Competitive Strategy

Southwest Airlines

Prashant Kale
Structure of the Airline Industry
Low Industry Profitability
Entry
Barriers
Suppliers Buyers
Substitutes


Bargaining
power of
suppliers
Bargaining
power of
buyers
Threat of substitute
products or services
Threat of new entrants
(QUITE HIGH)
-Multiple options
-Well informed
-Low switching costs
Rivalry
(HIGH)
-Multiple players
-Similar offerings
-Perishable product
(QUITE HIGH)
- Unionized Labor
- Only two aircraft
suppliers
- Concentrated oil
suppliers
( QUITE HIGH?)
-Availability of capital/leases
-Availability of gates
-Threat of Retaliation
- Alternate transportation modes
- Alternate communication modes
(INCREASING?)
The Business System and Competitive Advantage

- One type of
plane (737)
- Screened
employees
Purchase/I nputs
- Point-to-point
direct service
- Small airports
Logistics
-Short flights
-No food
-No assigned seats
- No bag transfer
Operations
-Everyday Low
Pricing
- No Travel
Agents
Sales/Marketing
Distinctive/Innovative Activities across the Business System
Low-Cost Leadership
Position
Competitive Advantage
They should
Support your
Chosen
Competitive
Position
They should be
consistent and
mutually reinforce
each other
Short-haul,
point-to-point
routes between
midsize cities
and secondary
airports
Very low
ticket
prices
Frequent,
reliable
departures
Limited
passenger
service
High
aircraft
utilization
No meals
No seat
assignments
15-minute
gate
turnarounds
High
compensation
of employees
Flexible
Union
contracts
Limited use
of travel
agents
Automatic
ticketing
machines
Standardized
fleet of 737
aircraft
No baggage
transfers
No
connections
with other
airlines
Southwest,
the low-fare
airline
High level
of employee
stock
ownership
Lean,
highly
productive
ground and
gate crews
Cost Advantage
Low maintenance costs
Short turnaround time
Low landing fees
Low service costs
Low booking costs

Customer Satisfaction
Direct flights; less flight time
On-time performance
SWA System of
Aligned and
Reinforcing
Activities
Low Cost Leadership Strategy:
Relative Comparison with Avg. Industry Player

Value or
Profit for
The Firm
Customers Willingness to Pay
(The Price)
Level of
Firms Total
Costs to
provide
Product or
service
An Average
Airline
Cost Leadership
Position
(SWA)
Lowest
Total Cost
Greater
Value or
Profit for
The Firm
Sustainability of Southwests Competitive Advantage
Distinctive activities across the entire value chain

where

Each activity is consistent with and reinforces the others
to create a complex system of intertwined factors

Competition is unable to easily imitate Southwests Strategy

Initially failed to recognize threat of Southwest
Faced difficulty in replicating its entire system of activities.
Were limited by their sunk investments in hubs, longer routes
larger aircraft to easily imitate Southwest
+
The Strategic Game Board

Same Game
New Game
Selective
Across The
Board
Mode of Competition (How)
S
c
o
p
e

o
f

C
o
m
p
e
t
i
t
i
o
n

(
W
h
e
r
e
)

Do More and
Better of the
Same
Create a
Niche
Create/Pursue
A Unique
Advantage
Exploit Unique
Advantage across
Entire Industry
S
o
u
t
h
w
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s
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Can Southwest Sustain its
Success in Future?