The main problem facing Southwest airline is mismanagement, economic and rival competition in the airline industry. The case study reflects back on the formation of Southwest Company in late 1966 by Rollin king who was then a San Antonio entrepreneur. The company grew after its incorporation with Lamar Muse in 1967 as its first CEO.
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Through initial public offering of stock in 1971, the company was able to raise 7million US dollars, which was used to purchase planes and airline equipment. Since then the company has grown to become one of the biggest airline in the U.S. with a record of 96.3 million passengers to use the flight since its initiation. By 2007, the airline had a profit margin of 9.9 billion dollars annually with 34,000 employees and its flights in 64 cities in 32 states.
Political and legal impacts on the company came out as one of the key challenges of the airline during its initial stages of operation. Some of the legal predicaments were evident in 1970’s. One of the legal hurdles during this period was when local officials from Dallas –Fort Worth regional airport filed a case that challenged Southwest Air lines decision for not moving its flights from Dallas love field out to newly opened Dallas –Fort Worth regional airport.
This was due to loss of revenue to service the debt incurred during the construction of the airport. Another legal challenge involved the rival airlines that protested against the services offered by the airline to several smaller cities in Texas. The rival airlines argued that they served these markets well served and that the entry of Southwest Airlines resulted in costly overcapacity. Other regulatory issue involves congress passing the airline deregulation act in 1978.
Leadership aspect in the airline is also one of the factors that were established as an important issue that needed addressing. The paper illustrates leadership incompetence illustrated by management of southwest company. When Kelleher took the leadership of the firm, he portrayed a more social approach in the management of the airline.
He observed listened and encouraged employees. He believed as a leader that one needed to treat his employees as customers so that they would treat customer even better. Southwest Airline’s strategic objectives and their implementation plan have been widely discussed in the case study. These strategic objectives involve customer service and satisfaction, marketing and promotion, gradual expansion into new geographic markets, addition of flights, emphasis on safety, reliable operation and high quality maintenance.
Southwest organizational culture and management practices value employees and customers hence forming the foundations for the company’s culture. The firm’s mission is to make air travel affordable and ensure job security for its employees while maintaining good service quality.
The management practice involves recruiting, screening and hiring new employees into the company while ensuring sound employee relations. Other practices include training, compensation and promotion. Rivalry in the airline industry is displayed in the form of competition for the market share that has resulted to legal suits from rival firms. During the establishment of the company, there were massive efforts by rival firms to block the entrance of Southwest Airline in the market.
One practical course of actions by the company is to execute low fare as one of its strategy. The company has decided to deemphasize flights to congested airports and instead operate in airports adjacent to the metropolitans. This will reduce costs of the company and hence lead to fares for the customer. Another course of action involves gradual expansion into new market by the airline (Makishima and Paul, 2009).
In implementing this strategy, the company has ensured that flight personnel are have a good communication and interpersonal skills that are vital in ensuring good service to customers. They flight attendants have been encouraged to display outgoing characteristics and engage passengers in conversation in order to make them feel at home during the flight. This would be possible through training of personnel as the company has the financial capability to develop their employees.
Case Study Report
Summary of the case study
Rollin King and his co founder Herb Kellerher instituted southwest airline in the late 1966. The Company was incorporated in 1967 into Texas aeronautics commission. After the incorporation, it began serving Dallas, Houston and San Antonio during its earlier flights. During these early stages of the airlines, competitors in the airline industry had tried to block the new company from operation.
In 1971, the company acquired new planes by raising 7 million dollar in an initial public offer. Since then, the airline has struggled to gain market share. In the process, the company has overcome regulatory hurdles brought about by the rival competitors. Southwest company strategy objectives include a good customer service, marketing, promotion, and low fair for its customers.
Analysis of report
The problems that are predominant in the case study relate to industrial forces acting on the southwest airline. These industrial forces are best-illustrated using porters five forces theory.
Porter’s 5 Industrial Forces
Threats of new entrants:
The entry of a new company into a market attracts opposition from existing operatives and players due to the potential threat that the new company poses on the market shares.
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The existing firms will retaliate in a way that creates barriers for the new firm. These barriers may include economies of scale, cost switching and government policies and legal retaliations. For example, Southwest Company met an unprecedented rivalry in its attempt to gain entry into the Texas market.
During the airline incorporation in 1967, rival airlines in Texas made efforts to block the new airline to operate including a legal and regulatory proceeding in Texas Supreme Court.
Substitute product or service:
Threats of substitute’s products and services will results to buyer inclination to substitute products and switching of cost strategies. Southwest-introduced twenty-dollar one-way fare that was below the twenty-eight and seven-dollar fare charged by rivals and it attracted a small number of passengers. However, the ability of the company to change its products and services (recruiting new air hostesses, changing new uniform of their crew and offering alcoholic beverages during day time flights) attracted more business for the airline and enabled the company acquire a powerful brand name.
Bargaining power of buyers
This is the impact and influence customers have on the firm’s products and services. When the market has powerful buyers, they can influence the kind of product or services provided by individual firms. The introduction of twenty-dollar fare strategy resulted to small number of customers attracted to the airline. In eighteen flights, there were less than 250 passengers on board. In efforts to regain the market share, Southwest airlines had to develop its products and services in a way that satisfied the needs of customers (Wong and Nicole, 2009).
Bargaining Power of Suppliers
An industry requires raw materials, labor and other vital supplies to manage its daily operations. This is the reason it is important for a firm to develop a good relationship with its suppliers to ensure consistency in operations. As the company grew, in 1971 Southwest airline needed to purchase three new 737 planes. Boeing agreed to supply the company with these planes at a discounted cost price from 5 million dollars to 4 million dollars. The supplier also agreed to finance 90% of 12 million dollars deal.
Rivalry among existing competitors
Rivalry among firms operating within the same environment results from brand identity, market share, product differences, threat of new entrants and intermittent over capacity among other factors. Southwest Corporation was involved in rival encounter with rival airline that resulted to court case suits. Rival airlines in Texas were against Southwest airlines operating in the market and they filed a legal suit to Texas Supreme Court.
During the 1970s, rival airlines protested southwest airline serving smaller cities in Texas. Reaction by competitor is because of threat to their market share and so they will try any methods to keep other competing firm away from its area of influence.
In this analysis, both internal and external environment surrounding a firm are analyzed. Strengths and weaknesses represent the internal analysis of a firm while opportunities and threats are used to analyze the external environment under which the firm operates.
- Good financial backing with revenue surpassing 9.9 billion mark in 2007.
- The company has enough human resource advantage because it has a workforce of 3,400 employees
- The airline boats of an expanded geographical coverage has flights to 64 cities in 32 states
- Southwest airline has enough Material assets comprising of 527 jets that fly 3,400 flights
- Southwest airline has a strong brand name given that it is one of the largest airlines in America.
- Strong company culture
- Volume of passenger traffic
- Low revenue associated with low fares
- New flight routes that are congested
- Expansion to new geographical areas
- New flight routes
- Stiff competition from competitors
- Government policies on airline regulation
- Terrorism threats
- Natural disasters
- Economic instabilities such as recession
Alternative Course of Action
Cost leadership is an important strategy to be considered by the airline. Cost leadership does not refer to low revenue but rather a cost price great than the price at breakeven point where there is realization of profit and at the same time significant volume of customer is realized.
Extensive advertisement of the airline is also important in reaching vast market. E-marketing is cost effective and yet efficient method to advertise the airline. The company can sell the airline brand name through the web advertisements. Online bookings and reservation can also be done through the company’s website.
Training and development of employees of the company would help improve service delivery to customers. Short courses on the latest best ways in customer service should be introduced in the employees’ training program. The company may also sponsor its crews to pursue courses that will help sharpen their skill in service management (Wong and Nicole, 2009).
The airline needs to be innovative in its operations in order to compete effectively in the competitive airline industry. Product and service development are key areas. Technology incorporation in airline services such as free internet facilities and entertainment provisions for passenger during the flight is an important step in the airline positioning itself.
The best course of action by the company is to initiate strategies that will ensure customer satisfaction. These strategies include product and service development. Any service or process that does not add up to customer satisfaction does not add value to the company since it is through the customer that the company earns revenue (Makishima and Paul, 2009).
Proper employee training and development in service delivery skill and methods can implement the above recommendation. Product and service development is also a means in which this objective can be achieved. The strategies can be implemented over a given period such as three years or five years depending on the implementation plan established by the organization.
Makishima, P. (2009). Southwest will Start Logan run in august. Web.
Wong, N. (2009). Southwest to serve Logan by fall. Web.