Introduction
Over the past years, Southwest Airlines has recorded a track of good performance. It has revealed strong growth over the last three decades. The company has managed to attract and retain a large number of customers. Over the past decade, the company has managed to sustain good returns while its competitors are running through bankruptcy. This has been one of the main factors that have contributed to the company’s competitive advantage.
Discussion
Southwest Airlines is one of those companies in the airline industry that has done very well across the world. In 2008, Southwest Airlines had the largest number of passengers in the United States airlines (Gamble & Thompson, 2011). Therefore, it is one of the most profitable airline companies across the world.
However, many companies has been undergoing through losses from the hard economic times fuelled by high fuel prices. All the same, many companies were able to recover from the losses later after the fall in prices of the crude oil. Despite of the difficulties through which the U.S. airlines have been undergoing, Southwest Airlines has managed to record exceptionally high level of performance.
Although Southwest Airlines was better off during this period, its profits almost went to break even point. Since 1980, the U.S. airlines have recorded a combined profit less than the combined losses (Gamble & Thompson, 2011). This implies that the entire U.S. airline industry has been performing poorly in general.
In the U.S. airline industry, Southwest Airlines has managed to secure the largest fraction of the market share. Furthermore, the company has managed to maintain a high level of consumer growth. Over the last few years, the company’s total number of passengers has increased from 59,053 in 1998 to 101,948 in 2008 (Gamble & Thompson, 2011). This implies that the company has managed to maintain an extremely high level of growth.
The main factor that has helped Southwest Airlines to maintain a high level of performance is its competitive advantage. The company has managed to under price its competitors in the airline industry. This implies that the company is able to provide low prices and still retain its competitiveness.
Another factor that has contributed to the competitive advantage is its ability to retain its employees that has been in the industry for a long time. These employees are experienced and are able to come up with effective measures to save various problems effectively since they has passed very difficult times in its early stages of development
The company employs a unique recruitment procedure that helps the company to win the top performing employees. For instance, the company is led by the principle that it’s better to employ unskilled people with good attitude rather than employing skilled people with bad attitudes. In other words, the company puts more emphasizes on the ability of an employee to contribute creatively to the organization. This strategy has helped the company to absorb innovative employees.
Another factor that has contributed to the company’s success is its ability to remain prepared for any outcome. This has helped the company to maintain competitive advantage. Therefore, shocks like increase in oil prices do not affect the company significantly. As a strategy to expand its market, Southwest Airlines has come up with a strategy of adding freights in areas where its rivals are withdrawing their services.
One of the major problems facing Southwest Airlines is high level of operational costs. The company has been spending a significantly large amount in its operations. For instance, its expenditure on fuels remains extremely high. This has to some extent undermined the profitability of the organisation. The main target of any organization is to minimize costs while maximizing the profits. Over the past years, the company has also been faced by several lawsuits that have threatened the performance of the organization to a greater extent.
Southwest Airlines has also been faced with a number of maintenance problem, which has led to huge losses to the company. For instance, the company has been forced to cancel several freights after its jetliners were found to have small subsurface cracks (IB Times, 2011). The company has also been reported severally to have maintenance problems. Such problems are very critical to the company. For instance, it can destroy the good reputation of the company on the eye of the public.
For instance, customers may be upset by cancellation of their trips due to poor maintenance of the company’s jetliners. One of the incidences that can reveal the maintenance problems at Southwest Airlines is when the company’s Boeing 737-300 ruptured just a few minutes after taking off, which resulted from a loss in pressure (Grubbs, 2005).
The plane was found to have a five foot long crack. This problem forced the pilots to consider an emergency landing at the military base near Yuma. This incident took place while the plane was 35,000 foot high. However, no one was seriously injured during the incidence. Such an incidence threatens the reputation of the company’s reliability in terms of safety. Several other planes in the company have also been found to have cracks.
Southwest Airlines has also faced a problem of legal and regulatory hurdles. These restrictions have posed a major problem to the company as it has led to restrictions and sometimes penalties that have consumed a significant fraction of the company’s finance. For instance, there was a legal battle when the company started to serve smaller cities in Texas (Gamble & Thompson, 2011).
The rival companies argued that the area was already occupied and that entry of any other company could lead to costly overcapacity. Although the company succeeded, this delayed the company’s plans. Southwest Airlines also had been faced with tough opposition from its competitors and the local officials in its effort to expand its services to other places.
The main reason for this opposition is the fear that the company may take all customers from its competitors due to low prices it offers to its customers. Due to poor maintenance, Southwest Airlines has been severally fined by the government (Bundgaard, Bejjani and Helmer 2006). For instance, the Federal Aviation Administration had once fined the company $ 10.2 million as a penalty for failing to inspect fuselage fatigue cracking on time (Lauer, 2010).
Another problem that has faced the Southwest Airlines is competition. The airlines industry has been characterized by numerous sellers who are usually crumbling for limited number of customers. This competition has posed a major challenge to the Southwest Airlines. All the sellers in the industry are engaged in provision of services that has not been differentiated.
Therefore, the customers may not easily be able to know which company provides best products. As a result of low level of differentiation, companies in the airline industry are left with no other alternative than involving tremselves in price wars, an act that has eroded profits in the airline industry. It has also significantly reduced the price-cost margins of the major carriers. In the airline industry, the customers are very sensitive to prices which are triggered by the absence of differentiation.
Any small change in the prices will make a significant number of customers to shift to a less expensive airline. This implies that it is very difficult for Southwest Airlines to increase its prices in order to offset high fuel costs. The company’s charges are currently relatively lower compared with that of its competitors. Any slight change in price may therefore lead to a loss of a large number of customers.
There are various advantages and disadvantages for the Southwest Airlines taking various courses of action. For instance, cutting down prices in order to win more customers can threaten the profitability of the organization. This pressure has led the company to operate almost at its break even point in order to provide low prices.
For example, the company has severally been faced by maintenance problems. Higher prices could help the company to maintain continued check ups and repairs for its planes. However, this process can help the company to increase its market share by attracting a large number of customers.
As already noted, the company has been adding flights in the places where its rivals has been withdrawing their services. This strategy can be risky to the organisation since it can suffer the problems its competitors is withdrawing from. Therefore, it would be necessary for the company to consider conducting a research where their rivals are withdrawing their services before making new investment or adding to its investment in the area.
Southwest Airlines has been emphasizing on the attitude of employees more than the skills the employees have. This can however be dangerous because it may cost the company a lot of resources to train employees.
Recommendations
In order to overcome these problems, there is a need for the Southwest Airlines to come up with appropriate strategies. By solving these problems, Southwest Airlines will be able to maximize its profits by maintaining a large number of customers.
As already noted, Southwest Airlines spends a significantly large fraction of its capital on fuel. Therefore, the company needs to address this issue in order to maintain its long term success. The company has been incurring extremely high costs for its fleets. Therefore, there is a need for the company to take the necessary measures in order to improve the efficiency of its fleet. One way through which this can be done is by purchasing Boeing 737-700s.
By using high capacity planes, the company will be able to reduce the total amount spent on oil. This will significantly reduce the company’s operational expenses. The company will also be able to reduce its inventories on spare parts. The company has been incurring very high costs in maintaining its planes, the fact which has threatened the ability of the organization to meet its organizational goals.
Another strategy through which Southwest can improve on it performance is by expanding its services in the country where the company has a large number of customers. By so doing, the organization will be able to maximize its revenue.
As already noted, another major problem faced by the Southwest Airlines is high level of competition. This usually leads to price wars among the sellers, the fact that may lead a company to huge losses. However, the company can modify and differentiate its products from those provided by its customers; although the company has managed to improve on the services provided by its customers.
In order to overcome the maintenance problem, the company has to adopt better check up procedures in order to avoid such problems in the future. For instance, the company can lose a very large amount of money through penalties due to the failure to observe certain procedures that are necessary to deal with the problem. The company can also consider hiring more competent and experienced people who are able to detect the problem before it deteriorates.
Conclusion
This discussion has clearly revealed that Southwest Airlines has managed to maintain a high level of performance in the U.S. airline industry by under pricing its competitors. Over the past years, the company has managed to record a tremendous growth in its customer base.
The company has also managed to increase the number of its flights. Consequently, the company has managed to maintain a high level of profitability. However, the company has experienced several problems that have threatened its performance. For instance, the company has been faced by safety issues due to poor maintenance of its planes. This has led to cancellation of several freights. This may lead to customer dissatisfaction hence losing them.
Reference List
Bundgaard, T., Bejjani, J., and Helmer, E. (2006). Strategic Report for Southwest Airlines. Web.
Gamble, J., & Thompson, A. (2011). Essentials of Strategic Management: The Quest for Competitive Advantage (2nd ed.). New York: McGraw-Hill Irwin.
Grubbs, L. (2005). Lessons In Loyalty: How Southwest Airlines Does It: An Insider’s View. U.S.A: CornerStone Leadership Inst.
IB Times. (2011). Southwest Airlines Has A History Of Maintenance Problems: Report. Web.
Lauer, C. (2010). Southwest Airlines. California: ABC-CLIO.