Southwest Airlines

Group 3: Timothy, Kevin, Alex

Overview
Company History Mission and Vision Porters Five Forces Differentiating Strategies Recommendations

History
Founded in 1967 by Rollin King and Herb Kelleher in Dallas, TX to provide service within the state of Texas Initially only offered service to Dallas, Houston, and San Antonio with 3 Boeing-737 aircraft Today, Southwest operates 550 Boeing-737 aircraft among 72 U.S. cities It is the most successful low fare, high frequency, point-to-point carrier in the U.S.

History (cont.)
Exceeded $1 billion in revenue in 1989 More than 3,400 flights a day 38 consecutive years of profitability 35,000 total employees Flies to 72 cities in 37 states 84% of revenues are booked on their website Acquired AirTran in 2011

Mission and Vision

The Mission of Southwest Airlines The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. To Our Employees We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

January 1988

Comparative Performance Results

Fiv e Y ear Av erage (1999-2004)

Southwest Sales Growth (%) Sales ($B) As a % of Sales: Cost of Goods Sold Gross Margin Operating Income Net Income 6.64 6.5 68.8 29.2 8.5 4.8

United -1.88 16.4 77.3 22.7 -5.2 -10.5

American -1.14 2004 Data 14.3 98.1 1.9 -23.3 -36.4

Delta 1.01 18.6 81.81 18.9 -0.8 -4.1

JetBlue NA 1.3 63.3 33.5 9 3.8

Industry Characteristics
Issues in the industry include overcapacity, fierce competition, airport congestion, and antitrust concerns. The demand and perception toward flying after Sept. 11th has led to:
Immediate negative demand of 30% Long term negative demand of 7% 100,000 employees laid off Many airlines have gone out of business or into bankruptcy However, low fare carriers have been profitable in recent quarters

Porters Five Forces

Threat of New Entrants Low: Requires significant investment Threat if current airline changes its strategy Bargaining Power of Suppliers Moderate to High: Only operates one type of aircraft Less power from food suppliers, labor unions, and fuel providers Bargaining Power of Customers Low: Provides the lowest fares to customers Price discrimination depending on route and customer type

Rivalry Moderate: Only low cost competitor is JetBlue Differentiated itself Cut-throat, low margin industry

Threat of Substitutes Moderate: Cars, trains, etc. Varies based on distance travelled, reason for travel, etc.

Differentiation Strategy
Southwest Airlines Competition

Uses uncongested, smaller airports Point-to-Point system Sells tickets only through website Pays flight crew by number of trips Use only Boeing 737s No meals, seating assignments, or classes

Use large volume airports where transfers can occur Hub and Spoke System Travelocity, Priceline, etc. Pays flight crew on hours worked Varying fleets Have meals for classes, with assigned seating

Low Fare Strategy

Southwest pioneered the low cost model as a way to compete with the high cost competitors in the market $13 Fare War offered $13 fare from Dallas to Houston in 1973 No frills strategy

Internet
Southwest.com is the only place where you can book travel As a result, listing fees for sites such as Expedia.com and Orbitz.com are avoided Increased traffic to company web site Web special deals and promotions DING! app for desktop

Boeing 737
Southwests entire fleet consists of one aircraft, the Boeing-737 Mechanics and pilots only need to be trained for one aircraft, and thus are more flexible (Delta has 9 different types of aircraft)

Routes
Southwest utilizes point-to-point travel, as opposed to the hub-and-spoke method of its competitors With less connections, customer travel times are lower and less baggage must be transferred Using less congested airports allows for lower fees and less delays

The Ten Minute Turn

Southwest averages 20-25 minute turnaround time at a gate (United is approximately 35) Industry estimates indicate that it costs $30 for each minute a plane sits at a gate Southwest operates 3,400 flights per day

Employee Satisfaction
Employees first
Profit sharing plan No lay-off policy Among the highest paid in the industry

Employee satisfaction results in goal congruence

If theyre happy, satisfied, dedicated, and energetic, theyll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy. Former CEO, Herb Kelleher

Company Culture
Hard work, high-energy, fun, local autonomy, and creativity Stock Symbol: LUV Open communication and strong team coordination
Flight attendants and pilots help clean the planes Pilots are willing to fly more miles Employees are willing to jump in and help out The CEO records a weekly telephone message for all employees CEO dressed up as Woody from Toy Story for Halloween

Support of top-level management

AirTran Acquisition
May 2011 - $3.2 Billion
Pulls away from Southwests Point-to-Point strategy Seeks business travelers Brings in new employees

Reviews of this acquisition are still on going Is this too big of a move from Southwests core competencies?

AirTran Hub-and-Spoke

Southwest Point-to-Point

Route Comparison
AirTran

Southwest

Growth Strategy
Starting to branch out into new markets:
International Larger Airports
Atlanta, Mexico

Our recommendation is that they pull back on this growth, and focus on slow growth in dense, short haul markets

Looking Forward
Other airlines are trying to catch up
In order for Southwest to maintain competitive advantage:
Consider controlled boarding
Random http://video.google.com/videoplay?docid=2603243896995830657 Outside-In http://video.google.com/videoplay?docid=-475045817205429027

Improved de-boarding procedures

Southwests Key Strategies (original)

Point-to-point routes Customers come first Employees paid by flight Take care of employees Internet reservations (some by phone) Non-union Hiring by employees Low operating cost

Southwests Key Strategies (new)

Hedge fuel costs No baggage fees Ding Frequent flyer plan

What are your groups strategies?