Southwest Airlines: Sustaining Competitive Advantage Case Study

Southwest Airlines’ environment industry-specific and firm-specific factors can be analyzed from the context of rivalry in the industry entry threats, threats of substitutes, threats of complements, buyers’ bargaining powers, and suppliers’ bargaining power (Porter 2008, p.56).

The degree of competition in any business industry determines the general productivity of firms operating in the production. One of the factors that influence rivalry in the airline industry is the degree of market concentration of each of the firms operating in the environment.

For Southwest Airlines’ operational environment, no individual airlines dominated the market as at 1989. Nevertheless, the first eight leading airlines controlled 92 percent of the market. Southwest Airlines being one of the eight airlines encountered high degrees of rivalry from other companies in terms of route, hubs, and airports.

To survive in such an industry, airline companies must focus on gaining competitive advantage in the hubs, which are highly profitable. Such hubs are the ones, which possess the highest air travel demand. In the effort to counter rivalry to gain income in these hubs, Southwest Airlines resorted to providing flights, which are time elastic for a number of landing points.

Other industry-specific environment factors that determine the degree of rivalry are fixed costs, price wars, availability of mean of price comparisons, the degree of the carrier capacity of the airlines operating in the industry, the degree of differentiation of the organization’s products and services, and the capacity to maintain fuel costs low. The manner in which an organization organizes these factors determines the degree to which it gains a competitive advantage in comparison to its competitor.

In the 10-year period of efforts to reduce government’s control of activities, a large number of new partners into the airline sector was experienced. In the Southwest industry market, “22 new airlines had been formed with another 43 entering by1982” (Desai, Patel & Quach 2012, p.3).

This wave suggests that the airline industry had low and weak economies of scale in 1980s so that the industry could support many airlines. However, by 1993, many of these airlines were merged and consolidated to form eight major carriers indicating that the equation for economies of scale had changed so that the threat of new entrants into the airline market by small airlines became narrowed.

As Desai, Patel, and Quach (2012, p.3) point out, “Substitutes for air travel include cars, trains, and buses”. Over time, the substitute of buses and cars as an alternative mode of travel to air travel has substantially dwindled. Nevertheless, the introduction of high-speed trains has resorted to immense amplification of threats of trains as a substitute to air travel. However, this challenge is not big since Southwest Airlines capitalizes on the low-cost strategy to drive her competitive advantage. When this strategy is combined with the convenience offered by air travel in comparison to rail travel, the threat is minimized.

In case of complements, there are large numbers of companies that uphold the airline sector. They range from hired vehicles and hotel industries among others. In fact, “Southwest Airlines will compete with other companies to cooperate with the car rental and hotel firms to offer discounted travel packages” (Desai, Patel & Quach 2012, p.4).

Southwest Airlines has gone an extra mile to deploy computer reservation systems to permit its clients to make convenient reservations for support facilities including cars and hotels for its customers via an integrated website. From the context of the suppliers’ bargaining power, the airline company does not face challenges of shortage of pilots since their supply is in excess. The company has the history of low strikes. Hence, the supply of piloting services is reliable throughout the fiscal year.

The current strategy of Southwest Airlines

Established in 1967, Southwest Airline is the United States’ major air transport company. It also stands out as one of the largest airline in the world whose main current strategy for success is driven by a low-cost operational strategy. Its head quarters are based in Dallas, Texas (Garrison & Keller 2005, p.1).

As of August 2012, the company employed more than 46000 people. Within the same period, the company recorded about 34000 flights on a daily basis. In fact, “by January 2013, Southwest Airlines had a schedule for flights in 79 destinations across 39 States” (Desai, Patel & Quach 2012, p.6).

The above success of the company can be attributed to a number of operational strategies, which have turned out to produce positive impacts for the company. Southwest Airlines has established a motto, which acts as the mechanism of shaping the organizational culture of the company.

This motto is “keep it cheap, and keep it simple” (Desai, Patel & Quach 2012, p.7). The meaning of the motto is that the company differentiates itself from other airline companies operating in the same industry by distancing itself from relying on spoke system and hub approach to drive success. Rather, the company works on “frequent point to point flights” (Desai, Patel & Quach 2012, p.7).

Typically, the company offers more than 2700 flights on a daily basis in an excess of 55 cities across more than 30 destinations. The short flights essentially last for one hour or even less. Through the short flights, the company utilizes the same plane for 11 hours on average on a daily basis. This rate of utilization of the available couriers is 3 hours well above the average of industry courier utilization capacity. This finding makes it possible for the Southwest Airlines to have an even distribution of its cost on the per-seat basis.

Given that competition for airports is an incredible challenge that faces the airline industry, Southwest Airlines has resorted to landing on small airports in the effort to escape the competition for the large airports within its reach destinations. When the routes are merged with the strategy of point-to-point, it translates to more capitalization on “direct routes, reduction of the connections, staying clear off the challenges of trip overlaps, and reduction of flight delays” (Desai, Patel & Quach 2012, p.5).

Apart from the strategy of remaining the cheapest and the most simple airline company, Southwest Airlines has some other current auxiliary strategies to drive its success. One of such strategies is the devotion to the employees. This strategy is driven by the perception that, without a motivated workforce, it is impossible to achieve organizational strategic plans.

The CEO of the Southwest Airlines, Herb Keller, has developed an organizational culture, which gives all employees an opportunity to perceive themselves as if they belong to a single extended family. The Charismatic approach to the business of the Southwest airlines adopted by the CEO is also instrumental in the generation of employees’ loyalty.

In addition, employees are given the opportunity to own 11 percent of shares of the company. This strategy is incredible in ensuring that the interests of the airline are proactively aligned with those of the employees. Arguably, the aspect of human relations is a central pillar of the current strategies for driving success of the Southwest Airlines.

Analysis of Southwest Airline’s approach to sustain its competitive advantage

Even though Southwest Airlines pays magnificent efforts to ensure that it out-powers its competitors in the effort to acquire the tag of being the largest and most attractable airlines industry to all classes of travelers, competition is still intense. Nevertheless, the company is still able to retain its competitive advantage. This section discusses and analyses Southwest Airlines’ approach to sustain its competitive advantage.

In a competitive business environment, maintaining competitive advantage calls for frequent analysis and evaluation of the external environment of an organization.

This move entails scanning, forecasting, and even assessing the strategies that are deployed by the competitors in the context of strategies for success deployed by an organization (Ginter, Swayne & Duncan 1998, p.7). An essential approach for doing this job is by seeking to identify an organization’s strengths, opportunities, weaknesses, and threats or in other words, conducting the SWOT analysis of the organization.

This strategy helps to ensure that competitive strategies authorized for exploration are more concentrated towards collective organizational decision to yield optimal benefits from the existing opportunities and strengths while strategically focusing on measures to reduce negative impacts of the organization’s weakness and threats. Southwest Airlines is completely aware of its strengths and opportunities in the airline industry.

It has deployed them to drive its competitive advantage. One of these strategies is the capacity to orient its employees to the common goal, mission, and objectives of the company. However, in doing this role, it stipulates the relevance of all efforts made by its well able employees to be consistent with the demands placed on them by the customers (Garrison & Keller 2005). In the absence customers, the company ceases to exist.

Capitalizing on innovation and creativity of its employees who are also partly the owners of Southwest Airlines makes the company a big envy to many competitors.

Driven by stakes to increase their earnings in the form of dividends, the employees inculcate a strong spirit of teamwork, which is an instrumental milestone towards the maintenance of worker morale and consequently increment of the profitability of the organization. Indeed, according to Desai, Patel and Quach (2012), Southwest Airlines’ employees precisely understand “…that they must comply with Southwest Airline’s concept of never inconveniencing customer” (p.8).

Through strict compliance to this procedure for enhancing quality in delivery of clients’ attendance that has made the company celebrate 28 years of successive productivity. Many of the factors that have made other companies operating in the same industry suffer from acquiring competitive advantage also seems to have little implication on Southwest Airlines.

For instance, in the wake of variability in the economic environment characterized by depressions and recessions, airline companies have been undergoing intense challenges associated with workers’ strikes. Such strikes often bring the business of airline companies to a standstill making them encounter hefty losses.

Surprisingly, with 85 percent of its employees registered in unions, Southwest Airlines has encountered only one strike in its history of operation (Desai, Patel & Quach 2012, p.8). Arguably, the history of no-strikes operation has made the company’s customers perceive Southwest Airlines as highly reliable. This back up has helped to build an incredible brand loyalty that has been critical in driving the competitive advantage of the company.

Theory or Concept that forms the basis of the strategies of Southwest Airlines

Firms adopt different strategies to drive their competitive advantages. Various theoretical or conceptual frameworks inform these strategies. Southwest Airlines competitive advantage efforts are largely driven by the concept of scale of economies. According to Mazucat (2006), “microeconomics theory provides a strong theoretical and empirical basis for evaluating the effect of scale on cost reduction and use of scale as a competitive tool is common in practice” (p.336).

The fundamental principle of operation of scales of economies as a concept for driving competitive advantage of an organization is anchored on the paradigms retaliating that firms need to expand in terms of their volumes of output in the effort to benefit from advantages associated with being large.

One of such advantages entails the provision of services and products at low prices in comparison to competitors. Indeed, the success of business operation of Southwest Airlines is propelled by this strategy. This concept is crucial for continued success of Southwest Airlines since large firms are able not only to offer lower prices for their products and services but also the lowering of prices does not affect the efficiency, effectiveness, and the quality of the offered products.

Through the low operating cost strategy, Southwest Airlines provides “primarily short-haul, high frequency, point to point, and the lowest and simplest fares” (Desai, Patel & Quach 2012, p.6). Apart for focusing on low costs, the company also objects working in the most productive way with immense flexibility coupled with substantive creativity to satisfy both customers and employees.

In this regard, Desai, Patel and Quach (2012) emphasize that, with reference to the mission statement of Southwest Airlines, the company is dedicated to avail “the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (p.6).

This mission underlines the strategy of the company for gaining competitive advantage through inspiration of the concept of economies of scale. The strategy deploys an impeccable attention to transportation of large numbers of clients on short trips at high frequency levels offering low fares to them while not negating provision of a means of enhancing strong employees coupled with clients’ commitments to the business of the organization through aggressive marketing.

Low-cost marketing position remains a major approach of driving the competitive advantage of the company. Garrison and Keller (2005) support this line of argument by further asserting, “Southwest Airline’s greatest opportunity is directly related to its greatest strength- to continue to develop its low-cost position in the airlines industry” (p.9). Indeed, this brand association has resorted to shaping the competitive advantage of the company until today.

However, capitalizing on this strategy is not adequate if the company must maintain competitive advantage in the future. Several companies, which have been competing with Southwest Airlines vigorously, have been encountering an immense reduction of share price values due to factors associated with poor financials.

Strategic alliance with these companies through acquisitions and mergers can increase the competitive advantage of the company in multifold in the future. In fact, apart from capitalizing on gaining a large customer pool through low-cost strategies in the effort to strategically take advantage of the economies of scale as a central concept for driving the competitive advantage of the Southwest Airlines, economies of scale would be hiked through strategic alliances.

Analysis of Easy Jet Airlines: a national Airlines Company in the author’s home country

Easy Jet Airlines is based in Britain. The headquarters of the company is in London-Luton airport. Easy Jet Airlines was inaugurated in 1995. In terms of passengers’ carriage capacity, both internationally and domestically, the company emerges the biggest airline in the UK. The organization “serves 500 routes in 118 European, North Africa and west Asian airports” (Millward 2011, p.16). The company had workforce exceeding 8000 people by September 2012.

The main mode of expansion of the company is through acquisitions (Sumberg 2011, Para.5). This strategy has worked so well for the company that Easy Jet Airlines’ acquisition as a strategy for expansion and gaining competitive advantage may be used to benchmark the Southwest Airlines’ expansion strategy through its formation of alliances as proposed before. Another essential secret of growth for Easy Jet is capitalization on low-cost air transport demand.

This strategy measures up to Southwest Airlines’ strategy for maintaining competitive advantage. It gives an indication that the companies operate under similar market dynamics since the application of the strategy in the two companies has resulted in enormous success.

In this regard, according to Easy Jet plc (2011), “the airline, along with subsidiary airline Easy Jet Switzerland, now operates over 200 aircraft, mostly Airbus A319” (p.13). Easy Jet comes second to Ryan Airlines in terms of cost of travel. With regard to Easy Jet plc (2011), in the fiscal year 2011, the company flew more than 55 million people (p.8).

Similar to Southwest Airlines, Easy Jet is susceptible to operational challenges such as increasing the cost of fuel. To help cut on fuel costs, Easy Jet announced a decision to build her own airliner with the brand Ecojet. With prop fan engine features, Ecojet is aimed at hiking fuel efficiency.

In need of enhancing competitiveness in comparison with other competing airlines, in February 2011, the company “painted eight of its aircraft with a lightweight, thin revolutionary nano technology coating polymer” (Sumberg 2011, Para.4). This coating reduces debris drag across the planes’ surfaces. Hence, the amount of power required for propelling aircrafts is also reduced significantly.

This strategy has the implication of reduction of fuel bills (Sumberg 2011, Para.5). According to Easy Jet plc (2011), through this strategy, the company saved about 1 to 2 percent of the total fuel costs (p.10). This saving amounts to about 14 million Euros. This effort is a replica of the Southwest Airlines’ endeavor to reduce operational costs in order to enhance the competitiveness of the organization in highly competitive market.

Analogous to Southwest Airlines, Easy Jet has adopted a myriad of strategies to place its brand in the market. Easy Jet specializes in service delivery. The place for the service offering is dependent on the preferred destination of its clients.

This argument means that, in the derivation of the marketing mix for the company, place is an essential factor for the company to consider since, for the success of the company, it has to choose the destination that will attract clients who are willing to pay all costs for delivery of such services without making the company encounter losses. Upon selection of the destination with potential of clientele growth, Easy Jet chooses the appropriate promotional techniques that would enable it to out-power its competitors

Over the years of operation, Easy Jet Airlines has developed a number of ways of effectively communicating with clients to ensure the retaining of the existing ones and attracting new ones. One of the tactics of doing this is by promoting Easy Jet’s product through “making flying as affordable as a pair of jeans” (Jones 2007, p.34) coupled with requesting its customers to “cut out the travel agent” (Jones 2007, p.35).

Arguably, this strategy is a more innovative promotion technique since, in a decade ago, the company only advertised through a work of art of the booking handset contact on the surfaces of all its airplanes.

The filming of airline TV series (1999 -2007) had the impact of making Easy Jet appear like a household name within the UK. Although this film never portrayed the name of the company in a positive way all the time, the company was highly promoted. Additionally, as part of its promotional strategies, the company has changed from one business slogan to another. First it was “the web’s favorite airline”, then “come on, let’s fly” and later to “to fly, to save” (Jones 2007, p.47).

Another slogan is “Europe by easy jet” (Jones 2007, p.47). The most popular one is “business by easy jet” (Jones 2007, p.47). In relation to price, the airline offers low travel costs. The central focus on low cost as a mechanism of enhancing competitive advantage of Easy Jet implies that the cost of travel is an impeccable factor that determines the capacity of airlines to woe clients not only in the European markets where Easy Jet is based but also in the American market where Southwest airlines is based.

References

Desai, K, Patel, V, & Quach, D 2012, South West Airlines. Web.

Easy Jet plc 2011, Annual report and accounts 2011. Web.

Garrison, N & Keller, R 2005, Case Study: Southwest Airlines, OH, Cincinnati.

Ginter, P, Swayne, L, & Duncan, J 1998, ‘Competitive Advantage and Internal Organizational Assessment’, Academy of Management Executives, vol. 12 no. 3, pp. 1-12.

Jones, L 2007, Easyjet: the Story of Britain’s Biggest Low-Cost Airline, Aurum Press, London.

Mazucat, M 2006, Strategy for Business, London Thousand Oaks, New Delhi.

Millward, D 2011, ‘Easy jet to open new base at Southend’, The Daily Telegraph, vol. 1 no. 1, p.16.

Porter, M 2008, ‘The five forces that shape strategy, ‘Harvard business review, vol.3 no.1, pp. 56-63.

Sumberg, J 2011, Easyjet Paint Job Makes Fuel Bills Less of a Drag. Web.