Table of Contents
- Situational Analysis
- SWOT Analysis
- Specific Environment
- The General Environment
Brief History of the Company, Its Successes and Failures
A quick situational analysis of Southwest Airlines would begin with their history or background of their organization and their successes and failures. Southwest actually started their company in the maintenance sector of planes and by 1971 Southwest attained its first three airplanes. Southwest only had three destinations they flew between and they were Houston Texas, Dallas Texas, and San Antonio Texas. It's wort pointing out they started only in the state of Texas because of how hard it was at the time to join the market with all the contracts an regulation that were needed to be a commercial airline.
One of the main successes that allowed Southwest to join the market was that they had a different strategic plan than the other airlines and their idea was/is "get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make sure they have a good time doing It." (Coulter, p. 250)
This was very unlike the other airlines where tickets are very expensive, it is a chore to find a good price on a ticket for where the customer wanted to travel, and the "long and inconvenient flying experience." (Coulter, p. 250)
Even though Southwest had a lot of success, it didn't come from no failures. During 2008 they had allegations of the safety of their planes. Even though they started out being leaders in the market of plane safety, Southwest had a serious problem in 2008 and that problem was, "Two Federal Aviation Administration (FAA) officials who had noticed problems with the company's planes and Southwest's failure to do required inspections said they were pressured by Southwest executives to, keep the serious problems hidden." (Coulter, p. 250)
It is one thing to have a problem but it is another to have management try to cover it up or keep the problem a secret. This was a very serious allegation and will be discussed more, later.
The Primary Ciompetitors of the Company
Some of Southwest's competitors are: United, Spirit, Alaska, Frontier, American, Delta, JetBlue, and Allegiant.
One of Southwest's biggest competitors is JetBlue because of the simple fact that JetBlue copied Southwest's successful processes. JetBlue copies their process while having newer planes and more leisure items like an individual computer on the back of each seat for each one of their passengers. Southwest only has that luxury in a very limited amount of their planes. Probably one of the biggest reason JetBlue hasn't surpassed Southwest is because JetBlue has had way more crashes and casualties than Southwest by a lot.
Core Competencies and Competitive Advantages
Southwest has quite a few competitive advantages compared to the other airlines; with the main one being that they definitely have a guerilla view of competitive advantage because their advantage is very limited because they are heavy on having really low prices and jet fuel being fairly cheap at the moment is allowing them to have way lower costs than some of the other competition. I say they have this type of competitive advantage because jet fuel will rise and price and if it gets just a little too high Southwest will start losing money because their business model is low priced and hassle free ticket purchases. So about the only thing Southwest could do if fuel prices surged would be to raise ticket prices and if they raise theirs above some of the other competition they may lose big time on a lot of their regular customers than only fly Southwest because of their really good prices.
Southwest's next competitive advantage looking from the resource based view (Rbv) which consist of financial, physical, human, and intangible advantages is where they thrive. This view breaks down their competitive advantages into section with the first being financial. Their financial advantage is definitely their cost of operating. Southwest manages to operate with way less cost than the other airlines because of their strategy to operate as efficiently as possible.
Southwest's next Rbv advantage is physical or the equipment that Southwest has and uses. Southwest s a huge fleet of planes and equipment and that is a big advantage to them when they need to transport so many customers in different places at the same time.
Next, is Southwest's human advantage and that is where their knowledge, skills, experience, and competencies come into play. They excel in knowledge of what the customers need and want and the strategic decision makers use their skills, and experience to provide what their customers need and want.
The last Rbv advantage is Southwest intangibles. In other words, their brand and reputation. Brand and reputation seem to go together when looking at Southwest. Airlines are trying every day to be more personable and when customers look up reviews for Southwest airlines they see almost nothing but good experiences and excellent prices.
The next topic I am going to discuss is Southwest's SWOT analysis or strengths, weaknesses, opportunities, and threats. This topic breaks down into two categories which are internal analysis and external analysis. With internal analysis being the strengths and weaknesses and the external analysis being the opportunities and threats.
Strengths and Weaknesses Internally
Southwest's has quite a few strengths when it comes to their competition. Their first strength being that they have a very specific way of operation and that is their idea of being a point-to-point airline rather than having a hub-and-spoke type of system. This allows their system to be very easy to understand both for the business and it employees and for its customers, when compared the hub-and-spoke system which is and can be very confusing especially when adding in time zone changes and having to hop form airport to airport and getting on and off multiple planes. This simplification of getting from point A to point B without switching planes has become one of Southwest's biggest strengths. Not only does this create less confusion for everybody but it is a major time and money saver when you think of all the landing and taking off from airports that hub-and-spoke systems deal with that Southwest's point-to-point system doesn't have to deal with.
Southwest's next strength is their very quick turnaround time, meaning, how fast they can land the plan, unload the plan, clean the plane, reload the plane, and take off to the next destination. They do all this in around 25 minutes. "As Kelleher used to point out, you don't make money sitting on the ground." (Coulter, p. 251) This statement is very true and is why turnaround time is one of Southwest's biggest strengths.
Another Strength Southwest has is their customer service. They have decided that making the customers happy while keeping the lowest price possible is exactly what would make them be successful. As mention in Strategic Management in Action, "the American Customer Satisfaction index has ranked Southwest first among airlines for highest customer service satisfaction." (Coulter, p. 251) Southwest being ranked first in customer service show that they treat their customers well and when you treat customers well you have customer loyalty. This causes repeat customers for the simple reason that they felt they were treated great during their time on Southwest airlines. Southwest treating their customers well is so important that it is even in their mission statement, which is, "The mission of Southwest Airlines is dedication to the highest quality customer service delivered with a sense of warmth, friendliness, individual pried, and company spirit."
The last important strength Southwest has is, like I mention before their leadership in pricing. Southwest offers some of the lowest fares in the world while being one of the few airlines to actually be a profitable company.
Moving on to Southwest's weaknesses. Southwest has many strengths but they have a few weaknesses that need to be paid attention to. The first weakness being their maintenance program. They have had problems with safety because of maintenance a few times and that has costed them their reputation and profit.
Southwest's next weakness is that a majority of their profit comes from passengers. The reason this is important is because this idea is like when you invest in stock and put all your money in one investment. If for some reason Southwest has a drop in customers they will most definitely start losing money. This goes along with their weakness of being heavily dependent of stable and low jet fuel prices.
Opportunities and Threats Externally
The second part to the SWOT analysis is Southwest opportunities and threats. Southwest has a couple opportunities based on their current business modal. It seems like Southwest could easily get into flying globally with global tourism rising every day. The more and more people travel globally the better chance Southwest has at getting a stable global market of passengers which seems like what Southwest wants before deciding to join a market.
Another opportunity Southwest has is getting more into freight vs passenger business. With thing like E-commerce getting exponentially bigger every day it only seems logical for Southwest to be part of transporting all these good to customer around the nation.
The last idea is the threats that Southwest faces. One of the first things that come to mind is the threat of Southwest's competition. Since many of the other airlines are starting to copy the way Southwest conducts business, it will become easier for customers to try other airlines if they can get their prices just right. I truly believe that Southwest's biggest threat is other airlines.
The other main threat that Southwest faces every day is jet fuel prices. It is possible that any day jet fuel prices could rise and if they do rise by just a little too much, Southwest could be in trouble because, like I mentioned earlier, they rely heavily on the stable low price of fuel to make a profit and keep their prices low.
Porter's Five Forces
The next topic is doing an external analysis of Southwest and how they fit into the five parts of the specific and general environment. The first part of the specific environment is existing customers. Southwest's existing customers like mentioned earlier are every other airline that operates in America. These airlines consist of: United, Spirit, Alaska, Frontier, American, Delta, JetBlue, and Allegiant airlines. There are only so many customers flying so competition between these airlines is really intense. Another thing that keeps the market competitive is the slow industry growth. The less the market grows the more Southwest and its competitors have to adapt or get creative to steal customers from other airlines.
The second part to the specific environment is possible competitors or potential entrants to the airline market. This idea is not quite as important for Southwest airlines because the barriers to entry are so high. Just one plane costs millions of dollars and when you have that kind of entry cost, there will not be many new entries into that market. Not only is the market already full but there are actually thousands of planes just sitting because they are not needed. So with that being said, there is always a possibility of new competition but not very likely for the airline market.
The third part to the specific environment is customers or consumers. Southwest's primary goal is to please its customers. The only way for the airlines to survive is for customers to keep using their airline. Competitors are trying to steal some of Southwest's customers by using the same business model as Southwest and keeping fares as low as possible but even to this day, Southwest still does it best. Sell cheap tickets while providing excellent customer service.
The fourth part of the specific environment is resource providers. This part plays a big role in how long it takes Southwest and competitors to make back their investment costs. Like I mention early just one plane can cost millions of dollars. Boeing is one of Southwest main suppliers because Boeing is the one that designs and manufactures Southwest planes. If for some reason Boeing raises prices, there really isn't anything Southwest or the competitors could do about it because there are not many other options when you need to buy a multi-million dollar plane.
The fifth and last part of the specific environment is alternative industry providers. This one has been hinting at very rapid change recently. With drones becoming cheaper and safer to build there have become many other forms of traveling by air that customers of current airlines could possibly substitute in certain circumstances. There has been multiple announcements of personal planes or drones that have shown up in the market. Yeah, they cost an outrageous amount for the average citizen but now that they are out there, they will only get cheaper and safer as time goes on.
The General Environment
Now for the general environment. The first part to the general environment is the economic environment. Southwest, when it comes to economic power, is the leader in the airline business. "To achieve 39 consecutive years of profitability in an industry that's know to be challenging and competitive is quite an accomplishment." (Coulter, p. 252) Southwest faced AirTran back in 2011 and showed just how strong a company Southwest is by still showing a net income even with partial market loss because of a new incoming airline.
The next two general environments are sociocultural and demographics. Southwest is known for its unique culture. Southwest culture is described as "Living the Southwest way, which involves a warrior spirit, a servant's heart, and a fun-LUVing attitude." (Southwest.com) Flight attendants are known for dressing up for holidays like Halloween and Easter and love to have fun during everyday flights. All jokes aside Southwest knows its biggest asset is its people. This type of atmosphere causes Southwest's customers and employees to be very diverse as whole and makes for a very unique environment.
The fourth general environment is political-legal. Southwest like other airlines business is all about their customers' safety, or at least it should be. Southwest, in their beginning, where know for how safe their planes were. They were leaders in plane safety since they transitioned from only maintaining planes to actually flying them. With customers' safety being the biggest liability for airlines, it must be heavily regulated and it is. The federal Aviation Administration (FAA) keeps airlines on their toes by doing heavy maintenance and inspections to make sure airlines are keeping safety a top priority. Other airlines have obviously not kept this idea on top because many other airlines that compete with Southwest have had way more accidents that never needed to happen had there just been the correct protocols or inspection made.
The fifth and last general environment is technology. Technology has taken over how airlines have traditionally flown planes. Not only has technology influence how planes fly but it has even effected how the customers get their tickets. Southwest recognized the benefits of automation. It was the first airline to offer a ticketless travel option in 1994, eliminating the need to process and then print a paper ticket." (Coulter, p. 250) Southwest has showed multiple times that they can compete by constant innovation. They also introduced automation to different parts of their business including security. "The company's information technology strategies have benefited it in other ways, as well. As one of the first airlines to establish a Web site, southwest.com is the third largest travel site and continues to be the largest airline site in terms of unique visitors." (Coulter, p. 251) Technology could single handedly keep Southwest at the top if they keep innovation in technology.
In conclusion, Southwest has a bright future ahead because of their strategic dominance in the airline market and their ability to adapt and innovate when the market gets tuff but they need to keep paying attention to safety to avoid problems like they had in the past. Southwest has proven based on its history and current operations that they are here for the long run and will keep leading the market in how Airlines should treat their customers while keeping safety of their customers the top priority.
- Coulter, M. (2013). Strategic management in action. Upper Saddle River, NJ: Pearson.
- Southwest (n.d.). Retrieved March 1, 2019, from http://www.southwest.com/
- Pace, G (2019). Lecture