The Success of Southwest Airlines - Case Study Example

Abstract

The purpose of this research paper is to examine the success of Southwest Airlines. It explores the strategies, environmental factors, and all factors that have shaped the success of the airline company through history. The study shows that he company’s success in the low-cost segment of the airlines industry has been shaped by a constellation of internal and external factors. Competition has significantly affected the company since the beginning as several competitors struggled to keep the company out of the market, including an attempt to ban the company from using the Dallas Airport. Despite these challenges, the company has formulated its own internal strategies to deal with the competition and meet its organizational objectives. As parts of strategic decisions, Southwest chose low-cost strategy to provide low prices for flights and attract more customers. It uses the Boeing 737 model to implement its low-cost strategy because this plane model is fuel efficient and has a higher seating capacity compared to other models. This strategy lowers costs per seat while at the same time increasing the revenues due to increased passengers per flight.

Introduction

Southwest Airlines is one of the major U.S. airlines and the world’s largest low-cost airline. Headquartered in Dallas, Texas, Southwest Airlines operates more than 3,800 airlines per day across the world (Southwest.com, 2009). Most of these flights occur within the domestic market. The company operates in 97 destinations including 40 states, Puerto Rico, and other destinations outside the United States, and has employed 46,000 employees operating on-flight, and in different destinations across the world (Southwest.com, 2015).

Southwest Airline’s main strategy is the low-cost strategy which has enabled the company to gain competitive advantage and make profits every year when other airline companies across the world have been experiencing losses and low profits due to the increased costs of airline businesses and services. The company achieved the low cost strategy by using the Boeing 737 planes because they are economical. By January 2016, the Southwest Airlines was the largest operator of the Boeing 737 worldwide, making it the largest low-cost operator worldwide (Douthwest.com, 2016). The company had been operating Boeing 737 throughout its history except a few years between 1970s and 1980s when it leased Boeing 727s from Braniff (Southwest.com, 2009).

Challenges Faced by the Company

Some companies tried to kill the Southwest Airlines through court battles and market competition. In its early years, Southwest Asia learned from a legal action that involved Trans-Texas, Continental Airlines, and Braniff. The company won the case and was granted the right to operate in Texas. Legal actions usually lead to higher operating costs as companies engage in legal disputes. The legal fight has been a major focus in the airline industry, including coverage by Kevin and Jackie Freiberg in their book, “Nuts”. The authors argue that Southwest Airline used arm-wrestling approach to win the legal case (Freiberg & Freiberg, 1996). This shows that the company fought for a place in the low-cost market by confronting competitors and using a legal approach to gain a competitive edge. Furthermore, the CEOs of Southwest Airlines and Stevens Aviation held an arm wrestling competition in which the loser would donate $15,000 to charity and the winner would retain the use of a contended trademark called “Just Plane Smart” (Freiberg & Freiberg, 1996). The fight attracted audience and potential customers. Advertising in print and mass media is also used to create awareness among consumers and build a brand name for the airline company.

Strategies used by the company

Low Cost Strategy

The low-cost strategy was used by the company since its early years. Its location in Texas was by itself a decision that considered low-cost as the major decision point. In 1967, cofounders Rollin King and Herb Kelleher founded the airline company as Air Southwest Company and located it in Texas to avoid federal regulation. Expansion to other low-cost markets also occurred in 1975 when the company started to operate in Harlingen. It started operating in eleven cities in Texas and added their first destination outside Texas in the same year. It also expanded to Tulsa and Oklahoma in 1980 and later to Kansas City in 1982 (Freiberg & Freiberg, 1996). This expansion ensured that the company gained a significant share of the low-cost airlines market in the United States and the rest of the world. Operating in many markets ensured that the company gains a large scale and reduces its costs.

The profits of the company have also been increasing due to the low-cost strategy and expansion in the airlines market. In the United States and the rest of the world, most airlines struggled to make profits. Freiberg and suggest that the Airline industry in the United States made a loss of $12.8 billion between 1990 and 1994, and Southwest Airlines was the only company making profits within that period (Freiburg and Freiburg, 1996). It is the only airline company that could make profits since 1973 despite its low prices. According to Freiburg and Freiburg (1996), Southwest Airlines has been earning net profit margins of 5% every year since 1991. This is the highest profit levels of the industry. The deregulation of the airlines industry in the United States in 1978 led to increased competition, and neatly 120 companies have become bankrupt since then. However, Southwest continued to grow by 20-30 percent every year.

Treating Employee Appropriately

One of the reasons for the success of Southwest despite high competition and low prices is its focus on employees’ capabilities. The company hires a large number of employees who add value to the company by providing effective customer service and developing innovative ideas for the company’s success. As part of its culture, Southwest focuses on good customer service that involves fast service, respect, courtesy and focus on customer needs. The employees improve the company’s productivity more than any other company in the industry because each employee serves twice as many passengers per employee as of any other company. Southwest is also considered as one of the best companies to work in the United States. Throughout its history, Southwest has laid off only three employees due to financial problems unlike all other companies that reduce their workforce to cut down costs during difficult financial situations. The three employees who were laid off were later rehired when things got back to normal. In this regard, the company offers job security that motivates employees and enhances employee engagement that contributes to higher productivity and profitability.

Employees also play a significant part in the success of the company because they are motivated through career development and good working condition. Employees are given a chance to participate in decision making and provide solutions to the company through teamwork and good work environment. In this case, employees are allowed to make their own judgments, think differently and offer their services to customers in the best ways they know how (Freiberg & Freiberg, 1996). They are also trained about the culture of the company and encouraged to work within the values and ethos of the company to achieve its objectives. As a result, the company’s employees can commit themselves to the success of the company by developing new ideas and implementing good ways of doing business and serving customers to maximize revenues and minimize costs.

Unionization of employees is also allowed by the company (Freiberg & Freiberg, 1996). Most airlines including JeBlue have labor relations problems because most of their employees are non-union members. Non-unionized employees are likely to be undermined by the employer because they lack bargaining power for good work environment, benefits and remuneration. Southwest provides employees with an opportunity to participate in a union that can enhance collective bargaining and increase employees’ bargaining power. Unionization improves employees’ motivation and commitment to the company, leading to higher performance that can translate to efficient use of resources and improved profitability.

Customer Focus

The success of Southwest Airlines is also enhanced by its focus on meeting the customer’s needs and achieving customer satisfaction. The airline has the highest rating in terms of customer satisfaction than any other airline. They provide the highest level of safety than any other business in the industry. Southwest has safety seats that cushion employees from injuries when an accident occurs. It also provides safety guides and talks during flights to encourage travelers to travel safely by observing important safety tips such as keeping luggage in the right place and avoiding inappropriate disposal of wastes in the airplane.

Promotion and Advertising

Another way of achieving higher competitive advantage and increased profitability is through advertising. According to Freiberg & Freiberg, (1996), Southwest Airlines uses humor in its advertising. They use terms such as “Love is still our field” and “There is somebody else up there who loves you”. Publicity is also used as an advertisement option.

Southwest Airlines also offers sponsorships as mechanisms of achieving customer loyalty and satisfaction and building a good image in the community. For example, the airline company is an official airline for four baseball teams in the Major League Baseball (MLB) including Texas Rangers, the Milwaukee Brewers, and San Diego Padres (Southwest.com, 2016). It is also a sponsor of NBA and runs several other sponsorship projects. Sponsorship is a promotional strategy because it allows the company’s name to be known across the world as the beneficiaries of the sponsorship programs carry out their normal activities such as sports activities.

Boeing 737

Most importantly, Southwest Airlines is successful in minimizing its costs through its Boeing 737 plane model. Part of Southwest’s advertisements on its website reads, “Low low fares and free laughs” (Southwest.com, 2016). This statement suggests that the company offers low prices for good flights. The Boeing 737 plane model enables the company to achieve this objective because it is economical in terms of facilities, space and production. The low-cost strategy is an historical cornerstone of business strategy for the company. It is used to increase profits and gain competitive advantage.

In order to gain profits, Southwest targets low cost so that they can charge customers lower flights and encourage increased customer loyalty and greater market share, breaking away from the traditional legacy carriers. As the traditional carriers face the new reality of increased competition and losses in the airline industry, they have also developed new strategies to lower prices. Despite these dynamics, Southwest has successfully maintained its leading position in the low-cost segment of the industry while continuing to make profits.

One of the most important cost-advantages of Boeing 737 is its size and shape that accommodates more passengers and free space (Southwest.com, 2016). To address the challenge of competition, Southwest has reduced its costs further by undertaking fleet initiatives to minimize operational and production costs. For instance, the company has fitted its airplane cabins with slimmer seats and winglets to reduce costs of space used by passengers. Boeing 737 is also economical because it is fuel efficient.

According to Freiberg & Freiberg (1996), the low-cost strategy of the Southwest Airlines is important because it allows the company to achieve cost advantage and maintain healthy profit margins while charging low prices for each flight. Through Boeing 737, the company has managed to lower its per seat costs by purchasing 52 Boeing 737 fleet with higher seating capacity of more than 170 passengers (Southwest.com, 2009). Boeing 737’s per seat costs are more cost efficient than many competitors in the industry. The more seats in the Boeing 737 allows the company to meet larger scale in its flight services and save costs that are then transferred to passengers through lower prices. Apart from lowering per seat costs, the company also increases revenues by accommodating higher number of passengers.

Conclusion

Indeed, Boeing is one of the rare airlines that achieve extremely low rates while at the same time gaining a large portion of the market share and making profits every year as competitors continue experiencing losses from year to year. The company has brought itself into existence through competitive strategies amidst changing airline environments and consumer needs. Some of its strategies include low cost strategy, focusing on customer needs and satisfying them, outstanding safety measures, advertisements and publicity, and retaining loyal employees. Throughout its history, Southwest has never fired employees permanently. It has also continued making profits despite its low flight prices due to reduced costs. The reduced costs are achieved through the use of Boeing 737 model that saves cost per seat and achieves higher revenue through increased seating capacity.