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SOUTHWEST AIRLINES

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Began in 1971 as a small Texas Airline between Dallas, Houston, and San Antonio ... Took top honor in the ninth Business Travel News Annual Airline Survey ... – PowerPoint PPT presentation

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Title: SOUTHWEST AIRLINES


1
SOUTHWEST AIRLINES
2
From the Beginning
  • Rollin King and Herb Keller
  • -Notion If you get your passengers to their
    destinations when they want to get there, on
    time, at the lowest possible fares, and make darn
    sure they have a good time doing it, people will
    fly your airline.
  • No frills with low fares and point to point
    service
  • Most profitable for past 34 consecutive years
  • Began in 1971 as a small Texas Airline between
    Dallas, Houston, and San Antonio
  • Flies over 80 million passengers to 62 cities
    3,100 times a day

3
About Southwest
  • Known for Customer Service and Rapid Rewards
  • 468 of newest jets in the nation
  • Some include Shamu 1,2,3, Arizona One, Triple
    Crown, Lone Star, to Slam Dunk One
  • First airline to win Triple Crown for a month-
  • Best on time record, Best baggage handling, and
    Fewest customer complaints. Five Annual Triple
    Crowns 1992-1996.

4
Key Major Issues
  • Lost luggage and delayed flights
  • Increased incentives for reward customers
  • Larger seats for overweight customers

5
Internal and External Environment
  • Environmental forces
  • -International competitiveness
  • -Economic
  • -Political
  • -Technological forces.

6
Goals
  • Continued Growth and Expansion
  • Maintain low cost strategy
  • Provide Superior Customer Service
  • Many stipulations to expanding to other cities
    nationwide to maintain max profits

7
Overall Success
  • Extremely successful
  • With the use of low cost strategy and outstanding
    customer service allows to be top airline in the
    industry.
  • Many competitors have tried to copy
  • Within the next five years plan to expand to
    different cities across nation

8
Substitutes Bus Automobiles Trains
RIVALRY Moderate Product Differentiation Quality
of Service Try to get best position with reduced
prices Low Switching Costs
Buyers Price Sensitive Consumers
Suppliers Jet Fuel Airframes(Boeing) Labor
Entry Barriers are VERY high High startup
costs Difficult to compete w/ current carriers
9
Threat of New Entrants
  • High Barriers to Entry
  • High startup costs to start new airline
  • Fail to establish a spot in industry and file
    bankruptcy
  • Post-entry competition from established airlines
  • There has only been one successful new airline in
    recent years-JetBlue

10
Bargaining Power of Buyers
  • Consumers have considerable buyer power in the
    airline industry
  • Consumers are very price sensitive
  • Terrorist attack on 9/11 had a significant impact
    on consumer demand
  • This led to lower ticket prices because of the
    lack of capacity on most flights

11
Bargaining Power of Suppliers
  • Airline industry is sensitive to supplier power
    through 3 major inputs
  • Airframes
  • Jet Fuel
  • Labor
  • Greatest source of increase supplier power comes
    from Jet Fuel

12
Threat of Substitutes
  • Competes with bus, automobile and train travel
  • Primary substitute is the automobile
  • Threat of substitutes increases if it is short
    distance traveled
  • Extended distance traveling becomes less cost
    efficient to travel by automobile

13
Intensity of Rivalry among Competitors
  • Little differentiation in airline industry
  • Use price competition as primary mode of rivalry
  • Non-price competition has mostly disappeared from
    the industry
  • Southwest currently has lowest cost per available
    seat mile

14
Strengths
  • Hedge on fuel prices
  • Strong balance sheet in an industry where
    bankruptcies are common
  • Unbroken string of 25 years of profit
  • Their culture of low-cost and friendly service is
    unmatched in the industry
  • Took top honor in the ninth Business Travel News
    Annual Airline Survey
  • Only fly one type of plane-Boeing 737
  • Keeps maintenance and training costs lower

15
Weaknesses
  • Expiration of hedging contracts in 2009
  • Does not have any corporate contracts, an
    international network, a business cabin or global
    distribution system
  • Competitors are increasing air-fares so corporate
    discounts are adding more value to a managed
    travel program, which Southwest does not have

16
Opportunities
  • Focus on semi-full capacity, not full capacity
  • it encourages drastic fare slashing to fill the
    aircraft, which could slow their growth and even
    cut into profits
  • International market
  • Expand market domestically

17
Threats
  • An overly aggressive airline can go into any of
    Southwests markets and initiate a profit-killing
    price war that lasts for months
  • Continually growing fuel prices(Southwest has
    hedged fuel prices until 2009)
  • Terrorist attacks
  • New advanced ground transportation

18
Environmental Forces likely to impact Southwests
future actions
  • International Competitiveness
  • Could expand internationally, currently in talks
    to begin flights to Mexico and Canada
  • Economic Factors
  • Expensive labor contracts, Soaring energy costs,
    Reduced consumer demand
  • Political Factors
  • Wright Amendment, War in Iraq, Heightened
    security measures
  • Technological Factors
  • Something to help w/ reducing global warming
    effects, more advanced safety features on planes,
    More rewards for using their online system, which
    opens up more resources

19
Analysis of the Organization
Competitive Advantages
  • Low Fares
  • Point to Point short haul flights
  • No assigned seating
  • Relaxed flying atmosphere with entertaining crew
  • Excellent customer service
  • Operating a single type of airline, Boeing 737
  • Cost cutting
  • Profitability

20
Approaches to Strategic Management
Corporate Strategy Focus on core
business Allowance in company wealth
Business Strategy Allowing employees to share in
company wealth
Functional Strategy People department in place of
Human resource department Paying pilots by
trips Pay cuts when business is low
Operational Strategy Caring for employee
happiness, satisfying employees Hiring humorous
candidates Excellent customer service
21
  • Current or past strategies do they cover the
    matrix of environmental forces?
  • Customer service - giving excellent customer
    service and low prices, for new and repeat
    business
  • Employee satisfaction - keep them happy and
    satisfied so that you have an ongoing loyalty
  • New Markets welcomed, but with a challenge to
    train t its employees to handle the big change
  • Maintaining a competitive edge in prices and
    convenience

22
  • Structure of the company
  • Customer service - excellent customer service,
    enjoyable flight experience and low prices, for
    new and repeat business
  • Employee satisfaction open lines of
    communication, keep the employee happy, who in
    turn will offer better service to the customer
  • New Markets welcomed, but with a challenge to
    train t its employees to handle the big change
  • Maintaining a competitive edge in prices and
    convenience
  • Herb Kellerhers effective leadership both within
    and without the company, has realized a great
    employee loyalty and a much successful company in
    growth and profits

23
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24
Resource and Core Competence Evaluation
  • Resources
  • Excellent leadership throughout Southwest Airline
    history
  • Loyalty of employees and the ability to instill
    the loyalty
  • Size of the company and its concentration to
    domestic
  • Core Competencies
  • The ability to own, run and maintain the same
    kind of jet Boeing 737
  • Ability to make profits 34 years in a row
  • Cheapest fares in the domestic industry
  • Faster flight turn-around and making shorter
    convenient trips
  • Friendly personnel and crew offer exception
    flying experience

25
Current Strategy
  • Southwest has dedicated itself to having one of
    the lowest operating costs of all major airlines.
  • Result It offers short-haul, high-frequency,
    low-fare services with point-to-point flying and
    high customer service.

26
Scope of its Activities
  • Customer Service
  • Airplane
  • Boeing 737
  • Hedged fuel prices
  • Flying Routes
  • Point-to-point
  • Ticketing

27
Competitive Advantages
  • Directly related to current strategy
  • Low-Fare
  • Point-to-Point
  • Superior Customer Service
  • Boeing 737
  • Largest US carrier for number of passengers
    traveled
  • Brand Name

28
Leadership Styles
  • Herbe Kelleher Executive Chairmen
  • Supportive -Offers a fun environment to work for
  • Participative -Involved with everyone in the
    company

29
Organizational Structure
  • July 15, 2004
  • Gary Kelley announced as CEO
  • Colleen Barrett as President
  • Further flattening of structure
  • Better align leadership strengths of officers
  • Allows everyone to be involved
  • Executive VPs will report directly to Kelly

30
Success
  • Company Performance(2006)
  • Last Quarter 57 Million
  • Net Income 499 Million
  • Total Passengers Carried 96.3 million
  • Total Operating Revenue 9.1 Billion
  • Southwest received 284,827 resumes and hired
    3,363 new Employees in 2006.

31
Success (Contd)
  • Has the current strategy been successful?
  • Member of the FORTUNE 500
  • Recognized by Fortune magazine as best place to
    work and Top 3 Most Admired Corporations
  • Largest Number of domestic and international
    passengers in 2006

32
Success(Contd)
  • Business Week Top 50 Best Places to Launch a
    Career
  • Professional Womens Magazine - Most Admired
    Companies by Women
  • Best Airline Among Small Business Travelers
  • Express Delivery and Logistics Association (XLA)
    2006 Airline Of The Year for the second
    consecutive year

33
Alternatives
Issue Overweight people overflowing into other
seats Alternative Offer larger seats or bench
seats in the rear of the plane Pros Alleviates
the issue by creating a more comfortable
atmosphere, Increased attitudes from other
passengers Cons Cost of removing and installing
the seats, cost of labor, and loss of a plane
while under construction, difficult to define
overweight dividing line
34
Alternatives (contd)
  • Issue The point system offered is a long-run
    loss.
  • Alternative Offer points for every mile traveled
    including points lost baggage delayed flights
  • Pros Allocate the costs equally which reduces
    the amount of expenses
  • Cons Customer complaints could arise, current
    Rewards System is effective

35
Alternatives (contd)
  • Issue Market is not as big as many other major
    airlines
  • Alternative Expand more nationally but still use
    secondary airports. International comes later.
  • Pros Profit potential, expansions into untapped
    markets
  • Cons Airlines are catching up to their
    advantages, Potential profit failure, Conflict
    with the Wright Amendment

36
Final Key Recommendation
37
Expansion of New Markets
  • Awareness of Competition
  • Use of Travel Sites for Ticketing
  • Travelocity
  • Expedia
  • Etc

38
Expansion
  • Timing
  • Analysis

39
Work Within The Mission Statement
  • The mission statement of Southwest Airlines is
    dedication to the highest quality of customer
    service delivered with a sense of warmth,
    friendliness, individual pride and company
    spirit.

40
Timing
  • Appeal of Wright Amendment October 2006
  • Expansion Needed
  • Expansion should include service plus profit

41
Financial Feasibility
  • More cost associated with longer flights
  • Brand name
  • Monitoring of new market profitability

42
Implementation of the Strategic Alternative
  • Identify possible new markets
  • Examine potential airports
  • Economic feasibility of market entrance
  • Marketing plan

43
US National Airport System
http//www.southwest.com/travel_center/routemap_dy
n.html?refwwf_fgn
44
Possible New Markets
  • Minneapolis
  • Charlotte
  • Atlanta

45
Minneapolis, Minnesota
  • Large Metropolitan area with approximately 3
    million people
  • Negative aspect of lower efficiency due to the
    delays caused by snowy weather

46
Charlotte, North Carolina
  • One of the fastest growing cities in the US
  • Short distance from other Southwest locations

47
Atlanta, Georgia
  • Largest population out of the three choices
  • Short distance from other Southwest airports
  • Possibility of stealing market share away form
    the ailing Delta Airlines

48
Potential Airports for Service to Atlanta, Georgia
  • The DeKalb Peachtree Airport
  • Fulton Co. Airport
  • Athens Ben Ebbs Airport

49
The Dekalb-Peachtree Airport
  • Pros
  • Located just 8 miles from the heart of downtown
    Atlanta
  • Good infrastructure
  • Cons
  • Second busiest airport in Georgia
  • Many companies store/house their planes here
    already

50
Fulton County Airport
  • Pros
  • Located right outside of Atlanta
  • Small amount of airplanes and jets
  • Cons
  • The air traffic above Atlanta is still very high
  • Noise violation

51
Athens Ben Epps Airport
  • Pros
  • Located 50 miles outside of Atlanta
  • Close enough to customers in surrounding cities
  • Renovating the airport so the larger commercial
    airliners can fly\in out of the airport

52
Economic Feasibility
  • Entry into other markets should be of similar
    costs
  • Georgia Airport Aid Program
  • Publicly owned airports can receive financial aid
    on upgrades
  • If no federal funding, 100 funding from the
    state can received
  • Allows the airport owner to offer lower runway
    fees to potential companies

53
Marketing Plan
  • Take advantage of the positive brand image that
    Southwest has
  • Present the public with the rates of major
    competitors against their own rates
  • Give the public special promotional deals during
    the first year

54
EXAM QUESTIONS
  • What type of plane does Southwest use for their
    entire fleet?
  • Boeing 737
  • What did the repeal of the Wright amendment
    accomplish?
  • Gave Southwest ability to fly beyond bordering
    states of Texas
  • What type of management strategy does Southwest
    utilize?
  • Low-cost leadership strategy
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