Southwest Strategic Analysis

SOUTHWEST AIRLINES

A Case Study

Prepared By: Tony Patterson

Prepared for: OL 421

October 26, 2007

INTRODUCTION

In 1971, Southwest Airlines was formed by Rollin King and Herb Kelleher in an effort to start an airline company with low fares that gets their passengers to their destination in a timely manner and that is fun to fly on. Southwest was started in Texas as a commuter airline between Dallas, San Antonio and Houston. Today, it is one of the largest airlines in the country. It took on many marketing strategies in the beginning to try enter the market and gain some market visibility including having flight hostesses dress in colorful hot pants and white knee-high boots, giving passengers free alcoholic beverages on flights, devising plans to lower turnaround time, and cutting fares.

As Southwest Airlines became more popular, it began to expand by offering flights to more cities across the country. While expanding the business, it continued to focus on customer satisfaction. In May of 1988, Southwest became the first airline to win the Triple Crown in a month. The Triple Crown is awarded to the airline with best on-time record, best baggage handling, and fewest customer complaints. Since then, Southwest has won the Triple Crown more than thirty times, including winning the annual award five times. Southwest established a frequent flyer program that takes number of trips into consideration as opposed to the number of miles, and has also launched other programs such as senior discounts, Fun Fares, Fun Packs and ticketless travel. Today, Southwest Airlines flies to 62 cities across the country and serves more than 80 million passengers a year.

Southwest Airlines has just a few key concerns facing the company currently. The biggest key concern at this time is the increased fear of flying in the United States since the terrorist attacks on September 11, 2001. This has put a damper on the airline industry as a whole, but Southwest Airlines has done a good job maintaining business. However, with an ensuing war overseas and the increased security at airports due to the terrorist attacks, Southwest needs to continue to differentiate itself from its competition in order to keep its market share.

Along with government required added security comes costs associated with it. More security devices, added wages and salaries for additional security personnel, and reconstruction of terminals to have secured gates that only authorized persons can access are just a few of the costs incurred by Southwest and other airlines. These costs need to be considered when setting airline fares. Southwest Airlines is known for its low fares - if it increases the fare too much, it might lose market share as people are going to think they are not getting what they pay for.

A third key concern is Southwest's lack of full service. Southwest does not offer baggage transfer services to other carriers, which means that passengers are responsible for picking up their own baggage and checking it in at their connecting carrier. This could be a hassle for passengers who do not have a long time between flights and are pressed for time. They could get frustrated and take their business to an airline that transfers their baggage for them. This may be a tactic for Southwest to keep their costs down, but it may be able to attract that many more customers if it offered full service and make enough profit to offset the costs.

CURRENT MISSION, GOALS AND STRATEGIES

Southwest Airlines' mission statement is the following (taken from www.southwest.com):

The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

To Our Employees

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's mission statement is brief and to the point. However, it lacks many of the components of a good mission statement. It does not address who its customers are, where the firm competes, whether the company is technologically current or not, whether the company is committed to long-term growth and financial health, and whether the company is responsive to social community, and environmental concerns. What it does address, however, is the company's philosophy, its self-concept, and concern for employees.

The company's distinctive competence is that it provides high quality services while being friendly, warm and engaging in the company's spirit and pride. Southwest is also very concerned for its employees. It believes that employees should come first before customers, and if the employees are trained correctly and are put in a stable work environment, Southwest believes that the concern and care it shows for its employees will transfer over to the customers through the employees. As for products and services that Southwest provides, it only provides flight services, therefore, you can imply from the name that that is what Southwest does. A more effective mission statement should address what kind of customers Southwest Airlines targets and should also discuss internal and external concerns.

Southwest Airlines does not have any real long-term objectives, other than to remain profitable and continue to expand. It has continually pursued a "low cost/low price/no frills" strategy, which has been very successful for it. As long as it adheres to this central strategy, Southwest will continue to be profitable and be one of the leaders in the airline industry.

Southwest continually employs the same strategies that got the airline company to where it is today. When expanding into new geographic regions of the country, Southwest tries to steer clear of congested airports to make it less of a hassle for its passengers by dealing with long waiting times.