Southwest Case #16 – Page C-208 – Please read entire assignment below before you begin.
This is based on the work we have done for chapters 2 & 3. Please see those lecture for guidance and send me your questions if you are not sure.
Read the case and do the following:
- Do an External Analysis to discover the Opportunities and Threats; include a 5 Forces Analysis and Key Success Factors
- General External Environment – include all areas which could impact the overall economy and companies in general
- Industry Environment – identify and discuss the industry in which Southwest operates – must include 5 Forces Analysis
- Competitor Analysis – who are Southwest’s direct competitors – do they vary depending on the flight destinations?
- Do an Internal Analysis – to discover the strengths and weaknesses of Southwest.
- Core Competencies – identify 2 to 3 competencies; include a lacking core competency if you discover one.
- Evaluate the Value Chain – where is there strength in the value chain and where can the chain be improved.
- Take the Strengths, Weaknesses, Opportunities and Threats and layout a SWOT matrix.
Please show all your analysis for both the External and Internal – this assignment will be, at a minimum, about 5 to 6 pages double spaced.
Here is the answer.
Southwest Airlines Case Study
Southwest Airlines Case Study
Southwest Airlines is among the leading airlines in the United States and globally. The company was started by Herb Kelleher on March 5, 1967, under the name Air Southwest Company (Alan & Campbell, 2017). It rebranded to Southwest Airlines Company in 1971 to position itself as a preferred brand in the aviation industry (Alan & Campbell, 2017). The rebranding also came with the launch of intrastate state routes that covered entire Texas. Currently, the company has the highest domestic flights in the United States with over one hundred destinations. The success of Southwest Airlines in the competitive aviation industry is due to various strategic plans adopted by its leadership to give it an edge over competitors. This paper conducts both external and internal analysis of the company to establish its strengths that give a cutting edge and weaknesses as well.
External factors present both opportunities and challenges to the company. The organization’s success depends on its ability to maneuver through the impediments while exploiting the opportunities presented by these factors. PESTEL provides an effective framework for analyzing the company’s external environment. The framework looks at the six critical external factors that act as key players in any industry. These factors interplay to create either a conducive or suppressive environment for the company.
The legal and political factors consist of various government legislation that guides airline operations in the country. The Federal Aviation Administration (FAA) is charged with the responsibility of developing policies that guide operations in the US airspace to ensure safety. All companies operating in the required to adhere to these regulations or risk facing fines or deregistration. FAA is responsible for regulating all commercial flights in the country and developing aviation technologies among other roles. Notably, these regulations often change over a given duration and the organizations are required to adhere to the new standards. In some cases, the companies have to invest millions of dollars to meet these new requirements. For example, the airlines incurred millions in fixing transponders on their aircraft after the FAA made it mandatory. The success of Southwest Airlines relies on a favorable legal and political environment in the country. Currently, the country has a favorable political and legal environment that encourages the growth of airlines.
Additionally, the economic factor is a critical player that directly impacts the organization’s ability to operate optimally. The growth of the aviation industry is directly linked to overall economic growth. An increase in the country’s per capita income indicates leads to growth in disposable income hence rising ability to spend more on air travels. The future of the aviation industry is promising and projected to experience steady growth of 2.5 percent for local flights and 3.2 percent for international flights between 2017 and 2038 (Nazulia, 2018). The rate of the country’s GDP growth is also projected to remain steady at around 2 two percent in the next few years (Amaded, 2019).
On the other hand, a decline in economic growth adversely impacts the company’s operation due to potentially huge losses due to declining passenger population. For example, the 2007-2008 economic crisis presented one of the challenging times to the aviation industry due to the declining passengers and increasing the cost of fuel. A report by the U.S. Department of Transportation released in 2012 revealed the devastating impacts the economic depression had on the airlines. According to the report, thirteen airlines filed for bankruptcy during the 2007/8 financial crisis (Office of the Inspector General, 2014). The report shows the role economic factors play in shaping the company’s prospects of future success. Turbulent economic times are likely to adversely impact its strategic growth plans due to declining revenues and increasing the cost of operations as witnessed in the 2007/8 financial crisis.
Technology is also increasingly causing disruption in the aviation industry and the organization needs to adapt to the changes or risk dying. The aviation industry is undergoing tremendous changes as companies seek to lower their operating costs. For example, companies have adopted e-ticketing systems to enhance accessibility while lowering the cost of hiring attendants. Similarly, airlines are investing in technologies that improve fuel economy to remain competitive in the market. As a result, the airline has to continuously replace its fleets to ensure it complies with the latest regulations outlined by IATA. Besides, running low-cost flights requires that it maintains its operating costs to the lowest possible.
The dynamics in the aviation industry also have a significant impact on Southwest Airlines’ operation. These dynamics range from market competition, potential threats from new players, customer’s bargaining to the influence of suppliers on the organization. Porter’s five forces analysis model is an effective approach in examining the potential threats to Southwest Airlines. The model looks at five key industrial forces that shape the direction an organization is likely to take. Southwest Airlines’ success relies on its ability to understand its competitors thus develop strategies to give it an edge.
The U.S. aviation industry is a free market where companies can join or leave so long as they meet the regulations set by the FAA. However, the high cost of starting an airline restricts the number of potential entrants into the industry thus lowering threats from new players. Currently, Southwest Airline face competition from other low-cost airlines like Jetblue. As a result, the company needs to focus on increasing its market share to stifle competition from its main rival. Notably, Southwest Airlines offer similar services as its competitors thus giving customers strong bargaining power. They can opt for Jetblue or any other airline if they perceive its products uncompetitive.
Besides Jetblue, Southwest Airlines is facing competition from other companies that operate on various routes like American Airlines, Delta, and Alaska Airlines among others. Primarily, Jetblue is presenting major competition in domestic flights. However, the company has to compete with state-owned airlines that operate on various routes like the Caribbean and Central America. State-owned airlines enjoy subsidy from the government thus giving them a competitive advantage. Moreover, Southwest Airlines’ competition from various fronts- based on each route, exposes it possible unfair trade practices. Regardless, the company has adopted an effective model that focuses on affordability and customer satisfaction thus giving it a competitive advantage.
Despite the intensive competition, Southwest has created the market niche that gives it an advantage over most of the competitors. Firstly, the organization premiered itself as budget airline thus disrupting the industry that was perceived to belong to the rich. The company’s slogan “Low fares. Nothing to hide. That’s transafarency” captures its objective and target market. Additionally, the company incorporated the concept of simplicity in its operation by adopting point-to-point destinations. Some commercial airlines still rely on commercial airports which are usually busy thus causing delays to the customers. Southwest exploits the competitive advantage presented by point-to-point destinations by providing departures. Besides, this mode of operation ensures their planes spend less time on the ground compared to some of its competitors.
Southwest Airlines has also cut its competitive advantage through its cost structure that seeks to provide services at the lowest value possible. The company has invested in short-haul intrastate flights that last an average of sixty minutes. Intrastate flights, primarily, provides alternative to individuals who would otherwise drive to their destination by reducing their travel duration. Consequently, the organization taps on the market that remains unserved by other airlines.
The company has also adopted a sustainable business model thus cushioning it from potential market ripples. Currently, the Southwest Airlines business model remains imitable as it breaks away from the hierarchal organization structure common in many airlines (Thomas, 2017). Hierarchal management structures disconnect the organization’s leadership with its employees. On the contrary, Southwest Airlines adopts a flat organizational structure that enhances communication and corporation between the company’s leadership and its employees (Thomas, 2017). The management structure is one of the major contributing factors to the company’s success despite the competition from other established firms.
In conclusion, Southwest Airlines’ prospects look promising considering the country’s economy is projected to maintain an average of two percent growth rate in GDP. Economic, political, legal, and technology are some of the external factors that directly impact its operations. However, the country enjoys political stability and a reliable legal framework thus creating an enabling environment for it to thrive. Additionally, the company targets low cost and short-haul flights thus exploiting the untapped market. Finally, its flat organizational structure enhances efficiency leading to optimum performance. Southwest Airlines will remain a strong player in the U.S. aviation industry for a very long time.
Alan, B., & Campbell, B. (2017). Public Benefits and Private Success: The Southwest Effect Revisited.
Amaded, K. (2019, August 27). US Economic Outlook for 2019 and Beyond. Retrieved from The balance : https://www.thebalance.com/us-economic-outlook-3305669
Nazulia, N. (2018, March 20). FAA Forecasts Strong Growth in Aviation Over Next Two Decades. Retrieved from Aviation Today: https://www.aviationtoday.com/2018/03/20/faa-forecasts-strong-growth-aviation-next-two-decades/
Office of the Inspector General. (2014). AVIATION INDUSTRY PERFORMANCE: A Review of the Aviation Industry, 2008–2011. washington D.C: U.S. Depratment of Transportation. Retrieved October 02, 2019, from https://www.oig.dot.gov/sites/default/files/Aviation%20Industry%20Performance%5E9-24-12.pdf
Thomas, W. J. (2017). Developing a virtuous organizational culture. Handbook of virtue ethics in business and management, 623-634.