Strategic Analysis - Southwest Airlines Co.

Strategic Analysis: Southwest Airlines Co.

Shekera Alvarado

MBA 700: Strategic Management

Southern New Hampshire University

Running Head: STRATEGIC ANALYSIS 2

Executive Summary

Southwest Airlines Co. is a major airline company based in the United States.

Established in 1967 and operating within the national and international airline markets,

Southwest Airlines is known for providing low-cost options to its customers, and striving for un-

matched customer service (Kelly, n.d.).

As a consultant to Southwest Airlines, the following report offers an in-depth look at the

strategy and corporate management of the company. Based on detailed research, the

recommendations provided throughout the report should be used to enhance the existing strategic

management offerings for Southwest Airlines.


Contents

Executive Summary ........................................................................................................................ 2

Strategy & Strategic Management Process ..................................................................................... 5

Strategy within the Airline Industry ....................................................................................... 5

External Environment & Competitive Position .............................................................................. 6

Driving Forces of Change ....................................................................................................... 6

Five Forces Model of Competition ......................................................................................... 7

External Environment Recommendations .............................................................................. 8

Internal Environment & Competitive Position ............................................................................... 8

SWOT Analysis ...................................................................................................................... 8

Core Competencies & Value Chain Activities ..................................................................... 10

Internal Environment Recommendations ............................................................................. 11

Competitive Strategy .................................................................................................................... 11

Low-cost Generic Competitive Strategy ............................................................................... 11

Competitive Strategy Recommendations .............................................................................. 12

Strengthening Competitive Position ............................................................................................. 13

Generic Strategy.................................................................................................................... 13

Complementary Strategic Option ......................................................................................... 13

Competitive Position Recommendations .............................................................................. 14

The Global Marketplace ............................................................................................................... 14

Corporate Strategy: Business Diversification ............................................................................... 15

Diversification Strategy ........................................................................................................ 15

Diversification Future Proposal ............................................................................................ 16


Ethics, Social Responsibility, & Environmental Sustainability .................................................... 16

Ethics..................................................................................................................................... 17

Social Responsibility ............................................................................................................ 18

Sustainability......................................................................................................................... 18

Strategy Execution: Building the Capability to Execute Strategy ................................................ 20

Internal Strategy Execution................................................................................................... 20

Strategy Execution: Managing Internal Operations ...................................................................... 21

Best Practices at Southwest .................................................................................................. 21

Strategy Execution: Leadership .................................................................................................... 22

Leadership Recommendations .............................................................................................. 22


Strategy & Strategic Management Process

Strategy within the Airline Industry

Southwest Airlines Co.’s CEO, Gary Kelly said it best, “I LUV this time of year—

looking forward to what’s on the horizon and planning to accomplish the goals and resolutions

that we set for ourselves” (Kelly, n.d.). As a company that is constantly evolving, Southwest

Airlines Co. is always trying to strive for their ultimate mission of providing the “highest quality

of customer service delivered with a sense of warmth, friendliness, individual pride, and

company spirit” (Southwest Airlines Co., 2013). With this winning strategy the company has

continued to develop as a strong industry leader.

Southwest has been able to prove adherence to their mission, vision, and value statement

time and time again. This constant evolution of positive developments for the company has and

always will include one of the most important aspects of a successful company – training for

their employees. As Blanchard discussed, a vital part of an employee friendly workplace means

providing them with “high impact training programs. These need to be aligned with specific,

measurable goals that are fully supported and in alignment with organizational objectives”

(Blanchard, 2007). With that, in 1998, a brand new $10 million flight operations training center

opened as the “key element of Southwest’s flight training services for its more than 2,600 pilots”

(Southwest Airlines, 1998). On average the training center will properly train and process 250

new pilots per year, in addition to the pilots who are currently on staff and gain an additional

1,000 hours of training throughout their careers (Southwest Airlines, 1998). If the description

itself is not already an indication, Southwest’s vice president of flight operations, Paul Sterbenz

states “this state-of-the-art training center makes Southwest well-equipped to handle the flight


operations training needs of the airline well into the next century” which positions the company

in a favorable light given the tumultuous history of air travel.

This is definitely an example of positive development as this strong growth and

development is a result of their mission to build sustainable value and hold true to their strategic

objectives. “Firms build sustainable value by actively engaging stakeholders in the decision-

making process, and by doing it earlier rather than later” (Bansal, 2005). Throughout the

research and planning stages of this training facility project, the company made a vital point of

gleaning input from the training center’s own future staff members; the goal of course to make it

as user-friendly and practical as possible (Southwest Airlines, 1998).

Learning their mission, vision, and value statements, as well as their stance on

perpetuating the culture within the company, it is easy to see that the leadership at Southwest is

certainly dynamic.

External Environment & Competitive Position

Driving Forces of Change

Some of the driving forces of change in the industry in which Southwest Airlines

competes include socioeconomic forces and regulatory forces (Rodrigue, 2009). Socioeconomic

forces such as aggregate demand for goods and service and regulatory forces such as operational

costs including oil for airplane fuel is a force that Southwest Airlines deals with on a daily basis.

Soaring fuel costs and a very soft economy have forced many airlines to cut back on flights,

increase costs to their customers in every facet of their operations, lay off thousands of workers

and, in some cases, go out of business entirely. While this is taking place all around the globe,

Southwest Airlines continues to be successful and has just posted its 69th consecutive quarterly


profit” (Southwest Airlines Reports First Quarter Results, 2012). This is due to their strategy of

added value. The airlines reputation for greatness and consistency in the economic, political and

civil spheres identifies their integrity and continued goal to provide the best service in the

industry.

Five Forces Model of Competition

The Five Forces Model of Competition framework “holds that competitive pressures on

companies within an industry come from five sources. These include (1) competition from rival

sellers, (2) competition from potential new entrants to the industry, (3) competition from

producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining

power” (Thompson, Peteraf, Gamble, & Strickland III, 2015). In order to determine the nature

and strength of competitive pressures for Southwest we must first recognize the individual forces

involved. Potential entrants into the market include the smaller niche airlines that may offer the

same services, but on a smaller scale. The buyers are the customers who appreciate the value

added that Southwest includes with their services and offers the further bargaining power when

they opt for an airline like Southwest who does not charge extra bag fees. It would be tough to

be a firm in another industry trying to offer substitute services being that air travel is within its

own right. Suppliers would be the fuel companies who may subsidize the prices of fuel for the

airlines seeing that they purchase in advance according to the status of the industry. Lastly, the

rivalry among competing sellers would include those airlines who are in direct competition with

Southwest such as American Airlines and Jet Blue. According to this framework, the closest

rival for Southwest would be American Airlines. However, Southwest is already in a favorable

position given the competitive analysis.


The force that exerts the most pressure on the company would be rivals who introduce

competitive pressures from within the industry. Even though they are not providing the same

quality of product, they are the other option for buyers who would not hesitate to use their

services over Southwest if they fit the requirements which are still overall supportive of the high

industry profitability. In order to help relieve the pressures from rival companies Southwest has

continued to build on its value added strategy. Southwest is known for their commitment to

customer service. The company will “intentionally avoid entering markets where destination

airports have highly concentrated airport structure or congested facilities” (Oh, 2002). Even

though providing the market to the customer would mean more money in their pockets, they

decide to go beyond the normal financial gain and create additional benefits for their patrons. By

focusing on the interests of their customers they are able to stay at the top of the list for

providers.

External Environment Recommendations

My recommendations would include sticking to their strategy with providing the best

customer service and continuing to align their actions with their mission and vision. History has

shown that it is difficult to find a substitute for Southwest Airlines since they have achieved so

well at aligning themselves in such a specific niche.

Internal Environment & Competitive Position

SWOT Analysis

“In evaluating a company’s overall situation, a key question is whether the company is in

a position to pursue attractive market opportunities and defend against external threats to its

future well-being” (Thompson, Peteraf, Gamble, & Strickland III, 2015). In order to make this


determination a SWOT analysis is used. “At first-rate SWOT analysis provides the basis for

crafting a strategy that capitalizes on the company’s strengths, overcomes its weaknesses, aims

squarely at capturing the company’s best opportunities, and defends against competitive and

macro-environmental threats” (Thompson, Peteraf, Gamble, & Strickland III, 2015). The

following is a detailed SWOT analysis for Southwest Airlines Co.

A strength enhances a company’s competitiveness in the market in which it operates. A

strength for Southwest Airlines is the centrality of customer service to their mission; which has

motivated the company to identify key drivers of customer service and focus its operational

efforts on those drivers. “A weakness, or competitive deficiency, is something a company lacks

or does poorly… (Thompson, Peteraf, Gamble, & Strickland III, 2015). A weakness that

Southwest has recently corrected has been the fact that they did not have any international

flights. Just recently the company has added international flights to their list of destinations

(Hethcock, 2015). New technology in an old industry is always a sign of an opportunity. Such

is the case for Southwest Airlines. Not only does this allow for new services, it also may mean a

shift in new products for air travel that can make it more appealing to customers and therefore

increase sales and their bottom line. A threat that is always viable for Southwest would be the

cost of fuel. The cost of fuel directly relates to ticket sales being that customers tend not to travel

as much (for pleasure) when the price of tickets increase as a result of the increase in fuel price

being filtered down to the customer.

Southwest does not represent a special case when it comes to the weaknesses,

opportunities and threats for the industry. Competitors for Southwest would have the same being

that they are in the same industry and subject to the same environments. The only place where

Southwest does represent an advantage is in their strengths. This is one of the reasons in which


the company has done so well. They have unparalleled customers service; which highlights their

mission and vision. As previously mentioned “as a company that is constantly evolving,

Southwest Airlines Co. is always trying to strive for their ultimate mission of providing the

“highest quality of customer service delivered with a sense of warmth, friendliness, individual

pride, and company spirit” (Southwest Airlines Co., 2013).

Core Competencies & Value Chain Activities

The core competencies for Southwest Airlines include: efficient operations, outstanding

customer service, and innovative HR management practices that all enable the company to

follow its stated mission and vision. Not only does this speak to the integrity of the company, it

also allows them to remain a leader within the industry.

A value chain includes “all the various activities that a company performs internally, so

called because the underlying intent ultimately lead to a created value for buyers” (Thompson,

Peteraf, Gamble, & Strickland III, 2015). Southwest has learned to use their support activities

and costs, including: technology, human resource management and general administration to

provide a mainframe for their primary activities and costs including: supply chain management,

operations, distribution, sales and marketing, service and profit margin. They are able to do this

by building upon and continuing to reference their mission and vision in their daily operations.

This in turn enables them to improve their competitive position. For example, the foundation of

Southwest's corporate message is not that customers are number one; rather, employees always

come first with the company, with customers a respected second. Southwest, in turn, expects its

staff to extend customers the same level of warmth, respect, and responsiveness they,

themselves, receive. Along with this corporate mentality, the company has taken “corporate

measurements to insure progress toward meeting company goals” (SNHU, 2014). For example,


the Southwest Supplier Diversity Program “supports suppliers that share Southwest’s ideals. Its

policy for suppliers states, “As a company, Southwest Airlines Co. values diversity and seeks to

create an environment that encourages it, both in the workplace and among our supplier base”

(Lauer, 2010). The company maintains assessment of these implementations through their

corporate extensions in the forms of newsletters publications and web logs. Their Environmental

Stewardship Report “was created to communicate to our Customers, Employees, Shareholders,

and other Stakeholders what Environmental Stewardship means to Southwest. For 2008, we are

publishing this more comprehensive “Southwest Cares” report to show how Southwest does the

right thing by Our Planet, Our Communities, Our People, and Our Suppliers” (Southwest Cares,

2008).

Internal Environment Recommendations

In regards to their competitive advantage, if the company continues to take strides to

represent themselves in such a positive manner, while paying homage to their mission and vision

in their daily work they should have no problems with remaining a powerhouse in their industry.

They have already created a distinct advantage using these proven systems. In most cases the

hard part would be keeping it up. But given the fact that their success has been woven into their

culture research shows they will be just fine.

Competitive Strategy

Low-cost Generic Competitive Strategy

In the United States, Southwest Airlines has, by most measures, been the most successful

airline in its industry. This success is largely due to the competitive advantage Southwest has


gained by effectively positioning the organization in customers' minds. By pursuing a low-cost

provider strategy the company is able to sustain a distinct advantage over its rivals.

“Striving to be the industry’s overall low-cost provider is a powerful competitive

approach in markets with many price-sensitive buyer” (Thompson, Peteraf, Gamble, &

Strickland III, 2015). Such is the case within the airline industry. Southwest is able to do this by

incorporating features and services that consumers consider essential; such as little to no extra

charge for luggage. They call it the “Bags Fly Free” campaign (Southwest Airlines Co., 2015).

“Did you know… that Southwest Airlines does not charge for your first or second checked bag?

That’s right! While bag fees have become the norm amongst our competitors, we've stayed true

to our reputation as the maverick of the airline industry by not charging for bags” (Southwest

Airlines Co., 2015).

In keeping with their already lower than competitors fare charges, Southwest has gained

an advantage even further by not passing additional fees onto their customers with bag fees.

These strategic methods come with even further cost advantages by allowing the value chain to

be performed more cost-effectively than rivals. Falling under the service branch of their value

chain the company is more than doubling their recuperation on costs by announcing the savings

for customers with just the first two bags. Competitive advantage is thereby sustained when

customers see the value that comes along with their ticket price which leads to an increase in

market share for Southwest.

Competitive Strategy Recommendations

It is my recommendation that Southwest continue to add value by differentiation. “The

centrality of customer service to the Southwest mission has motivated the company to identify

key drivers of customer service and focus its operational efforts on those drivers” (Miles &


Mangold, 2005). This “branding process enables the organization to consistently deliver its

desired brand image to customers, thereby solidifying a clear position in the minds of customers

and employees alike. When done well, it provides a competitive advantage” that further enables

added savings throughout the value chain.

Strengthening Competitive Position

Generic Strategy

By pursuing a low-cost provider strategy Southwest Airlines is able to sustain a distinct

advantage over its rivals. This success is largely due to the competitive advantage Southwest has

gained by effectively positioning the organization in customers' minds in addition to finalizing a

merger with a top competitor, a complementary strategic move. Acting proactively, the

company has done its research, studying the voice of its customers and understanding exactly

how to make Southwest Airlines the best option. As we have come to learn, excellent execution

of an excellent strategy is the most reliable recipe for turning a company into a standout

performer over the long term.

Complementary Strategic Option

A merger is a complementary strategic option “which involves more shared ownership

and can be used either to consolidate what the merging companies have or provide the

companies with additional diversification, especially into a new industry for the acquirer

(Swaminathan, Murshed, & Hulland, 2008). This was the action taken by Southwest Airlines in

the fall of 2011. With a lack of presence in the international market prior to the merger, this

action allowed Southwest entry in to international markets and put the company on the path of

growth; accelerating the company’s profits by 75% per year to $946 million in the first three


quarters of 2014 (Team, 2014). These offensive actions to improve strategic position have

definitely paid off. “This international presence has positioned Southwest to expand to Central

America and northern parts of South America – regions that are seeing fast growth in demand for

air travel” (Team, 2014). By using the merger as a complementary strategic option, Southwest

has taken a strategic turn for the better and focused planning on growth in the international

market.

Competitive Position Recommendations

In order to continue to strengthen its competitive position, Southwest Airlines must

extend its strategy and possibly complete an acquisition of a top competitor. By staying abreast

of the continuously changing “market conditions, competitive landscape, and their own strengths

and weaknesses,” Southwest must also continue to revise and extend their strategies to options

that will allow them to remain in majority share of the market. One way they can do this is by

completing an acquisition of a foreign airline service based in an overseas market. This will

enable the company the access it needs to branch out into the foreign market as well as the

customers.

The Global Marketplace

Used primarily as an opportunity for growth and competitive advantage, Southwest

Airlines was able to successfully merge with AirTran Airways in the fall of 2011. This

deliberate act of strategy has enabled the company to remain a leader within the airline industry

by having a direct result of access into foreign markets. Not only did this action expand the

possibilities for further growth for the airline giant, it also proved immediately successful.


“Three years after the merger, Southwest’s operating costs are still well below those of

other major airlines including top competitor, Jet Blue Airlines. In terms of capacity, AirTran

expanded Southwest’s network by about 25%, making Southwest the largest domestic carrier

based on the number of passengers flown” (Team, 2014). The move was a direct catalyst for

international growth. “Overall, the AirTran integration has played a crucial part in taking

Southwest’s stock to its current lifetime high” (Team, 2014).

Additional actions the company can take in order to continue to gain a competitive

advantage in foreign markets include preserving the cost advantage already realized by operating

a single type of aircraft. Southwest is currently playing this card by leasing out AirTran’s fleet

of 717s to Delta Airlines, another top competitor. Value is created by saving costs and

outsourcing goods to another company (Team, 2014).

Corporate Strategy: Business Diversification

Diversification Strategy

It has been said that “a corporate strategy tries to create synergy, where the diverse

businesses under the corporate umbrella achieve more than they would as separate, disperse

business units and thus expand shareholder value” (Porter, 1987). The opposite can be said for

Southwest Airlines. Being a company that is completely dedicated to the industry in which it

operates, Southwest does not boast of a diversification strategy, related or unrelated. One thing

that the company does that can be similar to diversification is the divestiture of their Boeing 717

fleet of plans to Delta, a rival company. “Southwest's commitment to a single type of plane—the

Boeing 737—has played a big part in its success. Southwest is so devoted to the 737 that after it

acquired AirTran, a rival carrier that was a leading operator of the Boeing 717 (once known as


the MD-95), it decided to lease the defunct airline's entire 717 fleet—88 planes—to Delta”

(N.B., 2012, par. 2).

Chris Wahlenmaier, VP of Ground Operations for Southwest Airlines explained their

reasoning:

"We only need to train our mechanics on one type of airplane. We only need extra parts

inventory for that one type of airplane. If we have to swap a plane out at the last minute

for maintenance, the fleet is totally interchangeable—all our on-board crews and ground

crews are already familiar with it. And there are no challenges in how and where we can

park our planes on the ground, since they're all the same shape and size." (N.B., 2012,

par. 3).

This strategy has proven to boost revenues for the company as well as significantly decrease

operating costs. Not to mention the huge discount received by the plan manufacturer.

Diversification Future Proposal

A future proposal for business diversification would involve possibly partnering with a

travel destination company such as Expedia or Priceline. This move may help ease the company

into the top spot within the industry by offering more of the market and broadening their service

line. However I am not sure it would be largely supported by stakeholders being that it is not

warranted. To date the company has achieved an unprecedented “60 consecutive quarterly

profits, a record of profitability no other carrier can touch” (Reed, 2006).

Ethics, Social Responsibility, & Environmental Sustainability

Southwest Airlines is a great representation of a company whose focus is embodied by

the three spheres and corporate social responsibility. To express an understanding in both the


economic and political spheres a quote was noted stating, “activities undertaken in a space

(middle ground) where economic and ethical activities overlap, are likely to generate a source of

long-term, stable profits, and result in a higher level of employee, shareholder and corporate

well-being” (Bansal, 2005).

Ethics

Southwest demonstrates these sorts of activities in their daily execution of business by

choice to meet the rules and regulations set by the government. An example is their willingness

to comply with and make the most out of industry regulations for both their business and their

shareholders. For example, one section of “the second phase of the Department of

Transportation’s Passenger Protection Regulations Rule #2, which goes into effect for all airlines

on January 24, 2014 for most provisions and on January 26, 2014 for the Full Fare Advertising

provision states: If a flight’s status changes by thirty or more minutes or the flight is cancelled,

Airlines must inform Customers within thirty minutes of that change” (Anderson, 2012.).

Though you will find that based on Southwest’s website, this rule does not require any changes

of the company. “This rule does not change what we are currently doing. As has been

Southwest’s since 2000, if a Customer cancels a reservation within 24 hours of original

booking/ticketing, a refund is automatically processed to the original form of payment”

(Southwest Airlines, 2013). In addition, Southwest goes above and beyond in providing ever

essential access for it’s’ customers to make any necessary changes quickly and easily through

their: mobile site or app, self-service kiosk, ticket counter, or departure gate (Southwest Airlines,

2013). Through this example it is clear to see that the “tug-of-war between people and profits

known as “Economic-Ethics Tension” is not viable in Southwest being that they place an equal

value on both aspects (Bansal, 2005); clearly conforming to their ethics policy.


Southwest Airlines’ CEO, Gary Kelly said it best, “I LUV this time of year—looking

forward to what’s on the horizon and planning to accomplish the goals and resolutions that we

set for ourselves” (Kelly, n.d.). As a company that is constantly evolving, Southwest Airlines is

always trying to strive for their ultimate mission of providing the “highest quality of Customer

Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit”

(Southwest Airlines Co., 2013); in doing so they have continued to develop as a strong industry

leader.

Social Responsibility

“Firms build sustainable value by actively engaging stakeholders in the decision-making

process, and by doing it earlier rather than later”; and great companies focus on more than one

bottom line when gauging their performance (Bansal, 2005). Just recently Southwest was

praised for teaming up with the National Oceanic and Atmospheric Administration (NOAA) to

provide a “missing link” and help revolutionize weather forecasting (Southwest Airlines

Newsroom, 2013). This is yet another example of how the company’s stage of development has

been reflected in its vision and value statements over time. The creativity and innovation

involved in the decisions that they make for the betterment and effectiveness of the company

provide a summation of their dedication to the company vision.

Sustainability

One of the reasons Southwest Airlines is a well-known and respected company is because

of their commitment to remaining a sustainable community. In doing so they are continuously

researching on how to make strategic decisions for a flourishing and environmentally sustainable

future that providing a foundation for growth. Employing a Combined Environmental


Management System complete with environmental and sustainability training for employees, and

modernization program, “environmental stewardship is a responsibility Southwest Airlines takes

seriously, and efficient operations are the hallmark of our Company and the foundation of our

environmental commitment” (Southwest Citizenship, 2014). When referring to environmental

initiatives, Southwest believes “our planet sustains us all, so we feel it’s our responsibility to

protect it. This focus on efficiency not only makes good business sense, it is the right thing to

do!” (Southwest Citizenship, 2014).

With the global village in mind, the company has fully integrated their environmental

management system into their current sustainability management practices. Following standards

set by the Global Reporting Initiative (GRI), Southwest has communicated their sustainability

performance by adhering to and fully complying with this framework for the fourth year straight

(2012 Southwest Airlines One Report, 2012). Using framework which includes reporting

guidelines and sector guidance, the GRI “enables grater organizational transparency and

accountability by voluntarily allowing a company to report their economic, environmental and

social impacts cause by everyday activities (Global Reporting Initiative, 2014).

In my opinion Southwest has gone above and beyond, surpassing set standards with

intense environmental and sustainability training. This excerpt was taken from their 2012

Southwest Airlines One Report:

Our commitment to protecting our Planet is integral to our operations, so we include the

topics of environmental stewardship and sustainability in our Employee training. At and

above our Supervisor level, we have enhanced Leadership courses to include

sustainability content. In these courses, we discuss sustainability, our fuel usage and its

impact on our greenhouse gas emissions and climate change, our initiatives to decrease


emissions, and our recycling programs. We also require annual environmental training

for all operational groups. Topics covered include storm water pollution protection,

proper waste disposal, air permitting compliance, and aircraft drinking water compliance.

Through this recurrent training, we teach our Employees about current environmental

policies and regulations that must be followed in our operations.

Strategy Execution: Building the Capability to Execute Strategy

Internal Strategy Execution

Supporting its central based strategy, Southwest has been able to prove adherence to their

mission, vision, and value statements through its hiring and training practices. As previously

stated within this document, a vital part of Southwest’s employee friendly workplace comes from

providing them with “high impact training programs.” These programs are structured to be

aligned with the specific and measureable goals as outlined and fully supported by leadership

(Blanchard, 2007). Following the strategy map for Southwest, an example of successful

implementation includes a more responsive ground crew. As a result of the high impact training

programs, this organizational capability has increase response for ground crew who can help turn

around the planes at a quicker rate which would have a positive impact on on-time departures (a

key business process for airlines and metric air travelers potentially look at when deciding on

flights). This improved key business process results in higher customer satisfaction, which in turn

results in higher customer loyalty and profit” (McKnight, 2009, par. 1).


The leadership of the company is functionally structured with two tiers of top level

management which make all of the important company-wide decisions. Given the success of the

company I would suggest that the structure remains as is. The current executive team is doing a

remarkable job at keeping the company in a competitive position and the current structure works

given the ability to remain in direct control of company-wide initiatives and strategies.

Strategy Execution: Managing Internal Operations

Best Practices at Southwest

As a vital key to this strategic analysis, I have had the pleasure of interacting with

Southwest Airlines employees and gleaning their perspective of working for such a remarkable

company. The following highlights some of their responses from an internal standpoint. One

common theme found while researching the company from an employee’s perspective was the

appreciation for transparency. Using the company’s wildly popular blog Nuts About Southwest,

employees make remarks about best practices such as transparency and accountability. The very

fact that they use the blog not only as an external but also internal communication tool is an

example of how they use information systems to better execute the overall strategy. As with

recognition, motivation comes from management on all levels and with the same emphasis and

excitement. Frequent company sponsored outings, picnics, and team building sessions also lend

a hand to the motivating factor.

According to Salary.com, Southwest executives are handsomely compensated for their

service to the company with a combination of monetary and non-monetary elements. A common

theme for the company’s top three executives, each are receiving a larger percent of equity in the

company than cash. The cash is a combination of yearly base pay and bonuses (Salary.com,


2015). The CEO of Southwest earns a combined total of about $4,000,000. However, according

to Salary.com, the executives at rival American Airlines bring in almost double of what the

executives at Southwest are. Based on this comparison I would say Southwest has a

compensation rating of a five on a scale of 1 to 10. Based on this information I would venture to

say that the governing board for this company would allow a slight increase in salary and

benefits; especially given the success rate. The culture is already one where the employee

turnover is low, but it would not hurt to increase salaries and bonuses to all employees if it is a

financially feasible option.

Strategy Execution: Leadership

Leadership Recommendations

To summarize, Southwest Airlines is doing a phenomenal job in becoming and remaining

one of the best airline travel options for consumers. In an effort to show continuous

improvement and to improve on business operations and strategy, my recommendation would be

to focus on strengthening its competitive position by completing an acquisition of a top

competitor in the international market within three to five years. In addition, the company must

continue to revise strategies as applicable given the acquisition and international growth. In

order to achieve this strategic position, the company’s leadership must focus on air travel in the

international market, what is lacking in international service and how to fill the gap. They must

also be aware of which companies offer the largest return in preparation for the acquisition and

which international market would benefit the most from increasing travel options.


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