The southwest airline, which was founded by Herb Keller the then CEO in June 1971, has been one of the most profitable businesses since it commenced its operations.
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It was ranked among the top admired airlines in the past as per a survey conducted by the American customer satisfaction index from 1997 to 2001 in terms of satisfactory customer service. The southwest airlines applied a shorthaul approach, which entailed a 55 minutes flight time. It also paid its crews by each trip and used the less congested airports for its operations.
In addition, the southwest pilots were not members of a national union that limited the number of hours a pilot could fly an airplane. The duration between landing of a plane and its takeoff was about 20 minutes, in which four ground crew and two gate agents were required, as opposed to the united airlines, which required approximately 30 minutes with an additional ground crew of 12 and 3 gate agents.
The CEO’s philosophy of putting employees’ needs first contributed to satisfying the employees, who resulted to being dedicated and motivated, thus working towards satisfying the customers’ needs. When customers are pleased with the services offered, they definitely come back for more services (Achtmeyer, 2002). In June 2010, Southwest Airline celebrated 40 years of service, which is remarkable.
Industry Analysis of Southwest Airlines
Southwest Airline has been constantly profitable, as opposed to other airlines, some of which have been declared bankrupt. Its reputation hails from low-affordable fares, timely flights, and an attractive corporate culture. Nevertheless, each business is influenced by Michael porter’s five forces, which include; “supplier power, buyer power, threats of substitutes, degree of rivalry and threats of new entrants” (Orcullo, 2007, p. 49).
A competitive market is always associated with rivalry, because of market concentration. As a result, each airline fights to achieve a competitive advantage. The southwest Airlines offer low fares as one of their competition strategies and offers many on-time flights to its customers. Price wars are evident in the airline industry as a means of attracting customers; for instance, Southwest Airlines offers low cost fares that are readily available on the internet.
In addition, Southwest Airline has managed to beat Delta Airlines in terms of fares, since the latter’s fares are quiet high. In addition, Delta Airlines has outweighed Southwest Airlines due to the acquiring of Northwest Airlines, hence capable of offering passenger access to all cities in the United States and across all corners of the world.
United Airlines recently merged with Continental, posing as a threat to the Southwest Airlines. Nevertheless, Southwest Airline knows that low fares alone cannot guarantee a competitive advantage; therefore, it pays its pilots handsomely, 40% higher as compared to other airlines, hence motivating the pilots to fly at least an extra hour as opposed to other airlines (Mouawad, 2010).
In addition, Southwest Airline does not charge for the customer flight changes, therefore, customers are easily lured. In contrast, Delta Airline distributes majority of its tickets to travel agents, thus, costs are incurred, which result to rise in the ticket prices for customers. However, Southwest Airline creates online ticket booking at low prices, a strategy that has proved to be a reliable over the years.
Threat of Entry
Due to the deregulation of airline industries, new airlines may emerge, to avoid some airlines being declared bankrupt because of stiff competition. Southwest Airline has been faced by a lot of threat from the emerging airlines that have adopted the low cost and quality customer care services; for instance the Jet Blue Airways, hence being a challenge to the Southwest Airline in fear of loosing customers to the growing airline.
Threats of Substitutes
Most of the services offered by airlines are almost similar; hence, a customer may be tempted to try out another airline with similar services. The airline industry faces threat from other means of transportation, for instance, buses or trains. This may be relevant in short distances, however, in long overseas destinations, most people prefer the airlines, as they are fast.
The southwest airline is exposed to the threat of the substitutes offered by the rival airlines, for instance, some destinations traveled by Delta Airlines are also covered by Southwest Airlines – New York, Miami and other countries. In addition, Jet Blue Airway has proved to be a major threat in terms of the low fare strategy, whereby, it offers approximately low fares, as it is the case with the southwest airline.
The Suppliers Bargaining Power
Due to the competitive airline industry, airplane manufactures like Boeing and Airbus have a high bargaining power due to the switching costs incurred when changing airplane models. However, Southwest Airline has been using one kind of airplane, Boeing 737, hence saving a lot of cash in terms of maintenance and training of engineers. This measure gives Boeing manufactures a high bargaining power over the Southwest Airline, as it only uses one plane model.
However, the recent remarks made by Kelly Gary, the current CEO of Southwest Airline, on a possible shift from the Boeing manufactures to other manufactures with fuel-efficient aircraft could render Boeing manufacturer’s bargaining power to decrease. Nevertheless, Boeing manufactures may have a low bargaining power over its other customers like Jet Blue Airways, since it is not as enormous as the southwest airlines.
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Buyer Bargaining Power
Southwest Airline offer friendly fares to their customers as a way of attracting more customers. However, there are a number of services that are spiced up to make the passenger comfortable – bags are not charged, pets accompanied by a passenger are allowed in the plane, and pet cabins are provided.
Moreover, change of flights is not charged, therefore guaranteeing customers flexibility. These strategies give customers a bargaining power, as they are able to choose from any affordable traveling classes, and have the freedom of bringing their pets along.
Since its operations in 1971, Southwest Airline has proven to be effective and reliable, in terms of customer service, flexibility, and productivity. The adopted strategy of cost leadership and product differentiation has led to a competitive advantage.
Despite the short trips it made in its early years, those trips were accompanied by a large number of passengers, and the flights were always on time. Providing relative low fares to its customers and paying its employee handsomely has contributed to loyalty from both the customers and employees. In addition, Southwest Airline has a unique culture, which involves allowing its attendants engaging the passengers in songs and games.
Achtmeyer, W. (2002). Southwest airline corporation, No.2-0012. Turk school of business at Dartmouth. Web.
Mouawad, J. (2010). The New York Times; business day. Web.
Orcullo, N. (2007). Fundamentals of Strategic Management. Quezon City: Rex Bookstore Inc Publisher.