Southwest Airlines

Business with low cost. Also, to be an airline carrier that has the most productive workforce to guarantee the best flight possible for every passenger. Southwest is a great company with a success extraordinary but over time has suffered from not only technological but legal problems. Up to 2016, the issues of the southwest were based on clients, such as allowing them to arrive at their destination in time, offering free food and alcohol. One of the issues was the offer of drinks on flights in the afternoon, most passengers who fly at this time are executives, clearly could not take that business flight, causing losses for non-consumption. another of the issues was the change of airport in Dallas before the passengers were a few minutes from downtown, offering more comfort when visiting the city to change the town many passengers were upset since they were more than 30 minutes from this location. today in 2018 there have been many more problems, now there have been several accidents for mechanical reasons, the planes are not checked properly to offer a safe flight, flights are delayed more often, and have a rule of no refund of money, since the costs of these tickets are very cheap, putting the buyer to think if they really want something so cheap with so many problems. Rivalry among competitors: The competition for Southwest airlines is high because other airlines that are also located in the U.S, are providing the same service to the customers. Rivalry among competitors sets the price: Southwest is a low-cost airline.

The rivalry is expanding, the market is diminishing, and competitors downsize, the competitors turn out to be equivalent in size and capacity. This implies as financial conditions decline, competitors, downsize and then compete for the same remaining market. Threats of new entry: The risk of new participants is low; the demand is not high. On top of that, there are obstacles, not really the best; the FAA. Government directions and limitations force on those associated with this industry. Such would be government sanctions subsequent international issues. Bargaining power of Buyers: The dealing intensity of purchases is high considering the fact that numerous different aircraft are available for which travelers can decide on rather than southwest carriers. Providers incorporate the individuals who give administration or items important to Southwest Airlines to their business work. For Southwest Airlines, providers incorporate mechanics (and another support individual), suppliers of fuel, food (the snacks that are offered). The suppliers do not have much bargaining power. Clients incorporate both residential and commercial sectors. There is no haggling force for clients, as there is no danger of in reverse coordination; it is unlikely that clients of Southwest Airlines will assemble their very own planes and fly themselves. Bargaining power of suppliers:

The providers capacity is low for Southwest airlines since they need to charge the premium according to the strategy of competitors otherwise the passengers can switch off to the other airlines where he can have most extreme advantages as far as nature of administration and the money related esteem. Southwest has a successfully adopted a cost leadership strategy. The company has a reputation for a great customer service. The company has a solid, fun-loving, employee-oriented culture. The company’s mission statements center around these aspects of the business. The company’s growth has been enduring and arranged. Southwest enters new markets just when they can accomplish frequent flights. The company’s marketing centers around its low cost, convenience service and sophisticated combination of publicizing open connection and advancements. Pilot and Flight Attendant Unions have expanded compensation and advantages packages to be the most astounding in the business. Proceeded with increments in Seat cost per Mile will not enable Southwest to remain a low charger bearer.

As a result of its steady, arranged development procedure, there are various undiscovered local markets. The Gap between Southwest and whatever is left of the majors have limited as different bearers have endeavored to imitate Southwest recipe. Southwest’s rivals are putting forth carry benefits that contend straightforwardly with the organization. They are likewise working, putting resources into and framing coalitions with provincial transporters. Enhanced PC innovation will permit more ticketless exchanges and reservations made by PC. The opposition is looking to global, as opposed to residential markets, for development openings. There are open doors for an extension to new markets. The new Boeing 737-700 can fly longer separations constant, which may change the meaning of ‘short pull’. The purchaser keeps on looking for comfort and time funds. Flying, as opposed to driving, will address that issue if the cost is correct and the carrier is dependable. Southwest’s capacity to hold the line on expenses will affect its cost initiative position. Government direction could frustrate Southwest’s capacity to control costs, control tools, or enter new markets. Enhanced media communications may bring down interest for air travel or may bring down interest for ‘rebate’ aircraft. Alternative forms of transportation, for example, a rapid railroad, could debilitate interest for air travel. Likewise, if the economy debilitates, individuals may drive instead of fly. Southwest would be harmed if people in general observation were that low value compares to low quality. The strategy that Southwest is utilizing right now is Competitive Advantage and Low cost. Compared to its competitors, Southwest Airlines’ rates are consistently lower. Southwest’s human resources administration is utilized as a focused procedure to fabricate a profitable workforce to control costs.

This is the way they can offer the lower tolls. Their system is to ingrain a feeling of fun in Southwest’s travelers as well as among its representatives too. They are center around Customer service, grasping the new economy through the utilization of web tickets deals spotlight on most minimal charges. Internal demand Keeping charges bring down through cost decrease techniques, most minimal expense because of no assigned seating. No meals on flights, lower overhead consumptions. They utilize ‘Hubless’ framework to lessen the cost. In conclusion, compared to its competitors, Southwest Airlines’ rates are consistently lower. Southwest’s human resources management is used as a competitive strategy to build a productive workforce to control costs. This is how they can offer lower fares. Their strategy is to instill a sense of fun not only in Southwest’s passengers but among its employees as well. I would recommend that the strategies that they are using are good but not great, the low cost will attract some customers but when the low cost its lower than the other companies will also attract questions, the consumer will question if the deals that they are offering are also good, sometimes when something is very cheap the consumer get the feeling that the product quality is not high.

Development of the Human Factor

According to (Carter,1996), Human Resource Development falls in the category of activities that develop different personnel within an organization for example career wise, for training purposes and in the general development of the organization. This is slightly different from Human Resource Management which being a key management activity allows those in leadership positions to decide the staffing requirements, recruitment and training of the most competent employees, monitoring the performance issues of all employees within the organization and ensuring that the personnel and management practices in use conform to the various regulations put in place within the organization.

Human Resource in an organization deals with people whose work is to staff and operate an organization which places it in the same category as the management of financial and material resources.

In an organization, the blending of Human Resource development with leadership trends allows the bringing out of the Human side within any given organization. The leadership trends must bring out the distinctive personality of the organization since this is the future of the organization.

The leadership within the organization must be such that the leaders possess coaching as compared to control skills. This is for the sole reason that the motivated employees have goals and objectives to achieve and they are always looking for proper ways to achieve them. The organization must therefore provide learning opportunities for the staff which are continuous and provide an opportunity for growth of both the employees and the organization.

Motivation is one of the key requirements for this to be sustained. The employees must be willing to assume responsibility for their tasks by trusting the management, this is what is referred to as a self- motivating work force which results from good leadership within any organization.

The workforce should also be self-Educated since with the changes in technology, there is need for the possession and acquisition of skills that enable those who work within an organization to keep it ahead of their competitors. This can be done through self or team education. When an organization empowers its workers, they assume responsibility and consequently narrow the knowledge gap between the workers and the management of the organization.

Southwest Airlines

Southwest Airlines is one of the organizations whose social invention has enabled those who work there to discover and realize their true capabilities. This can be attributed to how the social environment within the organization combines humor with responsibility within the workplace. The employees are allowed to work in teams without necessarily being supervised.

Prospective employees during job interviews must not only only portray their self-development attitudes but must also have a good sense of humor and people with such characteristics are the only ones hired by Southwest Airlines.

Freiberg (1996) attributes the success of Southwest Airlines to the management which has created a culture of treating employees as number one assets through programs such as profit-sharing and empowerment of employees in the decision making process. Current management techniques like the celebration of different milestones is practiced

The People Department, an equivalent of the Human Resource Department looks for these qualities when hiring enabling the company to have highly motivated employees and an efficient work environment that attracts customers. They hire for attitude and train for skills (Freiberg, 1996).

History

Southwest Airlines which was founded in 1971 came to be known as a low-cost regional air carrier and a leader as far as worker responsibility is concerned. Little attention is paid to the formal organization structure which is why decision-making is done in committees which involve both workers and the management.

1.      The organization has recorded a profit for the thirty fifth consecutive year in January 2008, which means that it has been profitable since 1973. It has since then grown from three planes and two hundred and fifty employees to over two hundred planes and over twenty five thousand employees. The company experienced financial problems during the early years but the manner in which it was handled is what prevented the entire ordeal from bringing the company on its knees. The three-year legal battle which was aimed at keeping Southwest Airlines on the ground by other airlines at the time, was curved into a children’s book ‘Gumwrappers and Goggles’ in 1983 by Winifred Barnum and later the book was adopted into a stage musical ‘Show your Spirit’ which was sponsored by Southwest Airlines and played in the towns serviced by the airline.

Corporate Culture

Southwest Airline’s corporate culture has consistently supported the profitable airline and is attributed to the extensive study of Pacific Southwest Airlines by Herb Keller the founder of Southwest Airlines and his colleagues who applied the ideas of the California-based Airline. He adopted a plan which enabled profit-sharing. The plan enables the employees to own ten percent of the company stock ( Freiberg,1996). This makes the organization a Human Organization in that the welfare of the employees is focused. Ninety percent of the employees are union members. The pilots are symbolized by the Southwest Airlines Pilots’ Association which is separate from the bigger ALPA union.

The organization apart from flying the largest number of passengers per employee in the industry has the most modern planes which take ten flights per day making this twice the industry’s average. A major accident is yet to be reported. The customer complaints in the industry are the fewest the reason why the company has the highest customer ratings in the industry. In the history of the company, employees have never been mass-fired.

The company’s competitors work extremely hard to implement similar worker responsibility programs like those of Southwest airlines as opposed to the command-and-control leadership approaches. This comes at a time when Southwest Airlines is acting towards implementation of electronic entertainment as opposed to the all-human entertainment which customers have all along been treated to.

According to Freiberg (1996), Southwest Airlines in a move to excel as a human organization practices future scenario planning, allows everyone within the organization both employees and customers to find humor even in tense moments which allows them to think funny and celebrate everything. Communication is enhanced by ensuring that all feedback is appropriately responded to, the organization ensures that the only thing that is taken seriously is the competition and the employee newsletter which contains stories and information is published. This in turn sustains emotions such as fun, empathy, creativity, motivation, love, supportiveness, flamboyance, outrageousness and a playful spirit among employees while emphasizing compassion and humility.

Communication within the organization is open and flows through all departments and the systems used are suitable for the task. This ensures that all the staff has the information they require so as to make decisions and to encourage and promote the family and fun environment for both the staff and the customers. The corporate values with the personnel are upheld and the systems align to the values of the organization (Beeston, 2003).

In Southwest airlines, honesty and consistency in communication is emphasized, the employees always come first as opposed to ‘the customer is the king’, the people hired in the organization are those that already support the corporate values and then they are trained for skills. Everyone within the organization is encouraged and rewarded for being themselves and they are in a way given ownership. All this is what gives those who work within the organization, responsibility to support the outcome of their input.

Leadership and collaboration is based on common commitment to the clearly defined corporate values which are communicated frequently to employees and customers. The job security of all people within the organization is focused on since profitability equals job security and this ensures that everyone benefits from profitability due to the integral part they have to play in order to achieve it (Beeston, 2003).

The company uses celebrations to reinforce their culture, keep their history alive and have fun. For instance the Southwest’s parties either big or small, are thrown whenever they can fit in the calender, even in July or September. Southwest’s culture directly provides a reason why people feel proud to work for the organization while at the same time making them feel like family members.

Conclusion.

In conclusion, Herb Kelleher the Co-founder of Southwest Airlines in an interview once said that all people within the organization are leaders in one way or the other regardless of their position which is the key quality the People Department looks out for in the process of hiring so as to ensure that their leadership potential is nurtured. This shows that Southwest’s success comes because of the focus it places on people, fun and love. The stock ticker for the company is LUV.

In order to ensure that “ That the Legend Live On” Herb Kelleher once in a message to the field partly read: “ When you are with your grandchildren sitting around, I want you to tell them that having connection with Southwest Airlines was one of the best things that ever happened to you in your complete life p. I want you to be able to say, Southwest Airlines ennobled and enriched my life; it made me better, and bigger, and stronger than I could have been alone.” ( Freiberg, 1996, p.318 ).

References:

Beeston P. (2003). Belief Model for the Leadership of Herb Kelleher (Southwest Airlines).

Retrieved from Http://www.mission-coach.co.ud/

Carter, M. (1996). Field Guide to Leadership and Supervision in Business. Minnesota: Authenticity Consulting, LLC.

Freiberg, K. & Freiberg J. (1996). Nuts! : Southwest Airlines’ Crazy Recipe for personal and business Success. San Diego: Bard Productions.

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Southwest airlines is one of the famous and largest airlines in the world. This paper will analysis Southwest Airlines Leadership and management characteristics, their Ethics in management and leadership practices and Change and Innovative Strategies that they follow to become the top Airline of the world. Personal leadership and management characteristics, styles, and preferences. The secret behind southwest’s success is their employees, and they give their employees due credit.

According to the Southwest website, Southwest Airline employs more than 33000 employees across the US, and still expanding. The President of the company started working as a secretary and eventually earned himself the post of the President. This speaks volumes of the kind of work environment it offers to its employees. The Southwest mission statement to employees is as follows: “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. ”(Southwest Airlines Co, n. d. ). Southwest’s culture encourages teamwork when handling tasks. A concept of ‘team delay’ is prevalent in the organization. According to this concept, the employees are unable to blame each other for mistakes.

Instead, learning is encouraged and blame for the failure is taken by the whole team. According to Ron Ricks, Southwest actually invests in people instead of saving money just because we are cheap. Southwest pays its competitive wages and packages instead of trying to cut cost. This decision turns cost saving in the long term(Gittell,2001). Libby Sartain says Southwest spends more money to recruit and train than any other airline. The management takes its time in finding people which match their criteria.

Once the employee has been selected, he or she is trained according to the requirement. All this leads a turn over which is very low compared to other airlines in the industry. An executive puts it this way, “We want people who are not looking for a job, but rather who are looking for a cause. If we are evenly matched with our competitors on everything else, we will win on customer service” (Gittell, 2001). This can be seen by the fact that in one region, United came into their competition and started to give Southwest a tough time.

After a few months, the management is said to have received more than a thousand passengers who had flown with United Airlines but thought that they wanted Southwest’s friendliness and service; and not the formality which other airlines showed before and during their flights(Southwest,n. d. ) . Leadership The leader’s personality has a lot to do with the personality of the organization which he or she leads. There are very few airlines which had the luxury of having a continual visionary leadership like Southwest Airlines enjoyed.

Being led by Kelleher, Southwest developed a culture that they proudly flaunt today. According to their philosophy, their most influential leaders, after their founding leader Herb, are their frontline supervisors (Gittell,2001). The management is investing more resources into internal recruitment and training their employees to take up the key roles of frontline supervisors. Unlike its competitors, Southwest Airline’s organizational structure is not a flat one only based on individual performance being managed by lesser supervision.

Instead, Southwest has horizontal organizational structure which is built on cross-functional teams to avoid blame games and to facilitate the process of feedback and learning (Deal & Key,1998) According to the management, it is important for Southwest to nurture our young employees. In times of recession when other airlines are reducing the number of employees, the management seeks to increase the number of supervisors to encourage, guide, and give structure to employees who will take control of the company in the future. The company has a ten-to-one employee-to-supervisor ratio (Gittell, 2001).

Ethics in management and leadership practices. To analyze the ethical side of Southwest Airlines, we need to see how ethics defines and what role does it play in the modern business environment. According to a definition, “Ethics in business is simply the application of everyday moral or ethical norms to business” (De George, 2005). Today, ethics is perceived to be more related to the actions and behavior of individuals. When we talk about unethical practices, we are usually referring to the unethical practices of individuals.

We also talk about multinational corporations which practice child labor, pay abnormally less wages to the oppressed and poor workers in the developing world. According to De George, a lot of businesses and their leaders are influenced by the religious beliefs they hold and the principles of ethics that they have been taught since their childhood. They tend to apply the same principles to their organization (De George, 2005). In the era of St. Aquinas, moneymaking and profit taking was considered an immoral action.

In the recent era, the perceptions have changed and it is considered perfectly normal and ethical to make money and earn profits (Lawrence & Weber, 2008). At southwest, the concept of making money is very much present, but not at the expense of stamping over someone else’s rights, whether it is the employee, customer or supplier. The proof is the kind of working environment they provide to their employees and the kind of service the offer to their passengers. So, they are doing what is ethically sound as they maximize their shareholder’s wealth.

But the question is, is business ethics only about doing what is right for the stakeholders? The answer is No. it is important for the companies to not only be ethical, but also socially responsible. According to the guidelines of Corporate Social Responsibility, an organization should be held accountable for its actions if it, in any way, harms the people, community or the environment around it. However, it also does not mean that the company should forgoe its original mission for existence and indulge itself in philanthropic activities.

CSR can have different manifestations. “In one way or another, the crux of it is to integrate the public interest into the corporation’s mission. ” Southwest has been trying to do the same(Pfeffer, 2004). Corporate citizenship programs have known to follow economic investments instead of leading them. Organizations are beginning to realize that social investments can lead to significant economic benefits in the long term(Business Civic Leadership Center, 2007). The goal here is to focus on the company as a whole instead of focusing on just profits.

Such social investments ma not yield direct tangible benefits, but it definitely helps in improving the reputation and enhancing customer loyalty which is exactly what Southwest has achieved. This achievement has helped them keep ahead of their competitors and earn higher profits. Intelligent decision making, exemplary relationships with employees, communities they are serving and all other stake holders has guided them into a very successful organization. This is evident in the fact that it is the only organization to have posted profits for the past 34 years(Southwest Airlines Co, n. d. ).

Change and Innovative Strategies Southwest’s biggest competitive advantage is to maintain low operating costs. Other factors which help them keep the costs under check are single aircraft model, a very efficient point to point structure and extremely hardworking, creative and dedicated employees. It is interesting to note that the airline’s fleet of aircraft comprises of only Boeing 737s. The advantage is that they are able to reduce training costs and inventory costs. Southwest also does not serve any meals during the flight as part of their strategy to have low operating costs (Southwest Airlines Co, n.d. ). All this was new to the airline industry. Instead of preparing for the change, they were the change themselves. Whichever market they entered, they induced change in the market, whether in the form of demographics, prices or standards. Southwest does not even have pre assigned seats for the passengers or electronic entertainment on its planes. Instead, their entertainment package is the highly energetic and active flight crew which is full of wit and humor to amuse the passengers during the flight. Southwest also brought up a concept of paying its crew on trip basis to cut costs in difficult times.

This made sure that if the flight wasn’t flying, the crew did not have to be paid. It also motivated the crew to fly more. Another innovative idea was to us use “second tier” airports (e. g. Baltimore and not D. C. , or flying to Manchester N. H. and Providence, R. I. instead of choosing Boston). Due to this concept of point-to-point flights, pilots and crewmembers had the luxury of spending the night at their home which convinced them to earn less than what other pilots and crew members earned at larger airlines.

Southwest Airlines’ business model is based on a set of beliefs which are: people intend to get from one place to another as quickly as possible, and second that aircrafts will not make money if they remain standing in the hangars. The walls of the company headquarters just off Love Field in Dallas, TX are covered with more than ten thousand picture frames containing photos of employees(Southwest Airlines Co, n. d. ). In the past, commercial airlines provided formal business services which were highly inspired by the military. Many of the commercial pilots were trained by the Air force.

The use of titles such as Captain and Navigator also complement this belief. Not only this, but the uniforms used by the flight crew members also remind us of military uniforms used in the past. In such business environment, you would expect a much more serious attitude from the employees. Use of wit and humor in such an environment was unthinkable. But southwest completely changed this concept by adding humor to not only their own work environment, but also the environment which the passengers experience. As part of a research, a socio linguist conducted a survey based on the humorous and joking behavior of the Southwest flight crew.

The questions that were asked are as follows:

• Q1. Does the client travel via Southwest Airlines often? Has the client noticed this type of informal speech used by employees of the airline?
• Q2. Does the behavior seem out of place to the client? The results of the survey are as follows 44. 4% of the female did not notice the joking mentioned, though half of those who did not notice did find a friendlier environment. Only 10% of the males did not experience the informal behavior.

Source: Plested, V. A. (2009). A joking matter: sociolinguistics at work within Southwest Airlines.

In actual words, 64 percent of the males and 44 percent of the females (four out of nine) used the terms ‘comfortable’, ‘comforting’, ‘relaxed’, or ‘casual’ to describe the joking language usage. 11% female and 27% females used the term ‘different’. 80% who noticed the language use found it amusing. All participants reported that the joking never “went too far” or offended them. Only one participant described the behavior as “out of place. “

Conclusion

Southwest airlines major competitors include AMR Corp. , JetBlue and Continental Airlines.

However the company has climbed a long way up on the ladder of success and has effectively been able to cope with the competition. Its strategy is a source of inspiration for all the low cost airlines as it has done a good job in the airline industry.

References

1. Business Civic Leadership Center. (2007). Global Corporate Citizenship: Corporate Citizenship in Emerging Markets. Retrieved on July 25, 2009 from http://www. uschamber. com/bclc/resources/0709emergingmarketsreport. htm De George, R. T. (2005). A History of Business Ethics. Retrieved on July 25,2009 from http://www. scu.edu/ethics/practicing/focusareas/business/conference/presentations/business-ethics-history. html Deal, T. , Key, M. (1998) Corporate Celebration: Play, Purpose and Profit at Work, Berrett-Koehler Publishers. Gittell H. J. (2001) Investing in relationships.
2. Retrieved on July 25, 2009 from http://hbr. harvardbusiness. org/2001/06/investing-in-relationships/ar/1 Lawrence, A. T. & Weber, J. (2008) Business in Society. Wiley Pfeffer, J. (2004) Dare to be Different. San Francisco. Vol 5 Issue 8 page 58 Plested, V. A. (2009). A joking matter: sociolinguistics at work within Southwest Airlines.
3. Retrieved on July 25, 2009 from http://soar. wichita. edu/dspace/bitstream/10057/1867/1/LAJ+28_p10-15. pdf Serwer, A. (2004) Southwest Airlines: The Hottest Thing In the Sky. Fortune. Vol 149 Iss 5 page 86 Southwest Airlines Co. (n. d. ). The Mission of Southwest Airlines Retrieved on July 25,2009 from http://www. southwest. com/about_swa/mission. html Vogel, David. The Ethical Roots of Business Ethics. Business Ethics Quarterly; (1991) Vol. 1 Issue 1. p101-120. Retrieved on July 25,2009 from http://web. ebscohost. com/ehost/pdf? vid=5&hid=8&sid=b78c7d8f-b485-4bc4-8b5c-4c1cfabd4299%40sessionmgr3

Herb Kelleher is the CEO of Southwest Airlines and a great leader. He has the following qualities that are found in a good leader. He has a vision, charisma (makes you feel significant), positive, can-do attitude, listens to others, will sacrifice for others, looks to the good of the community, demonstrates strong moral values, inclusive in attitude, open-minded, thinks clearly and critically, knowledgeable of practical methods to achieve goals and strong-willed. His leadership qualities are recognized in the business world and according to Fortune magazine, he is the best CEO in America.

Under Kelleher leadership, Southwest has become the most consistently profitable, productive, and cost-efficient carrier in the industry. It has also earned the Triple Crown award for best on -time performance, baggage handling, and customer satisfaction for four years. This can be attributed to the working environment. Kelleher believes that if you create an environment where the people truly participate, you don’t need control. They know what needs to be done and they will do it.

One of Kelleher’s leadership attributes is to keep things simple and establish a clear direction of communication. Their fares are simple, generally just two prices (peak and off peak) and they have an uncomplicated back-and-forth schedule that keeps their planes in the air nearly 12 hours a day, far above the industry average. Southwest’s formal systems are backed up by a highly supportive informal culture that is aligned with the formal system. The company has developed an underdog spirit and maintains a culture of martyrdom fed by the belief that they are upstarts persecuted by the bullies of the industry. They never lose sight that the passenger is paramount.

Another attribute is to remain calm in the midst of crisis. Herb Kelleher is a master at turning crisis into a cause. Everything about Southwest’s struggle to get off the ground challenged his beliefs about what America stood for but he remained dedicated to the cause. After 911, Southwest was the only airline that reported a profit. A third attribute is to be courteous, respectful, and friendly while striving for organization efficiency. He leads by example; he treats everybody with the same level of respect regardless of whom he’s talking to. Herb Kelleher doesn’t have a patronizing bone in his body and this is the way he runs Southwest. He makes sure everybody counts and everybody knows they count.

Lastly, he practice dignity, respect, appreciation, fairness, trust to all employees and customers. Employees know they are number- one in the organization. He believes the way you treat your employees is the way they will treat your customers. Always practice the Golden Rule, internally and externally. Yes, Herb Kelleher is a strategic thinker. Charming the passengers was a part of his strategic plan to make southwest Airlines different from their competitors. Southwest has credited its success as a result of Herb’s developing strategic principles and putting them into action. For instance, as Southwest Airlines began to grow quickly, it might have been tempted to mimic its rival’s unsuccessful strategies if it had not had its own strategic principle to follow. He had a vision and communicated it to all his employees.

The main strategy that made Southwest competitive was the strategy to meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel. Southwest Airlines has used The Boeing Company’s 737 and only that plan to become the world’s largest and most successful low-fare carrier. Kelleher future strategy is to do what meets customers’ needs and offer things that customers are willing to pay for and remain the low-cost producer. Herb Kelleher has proven over time that he is a great leader and a strategic thinker.

A culture is a set of values that are adopted by people who co-habit any place. It consists of shared traits and lifestyles. Within an organization, culture refers to values and norms that are prevalent throughout the workplace and amongst the employees. This includes their mannerisms, attitudes, and work ethic. Culture within an organization exerts control over the behavior of people. Growth and success of a company depends largely on the type of culture which is prevalent within an organization. Many different types of culture exist in businesses today.

Certain cultures encourage employees to work and grow together as a family—thereby creating unity. Others may place emphasis on higher ranking employees, which leaves those at the bottom of the hierarchy bitter or resentful, creating a workplace which may not be friendly or comfortable. Some companies may opt to stick to what they know, thereby stifling creativity and growth by eliminating experimentation. On the other hand, a company may be overly innovative and always looking for new ideas and taking new risks.

Although this sounds good in theory, it may lead to an unstable work environment. Culture can either make or break an organization. Culture is not a tangible object. It is the result of management’s beliefs and values and employees’ implementation of those beliefs and values. It exists within all organizations and can be determined, for example, by looking at the dress code within the workplace. It can also be seen by observing employee interaction and behavior. One can also get an idea of an organization’s culture by taking note of its dealings with those outside of the company (i. . customer service). Culture makes up the personality of an organization. It is crucial that a positive organizational culture is created, taught and adhered to. It can be used to improve the efficiency and work ethic of employees in an organization. It also has a powerful influence over the behavior of individuals and drives performance of the workforce. A strong personality adds character to an individual. Likewise, organizational culture gives a business its own special identity. It creates unity among employees and embeds in them the spirit of teamwork.

An example of an organization which has a strong culture that has helped it thrive in the aviation industry is Southwest Airlines. Southwest Airlines (SWA) was founded by Rollin King, M. Lamar Muse and Herb Kelleher in 1966. They began servicing Dallas, Houston and San Antonio in 1971, after winning a legal battle fought in the U. S. Supreme Court. The airline started off by offering six daily roundtrip flights between Dallas and San Antonio, and 12 daily roundtrip flights between Dallas and Houston.

They began with one simple 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” (www. southwest. com). This notion has led to a very unique culture at SWA—one that puts customer service at its center. This can be seen through their mission statement, as per their website: “dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit”.

Their exemplary form of customer service comes as a direct result of how employees at SWA are treated. “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” (Freiberg and Freiberg).

SWA management has created a culture where employees are treated as the company’s number one asset. There is limited emphasis on formal organizational structure and the work environment combines humor with responsibility. Their happy workforce creates maximum productivity—willingly. Trust and respect between the workers and management is an integral part of the company’s success. SWA has exemplified that culture starts from within. Passion shown on the inside will reflect outwards and customers will see it. SWA has been able to do this consistently.

Customers see the passion exerted by SWA employees and it makes them want to travel with them. The uplifting, spirited personalities of employees keep customers coming back for more. This can be seen in the fact that SWA has consecutively recorded profits for the last 40 years (www. southwest. com). The positive attitudes exerted by SWA employees are contagious and trickle down to its customers. As reported on the company website, “Southwest Airlines has consistently received the lowest ratio of complaints per passengers boarded of all Major U. S. arriers that have been reporting statistics to the Department of Transportation since September 1987. ” The spirit that exists throughout SWA empowers its employees to believe in themselves, the service they are providing, the business as a whole, and the customers that they serve. The unique culture keeps employee morale high. All employees, including flight attendants, customer service reps, and baggage handlers, are encouraged to take whatever action they deem necessary to meet customer needs or help fellow workers (Milliman). This has led to both employee and customer loyalty.

Employees feel needed which results in a devotion to the company. In turn, customers experience exceptional service where they truly are put first, creating a sense of belonging. Much of SWA’s success is due to the willingness of its leadership to be innovative. Founder Herb Kelleher studied California-based Pacific Southwest Airlines extensively and used many of the airline’s ideas to form the corporate culture at Southwest. Early on, they adopted the “Long Legs and Short Nights” theme for stewardesses on board typical Southwest Airlines flights.

They selected beautiful flight attendants with unique personalities and dressed them in hot pants and go-go boots to ensure a fun and one-of-a-kind traveler’s experience (http://avstop. com). Operating out of Love Field, “love” became their promotional theme. Flight attendants would serve “love potions” and “love bites” (otherwise known as drinks and peanuts) to the company’s clientele of mostly male business fliers (Pederson). Many decisions made by Kelleher have produced positive outcomes for SWA. For example, since its inception, SWA chose to buy its commercial airplanes from one manufacturer.

This decision has allowed them to decrease operational expenses, as well as reduce maintenance and repair costs for their large fleet. By choosing a single supplier, the need for customer support, maintenance, monitoring, training, etc. has been reduced, thereby reducing costs for the company. They have also trimmed the time it takes to perform ground duties, once their airplanes land. This has led to a quicker turnaround time for the next flight to take off, thereby leading to profits for the company.

Another move by SWA which keeps competitors at bay is their reservation system. Reservations are taken only through the internet, thereby reducing costs of using ticket counter employees. This method saves both the customer and the airline time and money. Kelleher’s paradigm for success starts with the core of the company—its employees. Hiring motivated people and allowing them to incorporate their creativity in day-to-day activities is key. By giving employees decision making abilities, they are made to feel important.

A sense of pride takes root within each employee, which positively impacts the customers that they deal with. This is reflected in their work output and creates greater efficiency, which leads to profitability for the company. Additionally, happier employees are able to provide better customer service, in turn making the experience an all around positive one. As Amy Marhoffer, Culture Communications and Planning specialist at SWA puts it, “Happy Employees=Happy Customers=Increased Business/Profits=Happy Shareholders. Although compensation is often viewed as the number one motivator, Kelleher understands the importance that employee morale plays. A little bit of fun can translate into a lot of productivity. Bailey explains how positive morale can produce more efficiency: “SWA, after pay cuts at other airlines, has the industry’s highest wages. But because of efficient work habits, measured in how much it spends to fly a passenger a given distance, its costs are the lowest among big airlines” (Bailey).

It is important to note that the success of SWA is due not only to the culture but also its ability to adapt to the industry’s needs. The airline industry in particular, is one that is heavily dependent on customer service; the happier customers are, the more positive their experience will be. Unfortunately, there is plenty of untapped productivity among corporations stuck in the old ways of oppression and tyranny. Kelleher’s approach shows that he understands people; he allows them to be themselves, which creates a positive work environment and a desire to be the best.

He has successfully created a culture that has the properties of fun, entertainment and genuine care at its core. When Southwest started in 1971 they were just a small regional carrier flying from Houston to Dallas. Over the course of the last 40+ years, they have successfully expanded into a major airline carrier. SWA is now America’s largest low-fare carrier, serving more customers domestically than any other airline. They are comprised of nearly 46,000 employees and serve more than 100 million customers each year.

SWA operates more than 3,000 flights a day, with its subsidiary AirTran operating an additional 520 flights a day (www. southwest. com). They would not be where they are today without the innovative thinking of its leaders and the strong culture they created. Although corporate culture is not a tangible object, the results of a successful culture will produce tangible success. SWA has positioned itself for competitive advantage by creating a work environment which permits people to be their best selves and consistently outperform their competitors.

It has been able to create and sustain a strong, positive culture which attracts not only the best talent, but a loyal customer base as well. The tremendous growth and profit of SWA brings to light how corporate culture, employee morale and customer service can play an integral part in the overall success of a corporation. These intangible elements are what make SWA an excellent example of a successful corporate culture. Works Cited AvStop Aviation News and Resource Online Magazine. “History of Southwest Airlines” http://avstop. om/history/historyofairlines/southwest. html) Bailey, Jeff (2008) “Southwest. Way Southwest” The New York Times Freiberg, K. & Freiberg, J. (1996) Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success. New York: Broadway Marhoffer, Amy. (2011) “Southwest Airlines “Gets It” With Our Culture” http://www. blogsouthwest. com/blog/southwest-airlines-“gets-it”-our-culture Pederson, Jay P. (2005) International Directory of Company Histories, Vol. 71. St. James Press Southwest Airlines Co. (2013) ”Southwest Airlines” http://www. southwest. com/

Introduction

Southwest Airlines has been a strong growth company over the last 4 decades. Using its low-cost, no-frill, customer friendly, point-to-point operational strategy, Southwest has been able to sustain considerable growth over the years and reported straight profits since its incumbent. Southwest Airlines now has a market capitalization of $9.1 billion and is positioned as one of the strongest airlines in the struggling airlines industry. Over the last decade, many airlines have reported record losses in the US while many have filed for bankruptcy, Southwest has been able to remain profitable and continue to grow. However, with the airline reaching its maturity, it remains to see whether this growth can be sustained for the upcoming years. This essay uses various tools and frameworks to analyze the external environment and its challenges, and internal resources and capabilities of Southwest airlines. This external and internal analysis is aimed to guide the strategic management of company in understanding the environment it business operates in, and how it can respond to that environment by realizing its internal resources.

External Analysis

Understanding the environment in which a company operates is a critical element of a rational approach towards strategic management. It underscores an organization’s need to appreciate numerous factors in its operating environment, and how these can impact upon it. For the purpose of evaluating the external environment of Southwest Airlines, this essay uses two of the most popular tools; namely: Liam Fahey and V. K. Narayanan’s STEP or PEST concept (1986); and Michael Porter’s five forces model (1980; 2008).

PEST Analysis

Political factors

Southwest Airline operates domestically in US and therefore its strategy is significantly influenced by the airline policy of Federal Aviation Administration (FAA) (see www.faa.gov). Specifically, the 1979 ‘Wright Amendment’; a legislation regarding the ‘Wright Zone’ which prohibits any airline to fly non-stop or provide through-plane service from Dallas Love Field to any city in any state except for location in Texas, Louisiana, Arkansas, Oklahoma, New Mexico, Alabama, Mississippi, and Kansas has been affecting Southwest’s operation for the past three decades. Recently, new legislation has been passed to repeal the Wright Amendment. It would come in effect in 2014 (Thompson and Gamble, 2012). The political environment in the US has been unfavorable for Southwest Airlines over the years due to strong lobbying in congress by supporters of rival airlines against the company’s interests. However, Southwest Airlines has on numerous occasions won legal battles against rivals in the US courts.

An important political factor affecting the Southwest Airlines strategy is terrorism. During the last decade, the threat of terrorism in civilian aircrafts has had a negative impact on airline industry in that it has increased the airport costs incurred due to additional security measures.

Economic factors

Aircraft derives its fuel from oil; therefore a rise in the price of oil has a major impact upon Southwest Airlines’ profitability travel (Thompson and Gamble, 2012). The future trends of oil prices are highly unpredictable due to the political changes occurring within the Middle-East region, especially the relations between US and Iran. On the other hand, the recession in 2008 has had a favorable impact upon Southwest’s operations. Although the customer demand for air travel reduced due to cuts in personal and business expenses across the US, the consumer demand for low-fares no-frills Southwest Airline underwent a growth due to a shift in consumers’ preferences towards cheaper, no- frill airlines (Southwest, 2010).

Concerning monetary issues, since Southwest Airline operates only within US, hence currency fluctuations do not impact Southwest Airlines’ operations.

Social Factors

Unlike other low-fare and no-frill airlines in the Europe, Southwest Airline has a strong commitment towards customer service. The airline has always adopted a customer centric approach for its management and marketing activities (Campbell, 2010). Its customer services personnel are widely encouraged upon going a step forward in appeasing customers through unusual tactics. Their efforts are rewarded through recognition and rewards, and are not punished for implementing their good judgment (Thompson and Gamble, 2012).

Technological factors

Technological developments have both created new opportunities as well as threats for Southwest Airlines. The emergence of teleconferencing and robust communication other the internet has provided businesses with an alternative for frequent travelling. On the other hand, technology has also provided airline industry with the opportunity to expand their outreach directly to consumers through e-commerce sites. Indeed Southwest Airlines was the first airline company to introduce ticketless travel and allows customers to make reservations online through its e-commerce website (Thompson and Gamble, 2012).

Porter’s Five Forces Model

To analyze the operating environment of Southwest Airlines and evaluate the nature of the competition Southwest Airline faces, a Porter’s Five Forces analysis will be used, created by Porter E.M professor at Harvard University Business School. The five forces are as follows:

The bargaining power of suppliers is high in the airline industry. For example fuel is a major input into an airline company (it accounts for 40% of all operating costs) (Thompson and Gamble, 2012), and the companies which provide fuel tend to be large, and hence have immense bargaining power. Their bargaining power is further enhanced due to the absence of any viable fuel alternative. Therefore charging a premium price by oil companies is only natural. Another cause of concern for the airline industry is the bargaining power of aircraft suppliers. The aircraft manufacturing companies have a monopoly as only two companies exist in the industry namely Airbus and Boeing.

Bargaining power of buyers is also high as the customers of airline industry are constantly looking for alternative air travel companies to get best value for their money. Additionally, many other full service airlines are considering adopting a low cost model for shorter routes with no frills, thus increasing choices for customers (Mouawad, 2010).

Competitive Rivalry: Southwest Airlines’ no frills model is been widely pursued by various long-haul, full-service airlines within US. Therefore, the airlines industry is highly competitive for Southwest Airline.

Entry Barriers; There are high barriers to enter the airline industry as it requires a large initial capital investment. Furthermore, the airline industry is faced with increased competition and is no longer as lucrative as before in conjunction with the price wars, thus making survival difficult for new entrants.

Substitutes: Although customers can switch to travel through train, coaches and cars, such travel modes are considered as uncomfortable and the cost advantage is neither too substantial. Therefore, the threat of substitute is very low.

Internal Analysis

The resource base view of strategy emphasizes upon a company’s internal capabilities in formulating strategies to achieve a sustainable competitive advantage in its market (Prahalad and Hamel, 1990). It deals with the competitive environment faced by an organization through an inside-out approach. The following are Southwest’s internal resources.

The Combative and Can-do Culture at South West

Southwest Airline has a strong combative can-do attitude ingrained in its corporate culture. The company’s legal struggle in its formative years produced a strong ‘esprit de corps’ among the company’s employees. With the media reporting Southwest Airlines difficulties, the company’s employees were clearly aware of the fact that the airlines existence was on the line. According to Colleen Barrett, the challenges faced by Southwest Airlines due to fierce adversaries by rivals and local officials were instrumental in building the passion of Southwest employees and ingraining a combative, can-do spirit in the corporate culture (Thompson and Gamble, 2012).

Southwest’s Leadership and Management

One of the most celebrated leaders of the company was Herb Kelleher, under whose leadership the company prospered for almost four decades, including its formative struggles. Kelleher preferred to do much of the management from outside the office whilst being among the staff members. He was a good listener, and a proponent of direct observation. He always encouraged his staffers in performing their duties. He attended most of the graduation ceremonies of his flight attendants classes and even helped load bags on ‘Black Fridays’. He was highly combative and had a flamboyant lifestyle; both of which were reflected in the company’s operations and management. Surprisingly, Kelleher was an adherent of conservatism when it came to the financial side of the business (Thompson and Gamble, 2012).

Much was the future leadership of the company was directly mentored by Kelleher himself. For instance, James parker (CEO 2001 – 2004) was associated with Kelleher with more than 23 years. Kelleher and Parker were considered to think much alike. Similarly, Colleen Barrette (President 2001 – 2008) was also associated with Kelleher and the company for more than two decades. Both these executive also followed Kelleher footsteps in spending most of their time on culture building, morale building and customer service. Gerry Kelly (CEO 2004 – Onwards) further advanced the corporate culture by through a steadfast focus upon triple bottom line of Performance, People, and Planet (Thompson and Gamble, 2012).

Human Resource Management

Herb Kelleher was a strong believer in the principle that if a company keeps its employees happy, its employees will in return keep its customer happy. Therefore, he contended that the employees- not the customers- came first. Kelleher knew thousands of employees by their name. Likewise, Colleen Barrette, put much efforts in creating a family like atmosphere within the company and put forth a network of contacts to stay in touch with each employee (Baum, 2006).

The company’s corporate culture treats its employees like a family, insisting upon their important contribution towards having a satisfied clientele. It regards its employees as the ‘creators’ of the company. The company has a strong ethos of listening to its employees ideas, and does not believe in constraining their thinking.

The company also insists upon hiring only those who share the same values as its corporate culture and does not lay off any of its employees (Thompson and Gamble, 2012)

Southwest Airlines Strategy

Southwest has pursued a low-cost, low-price, no-frills, strategy from day one. It made air travel affordable to the mass American population. Southwest advance ticket purchase requirements are more lenient than rivals and the company offers deep discounts for some seats purchased through its website.

The company offers ‘Business Select’ fares for economy minded business travelers. This fare offers early boarding privileges to passengers along with extra Rapid Rewards (Anthony, 2011).

Despite many of its rivals charging extra for add on services, like checking bags, in-flight snacks, buying a ticket in person from airport, fees for changing reservations, etc., Southwest insists upon an all-inclusive lowest fare. Its concept of price elasticity that is, the erosion of profit margins through offering lowest fares in more than compensated by increases sales volumes is proven to be true for most of its markets.

Southwest’s point to point route system also minimizes connections, delays and total trip time. Its emphasis on non-stop flights between pair of cities allows 75 % of its passengers to fly non-stop to their destination.

Strategic Options

Based on the aforementioned external and internal analysis of Southwest Airlines this essay presents a set of strategic options for the company. First this essay presents a TOWS matrix to generate strategic options:

StrengthsWeaknesses

Opportunities

Southwest Airlines can use its huge customer base to sell ancillary product apart from free add-ons service in its flightsSo far, Southwest Airline is the only airline making a consistent profit and undergoing constant growth in the US. It does not have any particular weaknesses in its current corporate strategy
Southwest Airlines can further imbibe e-commerce technology in its operation through developing applications for smart phones that enable customers to purchase tickets, check for promotional and discount offers, and check in.
Southwest Airline can promote its Triple Bottom line ethos as its commitment towards environment and promote a ‘green’ image.
Sustain its employees motivation and devotion level through further improving the company human resource policies pertaining to:

• ·Performance management and appraisal
• ·Rewards and amenities
• ·Stocks and shares options as compensation and bonus

Threats

Southwest Airline has so far not engaged in strategies that promote the Airline’s ‘green’ and environment friendly image. This can be a threat as customers are increasingly involving environmental concerns in their purchase decisions.The company can react to unstable oil prices by hedging for oil prices

Strategic Direction for Growth Strategies

Business firms must undergo continuous growth and change in order to retain their relative position in the market and in order to improve their position, they must grow “twice as fast as that” (Ansoff, 1957, p.113). According to Ansoff, there are four growth strategies namely: market penetration, market development, product development and diversification. Southwest Airlines can pursue growth strategies as its strategic direction for the company. Based on Ansoff’s growth matrix, the following is the strategic growth direction strategies for Southwest Airlines:

Products
ExistingNew
MarketExistingMarket Penetration and ConsolidationProduct Development
This should be a key strategic direction for the company. Southwest Airlines should consolidate existing routes and increase its market share on existing routes. The company should also exist from its current routes with low customer volumes where many of the flight seats go empty.Southwest Airlines should expand into ancillary products and services such as car rentals, hotels and accommodations, taxi services, etc. This could be a good strategic fit for its popular destinations. These services should also adhere to its corporate strategy of best value for the money and lowest costs.
NewMarket DevelopmentDiversification
The company should continue to explore new destinations to expand its business operations. It can be a profitable strategy.

Over the years, the company has associated several values with its brand image such as a highly competitive, survivor, and best value for the money. This brand equity could be used by the company to expand into related diversification such as, catering and hospitality business.
Expansion outside the US domestic market might not be a viable strategy for the company and it might be a diversion from the company’s core competenciesSouthwest Airlines’ diversification into long haul flight or flying more than point to point flights might not be a good diversification strategy as this would again be a drastic shift from the company’s core competencies

Evaluation of Strategic Options

According to Goold and Luchs (1993), the management literature and practice has extensively explored how organizations could best exploit their corporate expertise since the early 1990s. This exploration led to the emergence of themes such as core competencies and dominant logic view in formulation corporate strategic direction for companies. Based on these views, three important principles have emerged for corporate growth strategy:

Growth and diversification should be limited to those businesses that generate synergy; synergy occurs when the performance of several products and services (or businesses) adds up to more than the sum of its parts. It pertains to the creation of economies of scales in that two or more products/services or businesses can lower their costs by combining operations or manufacturing facilities, using common sales force or advertise jointly (Thompson and Martin, 2005).
The corporate strategy focus should be on exploiting core competences across a diverse product and service portfolio, and,
Successful growth strategies depend on building a portfolio of businesses or products/services which fit with the managerial “dominant logic” of top executives and their management style.

(Goold and Luchs, 1993; Lasserre, 2003)

Coinciding with this dominant business view, the aforementioned strategic directions for Southwest Airlines are deemed suitable and viable for its corporate growth. For instance all the aforementioned strategic options for Southwest Airlines pertain to:

• Using the airlines strong customer base to sell ancillary products;
• Further advancing its e-commerce services;
• Promoting its Triple Bottom line for ‘green’ image
• And enhancing the company’s human resource policies

All of these options are based on the Southwest existing core competencies and management dominant logic view as identified in the internal analysis.

Similarly the company’s growth and diversification strategies, which pertain to:

• Consolidation of existing markets
• Refraining from diversification is un-related products and services (long haul flight, international flights, hubs-spoke flights)
• Expansion into ancillary products and services and new profitable destinations within US
• And diversification through related business (hospitality and catering)

All of these options reaffirm the company’s core competencies and management dominant logic view along with creating synergies for the company.

Conclusion

Southwest Airlines has faced fierce competitive environment and averted intense market entry barriers over the years to emerge as a highly successful and sustainable airline business. It operates in an industry with high bargaining power of suppliers and customers and strong rivalry from well established competitors. The company has successfully mitigated political hurdles and used its core competencies towards its advantage in an economic environment where others have scaled down. Moreover, the company has used technologies in its favor to sustain efficiency in its business operations. The internal strengths of the company lie within its corporate culture, and motivated and committed workforce. It core competency pertains to its point to point, no-frill, low-cost and low-price air travel service business model.

Concluding this strategic analysis, this essay recommends Southwest airlines to implement strategic options and embark upon growth and diversification strategies which reaffirm the company’s aforementioned core competencies and further advance its internal strengths. These strategic directions are vital for the company’s continued growth and survival in the upcoming years within its respective industry.

Macro Analysis

To assess the macro-environment of Southwest Airlines, a PESTEL analysis will be used. By assessing the Political, Economic, Social, Technological, Environmental and Legal factors, the Opportunities and Threats can be faced by a company can be identified. Future trends and requirements for change based on these trends can be identified through this analytical tool (Johnson, et al, 2008).

Political and Legal factors

Southwest Airlines domestic operations are significantly influenced by government bodies; primarily Federal Aviation Administration (FAA) (see www.faa.gov). For instance, the 1979 ‘Wright Amendment’ prohibited the airline to fly non-stop or provide through-plane service from Dallas Love Field to any other than 7 permitted cities. Recently, a law has been passed to repeal the Wright Amendment to be in effect in 2014 (Thompson and Gamble, 2012).

Southwest Airlines has on numerous occasions won legal battles against rivals in the US courts (Thompson and Gamble, 2012).

Economic factors

Airline industry is severely affected by fuels costs. A rise in the price of oil has a major impact upon Southwest Airlines profitability (Mouawad, 2010). The future trends of oil prices are volatile and the fuels cost account for almost 40% of airlines operational costs (Thompson and Gamble, 2012).

Due to economic downturn, customers’ demand for air travel has reduced due to cuts in personal and business expenses across the US; however, the consumer demand for low-fares no-frills air travel has remained undeterred and indeed undergone growth (Southwest, 2010).

Social Factors

Southwest Airline has a strong commitment towards customer service (Thompson and Gamble, 2012).

The overall viewpoint of Southwest Airlines’ is that the company is ‘in the customer service business — it just happens to fly airplanes.’
The company hires a customer service aspirant for employment based on their attitude, regardless of experience.
There is a position of ‘Vice President of Customers’ established within the company.

(Campbell, 2010)

Technological factors

Technological developments have both created new opportunities as well as threats for Southwest Airlines.

Emergence of information and communication technologies has enabled robust communication and subsequently provided customers with an alternative for frequent travelling.
It has also enabled Southwest Airline to expand its outreach directly to consumers through e-commerce. For instance, Southwest Airlines was able to introduce ticketless travel through the use of technology (Thompson and Gamble, 2012).
Southwest Airlines reservation system is considered to be outdated. It needs to update so that the company can sell international tickets, provide passport information to federal authorities, and better handle customer relationships, along with other services (Mouawad, 2010).

Environmental factors

The aircraft’s emissions have a higher impact to the environment as they travel several kilometers above the surface of the earth.

Aircraft emissions cause significant damage to the atmosphere (Penner et al. 2001).

The community noise is another major environmental concern.

Noise from the air traffic is not only the reason for irritation and an unpleasant experience and has serious health issues. (“Aircraft Noise is Unhealthy”, 2008).
Industry Analysis

Porter’s five forces

In order to analyze the industrial environment of Southwest Airlines and evaluate the nature of the competition faced by the company, this essay uses Porter’s Five Forces tool developed by Porter E.M (Porter, 2008). The Five Forces analysis is as follows:

Competitive Rivalry

The competitive rivalry in airline industry has been increasing especially through mergers and acquisitions. Delta Air Lines, which acquired Northwest Airlines in 2008 and recently merged with United Airlines and Continental, have become formidable rivals. They are offering their passengers access to numerous cities throughout the US and connecting them to four continents of the world which Southwest Airlines does not do (Mouawad, 2010). Moreover, new rivals have emerged following the footsteps of Southwest. Airlines – such as JetBlue Airways and Allegiant Airlines – are threatening Southwest’s market share in the no-frill, low-price trade by offering lower costs and attending customer service (Mouawad, 2010).

Entry Barriers

There are high barriers to enter this industry as it requires a large initial capital investment. In conjunction with the price wars and low profit margins, it has become difficult to make profit in this industry. It is very common for airlines to project losses in their financial statements. Therefore a new entrant must be able to handle losses at the beginning. Another barrier to entry is the limited availability of landing slots at the US airports. The slots are already reserved by established airlines and are difficult to obtain especially in airports with high passenger demand (Czemy 2008).

Threat of Substitutes

There are many substitutes in terms of long distance travel such as cars, trains, ferries; and these are usually cheaper. However, air travel has the absolute advantage in terms of time. Hence, the threat of substitute is relatively low.

Bargaining power of suppliers

Boeing and Airbus are the main aircraft suppliers for large airlines. Boeing is the supplier of aircrafts to Southwest Airlines. During the last few years, Southwest Airlines has renewed some of its aircrafts with Boeing 737-800 aircraft and plans to completely switch over to them in near future (Southwest, 2013). Since there are high switching costs for Southwest Airlines from Boeing to Airbus – related to the training costs of pilots and training engineers to adapt to Airbus aircraft – the bargaining power of Boeing is high.

Also, Southwest Airlines is heavily depended upon on the price of oil for its profit margins, which implies high bargaining power of oil suppliers. Price hedging is limited and high rises in prices can manipulate Southwest’s fuel costs. Additionally, Southwest Airlines primarily uses regional airports and avoids large and expensive international airports. Hence, the bargaining power of both these suppliers is high (Thompson and Gamble, 2012).

Bargaining power of buyers

Consumers have high bargaining power which is mainly attributed to their price based preference. Receiving the same service, the consumers will select the airline which offers them best value for their money. Due to the widely available information technology tools, consumers have the ability to compare flights’ services and prices before making their final selection. Since the switching costs for customer is very low, the bargaining power of buyers is high.

Internal Analysis

Southwest Airlines gains its competitive advantage through its strategic capabilities that are gained from its resources and competences. Resources are the unique tangible and intangible assets of the company while competences are the ways that the organization uses its competences to gain competitive advantage (Johnson et al. 2008). It is through these resources and capabilities that the company can respond to its external environment and succeed. The following is an evaluation of Southwest Airlines internal resources and competencies.

In addition to Southwest’s strategic resources and competencies, it is also important to analyze the overall strategic direction of the company. For that purpose, this essay utilizes the strategic clock tool proposed by Johnson, Scholes and Whittingham (2008) (see fig 1.)

Considering this strategic clock, Southwest Airlines is positioned between number one and two, wherein it maintains lowest costs for its operations through its no-frill strategy.

Southwest Airlines Issues and Challenges Diagnosis

The following issues and challenges are identified for the company

The company’s existing information system is outdated and cannot serve international travelers, nor can it handle complex ticketing mechanisms.
Increased competition due to the emergence of other low-price, no frill carriers. Other full services airlines achieving economies of scale with increased mergers and acquisitions.
Southwest Airlines strict adherence to low-cost, no frill strategy and its inability to fly long routs and international destination may limit the company’s clientele in the long run. The company is missing on a significant customer segment that is willing to pay top dollar for a full service air travel.
Southwest Airlines’ integration with AirTran should be completed robustly.
Southwest Airlines needs to achieve higher aircraft efficiency to avert economic concerns regarding fuel costs and environmental concerns regarding high emission and noise pollution.
The company has been operation for more than 40 years and is regarded as one of the most profitable airlines companies in US. It no longer has the underdog image it used to have a decade ago. The company has high labor costs, stalled growth, and is looking more like a legacy carrier (Schnurman, 2012)
Despite being profitable in a challenging industrial environment, the company has faced losses in its profits (Schnurman, 2012). The company needs to regain its profits levels to ensure an upwards trend.
Strategic Options for Southwest Airlines

To formulate the strategic options for Southwest Airlines based on the aforementioned evaluation, this essay utilizes Ansoff’s strategic directions model. The Ansoff’s strategic directions model refers to different growth options that a company pursue as its strategic direction. These are market penetration-consolidation, product development, market development and diversification (Ansoff, 1957). (see fig 2.)

Market Penetration and Consolidation

Southwest Airlines should consolidate existing routes and increase its market share on existing routes. It should also plan to exist from less profitable routes.

Product Development

This should be a key strategic direction for the company. The company should move on with its plan to add 33 new Boeing 737-800s aircrafts and retire 40 of its Classic aircrafts, which will result in a combined fleet of 691 aircraft. With the new larger gauge -800s and additional seats, the company will be able to retain its level of seat capacity despite reducing the number of aircrafts by 7 (Southwest, 2013). This will help the company decrease its operational costs. The fuel and emission efficiency of these new aircrafts will also help the company to comply with environmental standards and bolster a ‘green image’.

Considering already low operating costs and an engrained philosophy of no lay off employees or salary cuts, Southwest should try to increase its revenues in order to mitigate the rising operational costs challenge. Southwest Airline should aim to attract more business travelers by offering more perks and amenities. Southwest Airlines should further expand into ancillary products and services offering such as car rentals, hotels, taxi services, etc. This could be a good strategic fit especially for its popular destinations.

Moreover, to advance the company network of flying routes and destinations, Southwest airlines should speedily complete transition from its existing reservation system towards a new robust information system that can enable it to serve international destinations and allow for other customer relationship management enhancements.

Market Development

The new Boeing 737-800s planes will allow Southwest Airlines to fly longer distances. This move would be significant because it will help the company to fly to destination such as Hawaii, and, for the first time, to destinations outside the United States (Southwest, 2013). With the acquisition of new aircrafts, the company should explore new long distances destinations.

An important strategic direction in this regards would be Southwest’s integration with AirTran network. Based on the joint schedules of both airlines, the combined network will serve 97 destinations. The acquisition of AirTran will help Southwest to attract more business travelers. It will enable the company to explore some popular destination such as Atlanta, one of the world’s busiest airports. Moreover, this acquisition will provide Southwest Airlines with expertise on international flights and expands its footing in New York and Washington. It will also enable Southwest Airlines to directly compete with full service players such as United and Continental, as well as American and Delta.

Diversification

In the next few years, the company should not embark upon diversification. Diversification at this stage might spread the company’s resources very thin as it is faced with challenges in its core business, and thus pose high risk of failures.

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