Southwest Airlines is the premiere low cost airline.

Southwest operates only in the US

market and this restraint that kept it from making unregulated expansion a primary
forward strategy is also the strategy that kept it from facing the severe financial
difficulties all of the major airlines suffered following 9/11. The writer maintains that in
spite of its low cost operating strategy and business model, Southwest has been also
negatively impacted by cyclical forces in the airline industry. The writer notes that
although Southwest's more recent problems include satisfying employee contract
demands and in integrating new executive leadership while trying to manage growth
from 500 employees to 35,000, it becomes clear the corporate culture was one more of
a cult of personality than any documented and canonized set of operational policies.
The writer concludes that operationally, a corporate culture based on the personality of
a single charismatic leader, while laudable in many respects, is also difficult if not
impossible to reproduce and often leads to human resource concerns as far as
impropriety, discrimination and harassment issues.

SWOT ANALYSIS

Strengths

1. High capacity usage

2. Named the best low cost airline leader for the last three consecutive years
3. Diversity in upper management
4. Revenues increase by 8 percent to 5.94 billion in fiscal year 2003
5. Net income increased 83 percent to $402 million in fiscal year 2003
6. Dominates the short haul segment of airline industry
7. Fourth largest domestic airline
8. In 2003 Southwest posted a profit for the 31st consecutive year

Weaknesses

1. No international flights
2. No segmented seating
3. Dependent on a single producer
4. Lack of exposure towards online booking agencies
5. Four out of five employee are members of the union

6. Carry a small amount of freight and cargo

7. Do not use chat communication such as e-mail
8. Do not offer morning flights

Opportunities

1.National and international markets

2.Growth of older generation
3.Industrial research and development
4.Growth of Hispanic population
5.New technology opens the door for new products/services
6.Increased Internet advertising
7.Longer flights
8. Growth of business and leisure travel

Threats

1.Decline of leisure travel due to economy and terrorism

2.Competing online ticket reservation systems.
3.New government regulations that make operations costlier.
4.Demand for air travel has dropped sharply since September 11th.
5.Gas and oil price fluctuations.
6.Terrorist attacks.
7.Increased restrictions to limit noise (including restrictions on types of aircraft used
and limits on number of operations)
8.Annual airline security costs have increasedII. Main Problem

Based on the case of Southwest Airlines, we concluded that the main problem is
how Southwest are going to respond to the new competition in the Southwestern U.S.
routes. We select this as a main problem because competition is getting tighter,
especially between Southwest and “Shuttle by United.” In addition, “Shuttle by United” is
planning to increase their fares by $10. Therefore, Southwest should react quickly

III. Alternative Solution

Facing the current situation, Southwest should react soon. Southwest needs to
decide if this is a sign of Shuttle by United losing money, or just trying to raise prices
industry wide. Since Southwest views its major competition coming from cars and not
airlines they need to be sensitive to price changes. From their philosophy traveling by
car. United has been able to erode some of Southwest's market share on the nine
routes they compete directly on, this is expected with similar prices considering there is
low customer loyalty in the airline industry. Southwest already has the superior model
for national or regional carrier. They need to stick with their company philosophy of
being the low cost high service leader. Therefore, the following alternatives are offered:

1. Maintain the price.

Southwest in the year 1994 was the second most profitable airline in the industry. They
did this by sticking to their simple formula of low prices, high service, and low operating
costs. The airline was the best performer in term of labor productivity in the industry. So
here Southwest does not need to match United's new price increases. They need to
focus on what their core competencies are and continue to be southwest. The possible
threat would be that Southwest will not receive as much revenue as United. However,
the advantage of this strategy is that customers will be more loyal to Southwest due to
the consistence of being a low price yet high service airline.

2. Increase the price.

As we known, “Shuttle by United” is increasing the price by $10. The price raise by
United may be a sign of weakness, or a sign that consumers are willing to pay a little
more for the options that United offers. United also offers a first class option that may be
more appealing to business travelers. So may be Southwest should charge more and
begin to offer its customers more perks. By increasing the price, there is a possibility
that Southwest could also have an increase in revenues and able to compete more with
United. However, there is also a possibility that they could lose their customers. This is
because maybe customers will no longer see Southwest Airline as a low price airline.
With such a large portion of Southwest's business in this west coast market they cannot
afford to lose large amounts of market share.

3. Lower the price.

Another way is to decrease the price. As United increases their price, customers may
have a perception that higher prices have better quality. Therefore, by lowering the
price, Southwest hope that customer will be more attracted to lower price airline. Since
Southwest already have an image of low cost but high quality airline. On the other hand,
this strategy could make a great loss to Southwest. This is because the revenue may
not be able to cover the expenses. Unless the market demand for Southwest are able to
balance the shortage.

4. Launch a new promotion campaign.

Southwest needs to launch a new promotional campaign. They need to remind
customers in the California market that they are the winner of the Triple Crown, and that
low cost means high service and customer satisfaction when it comes to Southwest.
With lower turn around times, and fewer delayed flights southwest has great unique
selling points. They just need to remind the public about how great an Airline they are.
This can be done with more TV ads, and more sponsorship of major sporting events. As
we know, “Shuttle by United” was advertised heavily using print and electronic media.
Therefore, Southwest should also compete in the promotion. This could attract more
customers and convince them that southwest is the best. But this will add an additional
cost.

IV. Recommended Solution

In our opinion, the best solution for this case of Southwest is to maintain the price. It
means that Southwest will still offer the same price to the customers. Southwest needs
to continue to be southwest. They have a winning business model, and have made
money every year of their existence. They cannot abandon what their core
competencies are. They need to keep prices where they are, and they advertise that
fact to the public. So it means that when they already have the trust form the customers,
and customers become more loyal to Southwest, it will be much easier for Southwest to
compete with other competitors.
The title of Triple Crown owned by Southwest could be a prove to the customers
that with the recent pricing, Southwest could still be the best. Southwest proved that a
high quality service does not mean high in price. And this has become Southwest’s
main “big plus.”
In setting its prices, the company must also consider competitor’s costs and
prices and possible competitor reactions to the company’s own pricing moves. A
consumer who is considering a price of a flight with Southwest will evaluate Southwest’s
price and value against the price and values of United Airlines, Continental Airlines, and
others. In addition, the company’s pricing strategy may affect the nature of the
competition it faces. If Southwest follows a high-price, high margin strategy, it may
attract competition. A low-price, low-margin strategy, however, may stop competitors or
drive them out of the market. Southwest needs to benchmark its costs and value
against competitor’s cost and value. It can then use these benchmarks as a starting
point for its own pricing.
 ASSIGNMENT

CRAFTING AND EXECUTING MANAGEMENT

CASE STUDY- 4

SOUTH AIRLINES IN 2008

SUBMITED BY: BALWINDER KAUR

300587430
SUBMITTED TO: MICHAEL VOURAKES