Southwest Airlines Case Study History And Analysis Management Essay

Executive SummaryThousands of people travel by air ; Southwest Airlines provides low-fare air transit service among 58 metropoliss in the United States. Although the industry suffered a major blow from the terrorist onslaught of September 11th, the company is still keeping strong ; while other air hose companies are in debt. The information was bulk gathered and analyzed from the cyberspace ; beginnings such as “ News Week, ” and “ Wall Street Journal. “ Harmonizing to the acquired cognition of Southwest, the company maintains steady gross revenues. The major success to their continued success is due to their low-priced theoretical account and rivals are cognizant that they can non fit Southwest Airlines low monetary values hence, by dropping the monetary value even lower ; Southwest Airlines can coerce a company to travel bankrupt.

IntroductionIn 1971, Rollin King and Herb Kelleher started an air hose service with one simple impression: “ If you get your riders to their finishs when they want to acquire at that place, on clip, at the lowest possible menus, and do darn sure they have a good clip making it, people will wing your air hose. “ They were right about that. Southwest Airline is now a major air hose, in fact, the 4th largest airliner in the United States that is merchandising under the Symbol LUV on NYSE.

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The mission of Southwest Airlines is dedication to the highest quality of client service delivered with a sense of heat, friendliness, single pride, and company spirit. It chiefly provides short draw, high-frequency, point-to-point, low-fare air transit serviceamong 58 metropoliss ( 59 airdromes ) in the United States.

Here are some Numberss that will give a brief thought how the company is runing: Net income: $ 241 million Entire riders carried: 63 million Entire RPMs: 45.4 billion Passenger burden factor: 65.9 per centum Total operating gross: $ 5.5 billion The air hose industry has been hit hard by the terrorist onslaught of September 11th. There is a 13 % insurance rise for the air hoses and the authorities is implementing fees sing security jobs. The operation cost additions dramatically and there are less people going by air. Most of the airliners are losing money expect a few. Southwest is one of those air hoses which have remained profitable.

Organization of Southwest Airlines is described as an inverted pyramid.The upper direction is at the underside and supports the front line employees ( ~35000 ) , who are the experts.This is Herb Kelleher ‘s irregular leading manner, in which direction determinations are made by everyone in the organisation, non merely the caput executives. The company is described to non hold much accent on construction ; alternatively employees are encouraged to believe freely without restraints such as rubrics. Kelleher, for illustration, is said to cognize the names of virtually all his employees.

Southwest Airlines is characterized as a C-corporation with continuance distinguished as a normal ageless being. The stockholders are non usually apt for debts of the corporation and they preserve an operation that is usually more structured, necessitating more meetings and ( in some provinces ) more reporting demands. Management is really centralized through the board of managers ( elected by the stockholders ) and the officers ( elected by the managers ) . The corporation is nonexempt entity, although the income which would usually be taxed at the corporate degree can usually be paid out in wages ( and in other deductible ways ) so that there is in fact no revenue enhancement at the corporate degree. Equally far as transferability of involvement, it is usually to the full movable and raising capital is in the pick of public companies.

Southwest Airlines values employees, originating the first profit-sharing program in the U.S. air hose industry in 1974 and offered it of all time since. “ In 2000, Southwest offered its employees a record-setting $ 138M in net income sharing. This tax-deferred compensation represented an extra 14.1 per centum of each employee ‘s one-year wage.

Methodology In order to research Southwest Airline ‘s corporate construction, the method in which we obtain our information is a critical constituent in our mission. Therefore, this analysis describes a methodological analysis that utilizes Southwest Airline ‘s official web site to achieve background history, company specifics and fiscal statistics. In add-on, the library ‘s electronic diaries, concern research databases ( Wall Street Journal, Business Week ) and accredited hunt engines on the Internet such as Yokel! are besides major resources for our probe in carry oning a cardinal SWOT analysis and geting information sing the company ‘s chief rivals and clients.

Our research will non be limited to merely Southwest Airline, our research involves Boeing 737 every bit good as a few of the opposing companies. Research on these extra subjects will be specific, material that pertains or aids in lucubrating our recommendations for the company of Southwest.

ResultsAccording to the affiliated figure covering the past four old ages of Southwest Airlines’financial advancement, they have maintained steady net gross revenues. In 1999, they had entire net gross revenues of $ 4,735 million which had risen to $ 5,585 million. Their little bead in 2002 to $ 5,521 million was due to the September 11th incident. However, this is nil compared to other major air hose industries where they have lost so much more. Many have even gone belly-up and been forced to shut down. In fact, Southwest Airlines was the lone major US air bearer to stay profitable since so ; albeit Southwest Airlines were affected by the hapless economic conditions. Few of their chief rivals are Continental Airlines and American Airlines. Substitute merchandises include the train ( Amtrak ) and coach ( Greyhound ) which cover long distances. While these surrogates can non offer the velocity of travel, most of Southwest Airlines’customers are attracted to the low monetary value.

Suppliers include those who provide service/products necessary for Southwest Airlines to their concern map. For Southwest Airlines, providers include mechanics ( and other care people ) , suppliers of fuel, nutrient ( the bites that are offered ) . The providers do non hold much dickering power.

Customers include both residential and commercial sectors. There is no bargaining power for clients, as there is no menace of backward integrating ; it is improbable that clients of Southwest Airlines are traveling to construct their ain aeroplanes and fly themselves.

Rivalry among rivals sets the price-Southwest Airlines is a price reduction airliner. Rivalry is increasing, as the market decreases, and rivals downsize, the rivals become more or less equal in size and capacity. This means that as economic conditions worsen, rivals downsize and so vie for the same staying market.

The menace of new entrants is low, the demand is non high. On top of that, there are hurdlings, non needfully the greatest ; the FAA. Government ordinances and limitations imposed on those involved in this industry. Such would be authorities countenances consequent of international issues.

At a glimpse, the company ‘s beginning of competitory advantage is its low monetary value tickets. Most of its clients are people who are willing to predate in-flight repasts, direct paths and fancy seats if that would intend for a cheaper ticket. Not to connote that Southwest does n’t supply direct flights, but that is offered at a higher monetary value. Southwest Airlines was in better form than its rivals after recent onslaughts on September 11 for a simple ground: their low-priced theoretical account.

Terrorist onslaughts on the World Trade Center had a annihilating consequence on the air hose industry, peculiarly because the instrument of devastation of these onslaughts was hijacked aeroplanes. The populace lost religion in the air hose industry instantly following September 11th, and for many air hose companies this meant traveling into terrible debt or even declaring bankruptcy. Even after some clip, the bulk of the air hose industry experienced lower net incomes and monolithic retrenchment. However, for smaller companies like Southwest, they were able to turn a net income and were in a more enviable place than the larger opposite numbers.

The ground for Southwest Airline ‘s success is due to their low-priced theoretical account. The Southwest Airlines consists entirely of Boeing 737s and offers merely manager seats ( there is no concern or first category ) .Southwest Airlines besides do non offer in-flight repasts, merely peanuts and other bites. Southwest is simple and direct at the end of their service ; “ a chiefly short-haul air hose that flies straight from metropolis to metropolis, with merely one type of plane — the Boeing 737 – and the lowest costs ” . With a simple end, Southwest has excised many of the “ luxuries ” that rivals have offered, such as luxury seats ; this is made apparent by their determination to implement a regulation for riders who could non suit into the seats to buy an extra place. This instead unpopular move ( whereas other air hoses would hold suggested a more luxury category place ) is simple in its purpose-get riders from point A to point B. Services, such as in-flight repasts and luxury seats, which have become standard to rivals, have been seen as unneeded for an air hose that provides a short-haul trip from metropolis to metropolis at the lowest cost. To hold opted for a first category, concern category, or any signifier of luxury category place would hold been extra luggage ; most people would prefer to make without it if it meant for cheaper ticket monetary value.

While Southwest Airlines offers no frills, Southwest Airlines do run into client outlooks when it comes to service. They base their theoretical account on the slogan, which states that “ if they ‘re happy, satisfied, dedicated, and energetic, they ‘ll take existent good attention of the clients. When the clients are happy, they come back. And that makes the stockholders happy, ” Southwest has really good dealingss with all their employees. Employees are either of independent brotherhoods or have flexible contracts which allow employees to work longer hours.

Southwest Airlines, nevertheless, is non without failings. No affair how successful, Southwest Airlines serves merely 29 provinces and can non vie against the bigger companies that serve nationally or even internationally. Furthermore, Southwest Airlines does non use a hub system that allows for bigger rivals to make farther out.

Such rivals are cognizant that they can non fit Southwest Airline ‘s monetary values ; their market is larger and is non executable to offer cheaper tickets at the cost of no in-flight repasts. Alternatively, rivals narrow the monetary value difference between Southwest Airlines and themselves and emphasize on the quality of these frills ( such as roomier seats ) . Others, through usage of flight hubs, are the lone 1s who can economically function remote clients.

Another failing of Southwest Airlines is their penchant of Boeing 737s. Bing limited to one type of aeroplane leaves them with small flexibleness when the theoretical account receives a bad repute or a critical defect is discovered. Such would be a dearly-won venture for this company, who ‘ve used merely one type of aeroplane and in the face of a desperate state of affairs would confront a dearly-won venture of happening replacings or antagonizing bad promotion.

Southwest Airlines’success is chiefly because they have focused aggressively on their ends. This is apparent by their no-frills, low-priced theoretical account: their end is to supply the cheapest signifier of short air travel between two metropoliss ; supplying the bare necessities. Driven by the thought that clients can be satisfied without holding expensive options available for them, Southwest Airlines have stepped on the toes of many of its bigger rivals.

Southwest Airlines was able to distinguish themselves from their rivals by offering the lowest monetary values. This appealed to many people who were non impressed with the extra services such as in-flight repasts or wanted to avoid busy airdromes. Coupled with the use of the cyberspace, Southwest Airlines about became a tendency, a kind of an belowground hit, short-circuiting travel agents and their fees. Southwest Airlines provided a medium in which city-to-city transit was possible with the lowest costs.

Part of their success is due to their focussed group ; Southwest Airlines serves merely 29 provinces – a well smaller part of geographics, when compared to those who serve clients coast-to-coast. While the company was able to bask their success in the earlier old ages, recent events and hapless economic conditions have made competition fierce. Now, the bigger companies are seeking to emulate Southwest Airline ‘s manner. By contracting the monetary value spread, the epicurean services antecedently deemed excessively expensive has become more low-cost.

A possible drawback is that because Southwest Airlines’strategy has proven so effectual, it will be duplicated and emulated by its rivals to a point where it would lose the originality. This could ensue in rivals offering low rates to the countries covered by Southwest and beyond, doing Southwest Airlines’range and restrictions more obvious. It would be really possible in the close hereafter where a large company, with its hubs ( something Southwest does NOT hold ) , fundamentally presenting Southwest Airlines’low-cost theoretical account to a wider market, infringing and surpassing Southwest Airlines.

When a relatively little, new company is able to take on major participants in an highly competitory industry, addition market portion, please clients and employees likewise, it is clip for others to take notice. We will ab initio measure Southwest Airline ‘s competitory concern scheme of their care of a low cost and extremely dependable service attack ( waiving fringe benefits such as meal service, excellent penchant and assigned siting ) , as a major transit corporation. We will finally do auxiliary recommendations and betterments based on the ploy of their already booming company. As a company that still faces uninterrupted turning challenges before them, it is indispensable for Southwest Airlines to spread out on their existing accomplishments. Our analysis and promising suggestions will be developed with purpose to better service clients by bettering their routing system, offering enhanced handiness and minimising delays.As concern advisers, we anticipate to pave the manner of one of the taking travel industries into going the best of the best.

Recommendations: Southwest Airlines were able to run their concern comparatively undisturbed. It was merely in the hapless economic conditions that all of a sudden Southwest Airlines’method of operation became the ideal theoretical account for its rivals. While the promotion is good in raising employee morale, and raising stock monetary values ; Southwest Airlines is now mark of competitors’focus.

A tactic that Southwest Airlines can make to bring down harm to rivals is to cut down monetary values. This type of tactic is typical of a large company that has a monopolistic regulation in an industry squashing other rivals. This tactic is advisable when rivals are close bankruptcy or are in dire situations.Because rivals can non fit Southwest Airlines’prices, the most they can make is contract the spread of the monetary value difference. Southwest Airlines, which has systematically made a positive net income, can increase the monetary value spread by take downing their monetary values. Southwest Airlines will incur losingss from this move, but the end of this move is to drag the rivals further into debt. Because this move affects both companies, this move is really hazardous and should non be done unless Southwest Airlines is certain that their rival is near bankruptcy.Possible grounds for this move would be to extinguish the weakest rival in the industry, which would liberate up the market held by that company.

The ground for the creative activity of Southwest Airlines started when its laminitiss saw an chance. Frequent trips between metropoliss were exploited by supplying a quicker signifier of transit. Southwest Airlines has weathered through several crisis and has proven itself to hold possible for to be a leader of its industry. The hapless economic conditions has placed many air hose companies in debt, while Southwest Airlines was able to do a net income. With its rivals weakened, Southwest can take the enterprise and expand-not foolishly, but with the same thrust and precise executing the company was founded under. The mastermind behind Southwest Airlines’success is location ; and if researched decently, this can be applied to other countries. The entreaty of Southwest Airline is the inexpensive tickets, as they offer none of the luxuries ( such as in-flight repasts ) .

Southwest Airlines’no frills attack may non be delighting to all, it would be good for Southwest to do a few alterations in which the aesthetics would be more accommodating. Upgrading seats may be a dearly-won venture, but it would open Southwest Airlines to a larger market.

The medium of pick for client referral is the cyberspace. Internet referrals have been the chief beginning of clients ( it farther cut costs by bear downing a lesser fee to book seats through the cyberspace than through a travel gross revenues agent ) .With the impregnation of price reduction web sites, nevertheless, Southwest Airlines is losing the clasp it held publicizing on the cyberspace. More web sites offer competitory rates and particular discounts-which if Southwest Airlines does non take immediate action can stop up losing clients. Since advertisement through the cyberspace is hazardous, as people hate pop-ups or spam electronic mails, it is our general consensus that Southwest should happen ways to be listed on these monetary value comparing websites.Before, there were n’t many sites that offered monetary value comparing and finding trades was hard. With these sites, information is available at the fingertips of the web surfboarders who can do better informed picks. Southwest Airlines should guarantee that their voice is heard through this medium, as it is certain to pull people in hunt of trades.

ConclusionFirst and first, Southwest Airline has developed a great low cost theoretical account for the past 30 twelvemonth that fits today ‘s economic system the best. It has expanded from a bantam company with simply three aircrafts to one of today ‘s major airliners that flies between 58 metropoliss transporting over 60 million clients each twelvemonth. As everyone can see, Southwest Airline has been a large success. Now, it is given an chance to turn even bigger at this highly difficult and critical clip for the air hose industry. After the incident of September 11, Southwest Airline is one of the few airliners that remained profitable ; other air hose companies are losing 1000000s of dollars due to the insurance rise, the security cost and deficiency of clients.

We recommend Southwesterly air hose to take this chance to spread out to greater parts. It is the clip for Southwest air hose to utilize its low monetary value tickets to drive its rivals out of concern and take over their market. We believe, giving up some of the net income to cut the ticket monetary value even lower and upgrade hardware can open Southwest Airline to a much larger market that will convey more net income in future. Executions of cost salvaging engineering such as cyberspace is needed to take down the operation cost to give clients better trades.

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