience in aviation.
According to Thompson, “80 to 90 percent of Southwest’s supervisory positions were filled
internally reflecting management’s belief that people who had experience with Southwest would
better appreciate the demands based on those positions” (Thompson, et al.). Southwest’s average
compensation package is approximately 16% higher than the identified competitors. According
to Thompson, Southwest is also enplaning 16% more passengers with 7% less employees, on
average. Southwest has become an expert at low cost operations while maintaining a strong
performance in on-time flights, mishandled baggage, boarding denials due to oversold flights,
and passenger complaints.
Based on my analysis, Southwest has become an excellent low cost provider. One area of
improvement is the operating profit margin. The company must look at ways to utilize their
skills as an effective low cost provider and ensure that the revenue is greater than the operating
0
200
400
600
800
1000
1995 2000 2005 2007 2008 2009
Graph 4. Historical Passenger Data
1995-2009
Load Factor Passengers
7. Page 7 of 8
profit. One method that the company is already utilizing is the slow expansion rate. By entering
new markets slowly, the company will not invest to heavily on markets that may not be
profitable. In future actions, Southwest may have the option to obtain new markets through
acquisitions of partnerships. This type of action may help them break into the international
marketplace.
8. Page 8 of 8
References:
Thompson, A., Peteraf, M., Gamble, J., & Strickland, A. (2012). Crafting & executing strategy.
(18 ed.). New York, NY: Mcgraw Hill Irwin.