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 CASE FACT

1. The Internal Environment

Cost competitves : low cost structure

Quality : safety is the priority

Innovation : - e-ticket instead of paper ticket

- customer service : positively outrageous service

(friendliness, caring,

warmth and company spirit) and frill low fare flights

Speed : - turn around time : rapid turn around time (10’)

: - faster than substitution products (bus, train, etc)

2. The External Environment

 Substitute products include the train and bus which cover long
distances. While these alternates cannot offer the speed of travel,
most of Southwest Airlines' customers are attracted to the low price.

 Suppliers include those who provide service/products necessary for

Southwest Airlines to their business function. For Southwest Airlines,
suppliers include mechanics (and other maintenance people),
providers of fuel, food(the snacks that are offered). The suppliers do
not have much bargaining power. Customers include both residential
and commercial sectors. There is no bargaining power for customers,
as there is no threat of backward integration; it is unlikely that
customers of Southwest Airlines are going to build their own airplanes
and fly themselves.

 Rivalry among competitors sets the price-Southwest Airlines is a

discount airliner. Rivalry is increasing, as the market decreases, and
competitors downsize, the competitors become more or less equal in
size and capacity. This means that as economic conditions worsen,
competitors downsize and then compete for the same remaining
market.
 The threat of new entrants is low, the demand is not high. On top of
that, there are hurdles, not necessarily the greatest; the FAA.
Government regulations and restrictions imposed on those involved in
this industry. Such would be government sanctions consequent of
international issues.
 ANALYST COMPANY STRATEGIC PLANNING

SWOT ANALYSIS
Strenghts

1. Southwest has successfully adopted a cost leadership strategy.

• Southwest maintains operating expenses per available seat mile at 15-
20% below average.
• The company has no baggage handling, no meals, no central
reservations, and no assigned seats.
• Because all of its planes are Boeing 737s, maintenance, turnaround,
and training costs are contained.
• The company has embraced technology that will reduce costs (e.g.,
ticketless travel).
•
1. The company has a reputation for great customer service.
• 28 years of safe, reliable operations
• 5 consecutive years of Triple Crown Customer Service
• 5 consecutive years of record profits and 24 consecutive years of
profitability
• Top ranking in the Airline Quality survey conducted by The National
Institue for Aviation Research for Two of the last three years
• A route system that has grown to 52 airport in 25 states, carrying more
than 50 million customers on 243 boeing 737 aircraft, etc.
1. The company has a strong, fun-loving, employee-oriented culture. The
company's mission statement focuses on these aspects of the
business.
2. The company's growth has been steady and planned. Southwest enters
new markets only when they can achieve frequent flights.
3. The company's marketing focuses on its low prices, convenience
service and sophisticated combination of advertising , public relation
and promotions.
Weaknesses
1. Gap between Southwest and the rest of the majors has narrowed as
other carriers have attemped to emulate Southwest formula.
2. Southwest's competitors are offering shuttle services that compete
directly with the company. They are also operating, investing in,
and forming alliances with regional carriers.
3. As the result of its steady, planned growth strategy, there are
numerous untapped domestic markets
4. Pilot and Flight Attendant Unions have increased salary and benefit
packages to be the highest in the industry. Continued increases in
Seat cost per Mile will not allow Southwest to remain a low fare
carrier.

Opportunities
1. There are opportunities for expansion to new markets.
• The new Boeing 737-700 has the ability to fly longer distances non-
stop, which may change the definition of "short haul
2. Demographic trends appear favorable to an airline focusing on price
and reliability.
• The consumer continues to seek convenience and time savings.
Flying, rather than driving, will meet that need if the price is
right and the airline is reliable.
• 3. The competition is looking to international, rather than domestic
markets, for growth opportunities.
3. Improved computer technology will allow more ticketless
transactions and reservations made by PC.

Threats
1. Southwest's ability to hold the line on costs will impact its cost
leadership position.
• The largest cost component is labor. This cost could be
impacted by union actions, which cover 85% of Southwest's
workforce.
• The second largest cost component is fuel , which could be
negatively impacted by economic or political events.
1. Government regulation could hinder Southwest's ability to control
costs, control fares, or enter new markets.
 • Recent government crackdown on safety (e.g., insulation, cargo
fire detection) means costly retrofits.
• Proposed re-regulation would limit existing firm's ability to
respond to underpricing by new companies.
• Prior to deregulation in 1978, carriers were limited in their ability
to enter new markets.
• The government recently proposed an increase in facility tax
rates, which would have resulted in higher costs.
1. Improved telecommunications may lower demand for air travel, or
may lower demand for "discount" airlines.
• E-mail and teleconferencing can result in less need to travel.
• Consumers may demand "personal" technology on planes, such
as movies, phones, games, etc.
1. Alternative forms of transportation, such as a high-speed railway,
could weaken demand for air travel. Also, if the economy weakens,
people may choose to drive rather than fly.
2. Southwest would be hurt if the public perception were that low price
equates to low quality.

Analyst company strategic planning

dominant attribute : cohesiveness, participation, teamwork, sense of family

leadership style : parent-figure (Kelleher as Chairman, president & CEO)

bonding : loyalty, tradition, interpersonal cohesion

strategic emphasis : toward developing human resources, commitment, and morale

How they do it :

• The culture permeates the entire organization and sends clear signals about
behavior expected at Southwest

• Promoting employee awareness of the effects of their effort by company ‘s news

letter

• Shared values : having fun at work to enhance a sense of community, trust, and
spirit to counterbalance the stress & pressure

• Cooperative relationship among employee groups

• Positively outrageous service is in the inside of employee (valuing that it is your

company, your success, your future)

• Employee’s stock ownership program

How does the controlling function works in this company :

✔ Characteristics Of Controls : Uses formal rules, standards, hierarchy, legitimate

authority. Works best where tasks are certain and

workers are independent.

✔ Market control : Uses prices, competition, profit centers, exchange

relationships. Works best where tangible output

can be identified and market can be established

between parties.
✔ Clan control : Involves culture, shared values, beliefs, expectations,

and trust. Works best where there is “no one best

way” to do a job and where employees are

empowered to make decisions.

✔ Bureaucratic control

 Low Cost strategy :

• Airline operation aim for efficiency and consistency

• Southwest does not offer connections to other airline

• Purchases or leases gates at airport

• Go slow philosophy : Southwest will not enter markets unless it perceives

favorable conditions

 Focus on Customer Satisfaction

• Very high standardization regarding operations, low with respect to

customer service

 Safe airline :

• Organizationally Southwest is structured according to function, formal and

centralized

• Main issue is safety, planes must be operated safely and efficiently

✔ Market control

• Southwest operates the lowest cost major airline in the industry (cost
leadership strategy) :

– Low fleet costs (using only Boeing 737 family)

 – Low landing fees (short haul)

– Short turn around

– Low distribution cost (e-ticket)

• Southwest’s strategy has been a combination of profit sharing and

participation

Recommendation :
Southwest Airlines strategy has been successfully implemented, and the
above SWOT analysis does not indicate that a major shift in strategy should
be made at this time. They should continue utilizing a cost leadership
strategy to underprice competitors and gain market share. This strategy has
not only resulted in increased market share, but has also increased overall
demand for air travel. Southwest should continue its market development
strategy, focusing domestically. There are numerous untapped markets in
the U.S., many of which are actively seeking Southwest's presence.
Additionally, competitors are now focusing on foreign markets, and
deregulation there could result in price wars and increased competition.
In expanding domestically, Southwest should continue its focus strategy of
providing frequent, "point to point" flights. The expansion into new cities
should be at a moderate pace to ensure adequate coverage of new markets.
Ideal new cities will allow for non-stop flights. As the range of the aircraft
expands, the potential markets will also expand.
Southwest should strengthen its mission statement--simply by writing it
down. The employees' commitment to action described in the case indicates
that the mission of the airline is clear: to be a low-price, frequent flight, short
haul, reliable carrier. However, this is not evident by reading the mission
statement. Still, Southwest should avoid creating too formal a mission
statement, which would be at odds with its culture.
Southwest should continue to embrace new technologies such as ticketless
travel and PC reservations. New technology also includes a commitment to
new aircraft, which will result in a young, safe fleet of jets with longer range.
All of these new technologies will permit Southwest to contain costs, to
expand to more markets, and to maintain its image as a safe and reliable
carrier.
And finally, Southwest should continue to foster its remarkable culture. The
company's fun-loving attitude and dedication to its employees have
contributed both tangible and intangible benefits. It is a true competitive
advantage.

References
Boykin, Ryan. (2007, May 8 12). Southwest Airline : Marketing Plan, [online]
http://www.google.com
“Southwest Airlines Co: Strategic Issue.,” Chairman, President, and CEO
[online] http://www.google.com
“Southwest Airline Case Study: History and Analysis". Upload by Avalon on
Aug 4, 2005 [online] http://www.google.com.
Marketing Study of Southwest Airlines: A Symbol of Freedom". Submitted by:
Fiorello B. Abenes, Ph.D. [online] http://www.hoovers.com.
.