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CASE 2: SOUTHWEST AIRLINES 2008

Group

C1

Roll.No

Name

14F104

Abhisht Shukla

14F111

Anu Ranganikar

14F121

Ganesh Anand Shanker

14F139

Piyush Kumar

14F158

Swapnil Sunilbhai Shah

Problem Statement:
How can southwest airlines maintain its competitive advantage?
PEST Analysis:
Political:

Deregulation lead to increase in competition and lower prices.


Increase in aviation tax, tripling of security taxes by government post 9/11.
Political uncertainty in Middle East countries leading to fluctuating fuel prices.
Very high competition among the airlines resulted in filing of court cases in order to
prevent the southwest from flying.

Economic:

High cost incurred in terms of landing, gate acquisition and terminal construction in

an major hub.
Increase in demand for air travel from 200m to 700m customers
A lot of airlines had been filing for bankruptcy because of liquidity problems which
was driven by a combination of factors like September 2001 terrorist attacks, on-

going war in Iraq, 2003 SARS epidemic, and rising fuel costs.
Permanent fear of rising fuel prices, which had touched unprecedented levels in
recent times.

Social:

Before deregulation there were customers who can afford the airlines or cannot but
now there are two types of customers time oriented travellers and price sensitive

travellers.
Customers expectation has increased in terms of services and safety.
Low cost airlines are also preferred by the middle-low level income group.
Customers are not satisfied with the delay caused by the hub-and-spoke network.

Technological:

To reduce the effect of high fixed cost structure sophisticated software tools are used
to maximize the capacity utilization known as load factor.

Yield Management system used by the almost all the major airlines for the analysis
and flexible pricing system.

SWOT:
Strengths:

Southwest airlines in 2007 became one of the largest airlines in the US and was
Ranked 1st in fewest overall customer complaints as published in the Department of
Transportations Air Travel Consumer report.

Fortune magazine recognized Southwest as the 5th most admired company in 2007

In global survey of Top Performing Airlines, Aviation week and space Technology
ranked Southwest second behind Singapore Airlines

It had 3300 flights per day, serving 64 cities; each plane flew about 7 flights daily,
almost twice the industry average.

Employee turnover hovered around 7% , the lowest rate in the industry

Employee initiative was supported by management and encouraged at all levels

Southwest was the only large airline to operate without major hubs.

Turnaround time was about 15 minutes for SW, compared with the industry average
of 45 minutes and turnaround time savings was accomplished with a gate crew 50%
smaller than other airlines.

Weakness:

They have not established alliance with the other airlines

They are not into the international flight operations.

Decrease in RPM and operating profits in 2007 when compared to 2006 is a cause of
concern.

Opportunities:

They can geographically expand their services.

They can grow by merger and acquisition with the other airlines.

Threats:

Highly volatile economical environment can lead to the recession which can affect
the financial stability and growth.

Increases in the fuel cost can lead to the high operating cost.

Success of the JetBlue Airways may capture their market share.

Direct competition from the major airlines may affect the market position of the
Southwest airlines.

Critical Factors:

Increase in the fuel price will lead to higher operation cost which will demand high
ticket price.

European carriers entering the US market- can be the biggest threat for them as the
competition will increase.

With increase in air traffic, the delay will be greater which will impact the profits
inversely as the number of trips per flight will decrease.

Alternatives and Evaluations:


Option 1: Increase the Cost Cutting:
Southwest airline provides the job security to their employees and they can cut down the
increased salaries of their employees. They can also reduce the profit sharing ratio but this
may lead to decrease on the morale of the employees.
Option 2: Expand in the North East region:
In order to generate more revenue they can expand their services in the north east region.
For that they can hire new staff and relocate some the employees to the north east region.
New recruitment may take some time and initially it will cost them but in the longer run it
will be profitable for them.
Option 3: Change in the pricing strategy:
In order to maintain profitability with increased cost they can increase the price slightly. For
the business class travellers they can charge high prices for providing the services like wifi
satellite calling etc. and increase their revenue.
Recommendation and Plan of Action:
As the competition is increasing in US airlines industry it is important to expand their
services geographically. This can be achieved by the option 2. They can recruit the new staff
and expand their services at the same time slight changes in the pricing will give them
profitability and allow the Southwest airlines to maintain its competitive advantage.