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Southwest Airlines 2008

Case analysis and Action plan

1/12/2014

ContentsProblem Statement.....................................................................................................................................2

Analysis........................................................................................................................................................2

Factors.........................................................................................................................................................3

Critical Factors.............................................................................................................................................5

Solutions......................................................................................................................................................5

Plan of Action..............................................................................................................................................5

Problem Statement

The strategy to be employed and the policies to be implemented by Southwest airlines in the

wake of increasing operating costs due to volatile fuel prices and reduced demand for airline

tickets due to recession in USA in order to maintain its growth rate and retain its position as

America’s most prosperous airline.

AnalysisPEST ANALYSIS:

Political Factors:

1) The implementation of ‘Open Skies Agreement’ which resulted in the increased access to US

markets for European carriers.

2) Stricter government regulations in USA for Aircraft safety and Maintenance.

Economic Factors:

1) Severe recession in USA due to bursting of the housing bubble in mid-2007

Social Factors:

1) Reduction in spending by people due to recession.

2) Willingness of people to take up jobs available at companies which provided freedom at work,

personal development and job security

3) Focus on customer service and customer satisfaction as a point of differentiation in

economically advanced countries like America

SWOT ANALYSIS:

Strengths:

1) No frills, low cost airlines

2) Point-to-point flights resulting in reduced time of waiting plane and increased number of

routes per day

3) High operational efficiency

4) Positively Outrageous Service, the highly appreciated customer service policy of southwest

airlines

5) Having one type of aircraft which reduces the maintenance cost

6) Highly dedicated workforce

7) Low attrition rate

Weaknesses:

1) Focus on point-to-point method of flight operation which limits the frequency of trips between

origin-destination pair

2) New to customer customized service model

Opportunities:

1) Very few lost cost airlines in the USA which have successfully implemented low cost

operations

2) Increase in people willing to travel by air from 200 million in 1974 to 700 million in 2007

Threats:

1) Volatile jet fuel prices resulting in increased operating costs

2) Increase in number of airlines trying to imitate the low cost strategy of Southwest airlines

3) Increase in the number of runways, terminals and airport capacity not matching the increase in

the number of customers using aircrafts for transport.

4) Acquiring of terminals by other airlines following the Hub and spoke model resulting in the

increased operating costs due to the high rent to use these terminals

FactorsSeveral factors played significant roles in contributing to the problem being faced by Southwest

airlines:

Firstly, even though the airlines was profitable and recorded the highest passenger load factor,

the net profit had reduced as compared with the previous year due to increased jet fuel prices as a

result of volatile crude oil market. The increased load factor also tested the employee and

operational efficiency of southwest airlines as it had fewer number of employees as compared to

other airlines.

The airline industry was experiencing a tough period due to decreased demand for airline tickets

as a result of the recession in USA. The lower occupancy and coupled with the increased fuel

prices also adds to the rising operating costs.

The airlines adopts point-to-point mode of operation unlike its competitors which limits the

number of flights it can operate between an origin-destination pair even though it provides quick

turnaround time and increased number of routes. This mode of operation also limits the range of

an aircraft resulting in the aircraft being operational in a particular region only and restricting its

expansion policies. This also increases its operating cost due to high rent for the use of the

terminals contracted by other airlines operating in hub and spoke model.

Its late transition to a customer customized service model in a mature industry where service acts

as a differentiating factor also results in the loss of business class customers.

The rise in airline companies like Jetblue which imitate the low cost model of Southwest airlines

also affected its net income due to increased competition.

Southwest airlines also paid the highest salary to its pilots.

It also caters to only domestic markets and not foreign markets.

Critical FactorsThe volatile fuel prices due to unstable economic environment resulting in increased operating cost and the low cost model of being imitated by new entrants and existing big players in the industry resulted in it losing its uniqueness and reduced operating income.

Solutions1) Southwest airlines should train its employees to focus on customer service2) The airline should also operate business class seats in its flights so as to cater to a new

segment in the existing market.3) Try to reduce the operating cost in the form of rent being paid to terminals and try to

contract with the airports for terminal space.4) The airlines should also start international operations.

Plan of Action

The low cost model adopted by southwest airlines is being imitated by new entrants and also the also being adopted by existing big players resulting in southwest airlines losing its point of difference. The only difference could be achieved through its service hence southwest airlines should focus on service oriented operations and should develop its workforce in this line. It should also add business class in its flights to cater to a different segment in the existing market. It should also focus on expanding its services to international destinations as the US market is saturated and its low cost model can act as a point of differentiation by first extending its operations to nearby countries like mexico, carribean islands, cuba etc.