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Southwest Airlines Analysis Case Study

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Updated: Aug 4th, 2021

A short description about the Southwest Airlines

Southwest Airlines (initially known as Air Southwest) launched its first flight in 1971. Its founders were Herb Kelleher and Rollin King. By then, the company only served three cities within US (Houston, San Antonio, and Dallas) and had not expanded its operations beyond the country. Unfortunately, it incurred remarkable losses in the first two years of its operation. This forced it to vend one of its four aircrafts instead of sacking some of its employees.

After enacting viable business strategies, Southwest Airline managed to overcome such obstacles. It announced its first profits in 1973. By 1977, the company had expanded its operations. It served other additional cities like El Paso, Lubbock, and Corpus Christi among others. It later launched interstate destinations within US indicating its prospective growth.

Later in 1986, the firm established a training program to equip its flight crews with viable business etiquettes. This enabled it to enhance its competitiveness in the realms of customer services. It later won a monthly Triple Crown prize due to its exemplary services. Upon its rapid expansion, the company acquired Moris Air in 1994 and consequently enhanced its flights to other cities within US.

It introduced Ticketless Travel in various cities, a move that augmented its business’ prowess. As at 2006, Southwest Airlines had advanced both technologically, revenue acquisition, and business wise. It acquired ATA Airlines allowing it to attain boarding slots in LaGuardia Airport, New York. This move enabled it to handle international flights after partnering with WestJet Airlines (a prominent low-cost carrier).

The company had to increase its charges for both domestic and international services in order to survive in the industry. In order to overcome current challenges facing the airline industry, Southwest Airlines has embraced technological innovations, price adjustments, protocol reforms, and viable acquisitions and mergers.

Main Issues/Problems of the case

Southwest Airlines is facing numerous problems within the aviation industry. Firstly, there is a constant increase in fuel prices. This leads to increased business costs and other relevant challenges engulfing the entire industry. Another problem is the increase in operational costs mentioned earlier. An airline business is costly to establish, ratify, and operate due to massive logistical issues involved in the entire context.

Southwest Airlines is also experiencing such problems despite the witnessed success. There is a considerable need to reduce costs and increase profits in numerous occasions. It is from this context that the entire problems facing the industry lie. Additionally, it is important to consider that some airline business slump due to higher operational costs and reduced profits. Another problem is the current security threats that face the company and other players in the airline industry.

Such security problems might force the company to cancel some of its flights leading to reduced revenues and consequent losses. The global economic crisis has equally contributed to the mentioned problems. Economic catastrophe affects market trends, travelling schedules, and reduces the influx of customers since most organizations and individuals strive to minimize expenditures. Fluctuating fuel prices is another problem facing the company due to unpredictability of fuel costs mentioned earlier.

The company is equally unsure whether its point-to-point business strategy will apply as it tries to expand its domestic operations. Another problem is the stringent competition within the industry. International expansion strategies, union walkouts, and environmental uncertainties are some of the problems faced by the organization.

Situational Analysis

SWOT analysis, PEST analysis, & internal analysis (strengths & weaknesses)

When subjected to SWOT analysis, Southwest Airlines has numerous strengths in its business endeavors. The company has several competitive advantages compared to its rivals in the aviation industry. Additionally, it has established right products for its clients. This is evident in the travel arrangements, reliability, and variability in the destinations it covers. Additionally, it embraces technology and innovation to ensure that it remains competitive.

Concurrently, the company has trained competent human capitals hence capable of achieving customer satisfaction. Southwest Airlines has equally enhanced its customer services and changed business processes in order to attain the desired competitiveness. Conversely, the company possesses some weaknesses when analyzed critically.

Some of its customer services still need to meet international standards. The aspects of technology have not been fully enacted in the company despite the stringent competitions experienced. Additionally, it has limited international flights compared to other prominent competitors in the very industry.

Southwest Airlines has numerous opportunities it can cease in order to enhance its competitiveness, revenues, and customer value when scrutinized critically. The demand for aviation services is rapidly growing despite the recent economic challenges. This indicates that the company might perform well in future due to increased flight demands. Another opportunity is the merger it makes with other international airlines like WestJet Airlines. Additionally, the fact that it has a competent, innovative, and creative workforce is crucial.

This provides another considerable opportunity in the entire scenario. There are various opportunities in the aviation industry, which the company can harness in order to remain competitive in the market. Conversely, there are business threats that might hinder the wellbeing of Southwest Airlines. The fluctuating fuel prices, global fiscal crisis, stringent competition, security threats, high operational costs, and adverse international regulations form critical threats to the company.

There are also some issues that emerge when Southwest Airlines is subjected to PEST analysis. Political issues can affect the company massively. This is possible with regard to political trends, legislations, international policies, political wrangles, and other prominent business aspects in the entire scenario.

Economic factors incorporate the current global financial challenges and other considerable factors. Additionally, there are other specific economic factors in the aviation industry that have affected Southwest Airlines. This incorporates high operational costs within the industry, fluctuating fuel costs, and other potential fiscal problems facing the industry.

On social factors, the company enjoys changing lifestyles that have promoted the use of aircrafts as a means of travelling and sending important cargos. The use of flights is embraced by people of different ages. Additionally, the company has embraced technology in its various operations. Southwest Airlines has been innovative in its business approaches, a fact aided by technological advancements within the business.

Value Chain Analysis

Southwest Airlines has attained considerable competitive advantages in the business realms having enacted and embraced stringent and viable value chains in its endeavors. Airline industry is quite competitive hence demanding its players to embrace considerable value chain provisions as evident in the provided case. The entire business activities that Southwest Airlines assumes in its daily operations have contributed to the aspects of the alleged value chain.

Things done in every department or sectors of the company contribute to the demanded value chain. This is quite important in various aspects. The management of the company, employees, suppliers, affiliates, and other considerable stakeholders have endeavored to add value to the service provision granted by the company.

The ultimate competitive advantages noticeable within the company result from considerable contributions made by the entire stakeholders. It is from this observation that Southwest Airlines attains its ultimate value chain. This has enabled it to grow tremendously in the past years despite the challenges.

Customers have also trusted the services given by the company as evident in the case. Due to these provisions, the company has managed to grasp a considerable market share as evident by its continuous business growth. Additionally, the use of appropriate business approaches and staying customer-focused has allowed the business to augment its competitiveness in the airline industry despite the noticeable challenges.

Industry (Porter’s 5 forces analysis)

Porter’s 5 forces are applicable in the airline industry with respects to the provided Southwest Airlines’ case. This is an important observation following its relevancy in the entire context. For example, threat from new entrants into the industry is applicable in this context. Southwest Airlines and other existing airline firms are threatened by the entrance of other competitive rivals. However, since the industry is costly to establish and operate, such chances are limited.

Additionally, there is a considerable rivalry from the existing firms within the American market and beyond. Other international airlines like Emirates Airlines and Qatar Airlines among others have fronted stringent competition to Southwest Airlines with regard to its international markets. Additionally, the bargaining power of buyers is evident in the industry due to competition. Customers go for cheap and reliable airline companies.

This has forced other industry players to strategize properly and cut prices. Additionally, suppliers operating in the industry have equally fronted their bargaining power. The jet fuel suppliers usually change the cost of fuels to suit their business interests. This is a massive challenge to the industry and beyond.

Another apparent force evident in the case is the availability of substitute products/services. Airline customers can seek the services of other companies if such needs arise. This factor forces numerous businesses to establish their competitive advantages and other relevant business strategies.

Competitor

Southwest Airlines experience competition from various firms. This occurs both locally and internationally. Since the company started as local airline business, all the local airlines in US as at then provided considerable competition provisions. On the international flights, Southwest Airlines experiences competition from well-established airline companies globally.

Answering the questions

Evidently, Southwest Airlines can still maintain 36-year streak profitability despite the challenges mentioned in the case. This is possible since the industry is growing rapidly while the company has numerous strengths and opportunities to cease this opportunity. Additionally, the company can still depend on fuel hedging to control cost despite the fluctuating oil prices. This is possible through proper management and other characterizing factors.

Concurrently, the point-to-point methodology will still be useful as the company enhances its domestic flights. This is possible since it adds massive competitive advantages to the company against other rivals. Major traditional airlines will threaten Southwest Airlines when they become low-cost counterparts.

Additionally, the company will be able to expand internationally, maintain its positive relations with employees, and avoid future union walkouts and bargains. Despite the probable persistence of the current financial crisis, Southwest Airlines will still expand if it enacts its business strategies evident in the case. The company can embrace viable business strategies to curb environmental uncertainties. This will help it maintain its loyalty to customers.

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IvyPanda. (2021) 'Southwest Airlines Analysis'. 4 August.

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