Southwest Airlines

Mission statement:-

Introduction:-

In 1971, Rollin King and Herb Kelleher started an airline service 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 sure they have a good time doing it, people will fly your airline." They were right about that. Southwest Airline is now a major airline, in fact, the fourth largest airliner in the United States.

Southwest Airlines started its operations from June 18, 1971 with flights to Houston, Dallas, and San Antonio. Southwest has grown to become the third largest U.S. domestic airline. Southwest was the only major carrier in 1990, 1991, and 1992 to make both net and operating profits. Southwest became a major airline in 1990 when it exceeded the billion-dollar revenue mark. Southwest is the United States’ only major short haul, low-fare, high frequency, point-to-point carrier.

Internal Analysis:

Industry Strengths:

пÑ"? Southwest airline is ranked as third largest airline company and flies to 64 cities and 32 states in continental United States. Southwest is known for its good customer service image.

Competitive advantages:

пÑ"? Southwest’s competitive advantage is its lowest fare compared to any other airlines. This has been achieved by using single line type of aircraft, which is very easy to operate, maintain and schedule.

пÑ"? Southwest is known for its commitment towards customer services. It was elected as the best airline for service many times and is consistently ranked as the best airline to fly. Southwest airlines were chosen as Best low cost carrier by the readers of Executive Travel Magazine in 2006.

Technological advancements:

пÑ"? Southwest introduces the concept of launching website which helps them in cutting their cost. Southwest Airlines is the first airline to introduce the concept of e-ticket and the reservations can be done online.

пÑ"? In the year 2006, more than 94% of its customers chose the ticket less travel option and over 70% of passenger revenues came through its website. All these factors have helped the company cut costs and be more efficient compared to its competitors.

пÑ"? Even with the increased security requirements after 9/11, Southwest did not suffer because of its automated system and kept its good customer service image.

пÑ"? Southwest hedged its fuel costs until 2010 at an average price of $51 per barrel. This is going to help it face the problem of rising fuel costs and will enable it to cut the costs on fuel.

пÑ"? It uses only one type of aircraft, the Boeing 737, which helps it cut costs on maintenance and service. The return on assets (ROA) of Southwest airlines is higher than its competitors. Its return on assets and return on investments as per the five years average were 3.4% and 4.3% respectively higher than the negative industry averages of 3.5% and 3.9% for the same period.

Weakness:

Operational drawbacks:

пÑ"? Southwest airlines has operations only to 64 cities in 32 states. As it operates mostly point to point services, the places it serves are limited when compared to other airlines that operate on a hub which might limit its ability to expand.

Passengers’ dependency:

пÑ"? Revenue is totally depended on passengers’ transportations (96.3% in 2006). This has more risk than other companies as ticket sales are more demand elastic when compared to cargo. More over recent decline in the economy has greater chances to impact its business.

пÑ"? Southwest Airline has a lower inventory turnover ratio (1.4363). There is an increase in inventory holding cost which impacts on revenue growths and margins.

пÑ"? Southwest has only a single class on all of its flights and there is no seat reservation. Although this helps southwest to cut down on turnaround times, it may put off some passengers who demand more convenience.

пÑ"? Airport capacity constraints and air traffic control inefficiencies could limit the Company’s growth; changes in or additional governmental regulation could increase the Company’s operating costs or otherwise limit the Company’s ability to conduct business.

External Analysis:

Opportunities:

Time value:

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