Southwest Airlines – An Entrepreneurial Revolution in the Airline Industry
Southwest Airlines is a company that started its entrepreneurial efforts in 1967 and overtime became a breakthrough success because of the company’s ability to serve a new market purpose in the airline industry. In 1967, Rollin King and Herbert Kelleher founded Southwest Airlines with an idea to change the way people fly (About Southwest, 2017). Today, Southwest Airlines carries the most domestic passengers than any other US airline and has been profitable for the last 40 years. How did Southwest Airlines start as two entrepreneur’s idea and become the multibillion-dollar company it is today? By evaluating the company’s strategy, business model, innovation efforts, and the way they avoided their competitors, this question can be answered.
In 1967, Rollin King and Herbert Kelleher had an idea to transform the airline market. These entrepreneurs wanted to disrupt business travel by creating air travel with low airfares, efficient operations, and customer benefits. When co-founders King and Kelleher first started their entrepreneurial effort, the airline was known as Air Southwest which then adopted its current name in 1971 when they launched their first operations consisting of only four planes flying to three cities within the state of Texas. By 1975, King and Kelleher expanded their flights to fly to more cities throughout Texas and advanced to neighboring states in the southwest by 1978. It was then in 1977 and 1978 that the start-up company became profitable and expanded the airline throughout the United States (About Southwest, 2017).
Southwest Airlines became successful because of its solid business model that focused on the customer. From the very beginning, Southwest created the lowest fares comparable for people to travel. One of the key components to the company’s low flight prices is the use of one type of airplane, the Boeing 737. The Boeing 737 is a short to medium-range twinjet narrow-body airplane that has excellent reliability and great fuel-efficiency. By using one type of jet, Southwest saves millions in yearly fuel costs, operating costs, and maintenance costs. The jet seats passengers in a single coach cabin that excludes any type of first-class seating. The airline also makes its commitment to low-cost solutions by eliminating a wide variety of amenities such as numerous drink options and in-flight meals. However, customers are still treated with free snacks and one complimentary drink. This allows flights to reduce restocking time when they are at a gate, making turnarounds more efficient. Southwest Airlines also focused it operations to fly mostly from smaller airports in order to avoid large-airport congestion and reduce costs involved with delays and ground time. All these key cost-effective efforts allow the company to offer low fares on flights which lead to a higher demand from customers.
This profitable business model stems from a successful strategic plan from Southwest Airlines. Southwest’s strategy gives them a competitive advantage and sets the company apart from other airline companies. In the quest for competitive advantage, the co-founders and entrepreneurs had to look at an integrative management field that combines analysis, formulation, and implementation. The first element to a good strategy falls in the analysis category therefore co-founders King and Kelleher had to identify the organization’s mission. From the very beginning before the company launched operations, the co-founders defined the organization’s mission as the “dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (About Southwest, 2017). This dedication to customer service and giving the customer what they want is one of major reasons Southwest Airlines was able to outperform the competition. The second element to a good strategy is external and internal analysis including opportunities, threats, strengths, and weaknesses which is also known as a SWOT analysis. Performing a SWOT analysis is crucial to a company’s success as the evaluation helps the company take the greatest advantage of opportunities available. The next elements of a good strategy include formulating and implementing the strategy then evaluating the results. It is important for a company to have a strategy because without one there is no clear and compelling direction for the organization. Southwest has done a wonderful job creating a clear mission that is reinforced constantly through its employees, advertising campaign, and brand name.
The three generic types of strategies include cost leadership, differentiation, and focus. While Southwest Airlines reflects a portion of the three generic strategies, the main one that sets this company apart from others is cost leadership. Since 1967, Southwest Airlines has had a commitment to low airfares that are considerably cheaper compared to other airline companies. These low fares are the main strategic component of the organization which was never before introduced by other airline companies. Low fares compel seats to fill with people who could never before afford to fly which transformed the airline industry immediately.
Southwest’s use of new low air fares is reflected in a Blue Ocean strategy. Key factors of a Blue Ocean strategy include that the organization creates uncontested market space and captures new demand by eliminating, reducing, raising, and creating factors specific to the company compared to the airline industry as a whole. Southwest eliminated the use of several different models of jets. The industry took this for granted because with the use of several jet models owned by one airline company, it results in high operating and maintenance costs at the end of every year. Southwest also eliminated first-class sections in airplanes which allows the eliminated space to create more business-class seating that offers slightly more room than different airlines would for business-class. Factors that were reduced well below the industry’s standards were the wide variety of amenities offered to customers during the flight including meals on board and several drink options. By reducing these amenities, Southwest has lessened the restocking time allowing for a quicker airplane turnaround. While many factors were eliminated and reduced, Southwest was able to raise and create factors above industry standards to create uncontested market space. Southwest Airlines raised their customer service higher than any other airline which consisted of unmatched friendly onboard service that resulted in happy and loyal customers. The last and most important factor was that Southwest created affordable flight prices that allowed people to travel by air that could never before afford to. All these factors combined created Southwest’s Blue Ocean strategy which created uncontested market space and made competition irrelevant for the new demand.
Southwest Airlines used customer-driven innovation and gave customers low airfares and quick flights. These flights were swift and painless because they were based mainly out of small airports to avoid the congestion and the possibility of delays at larger airports. As Southwest Airlines has grown over the years and dominated the smaller airports, they have started to take a Red Ocean approach by advancing to larger airports to try and outperform the larger competitors. Domestically, Southwest Airlines biggest competitors are the big brand airlines including United, Delta, and American Airlines. One edge that Southwest has over its competitors in large airports is customer loyalty. Southwest is dedicated to its customers and low fares regardless what size of airports they are operating from. This customer loyalty allows Southwest to retain customers in the large airports as well.
In the later developments of the Southwest business plan with a Red Ocean Strategy in mind, the company again revolutionized the airline industry. In 2009, Southwest added “bags fly free” to the company’s business plan which allowed customer’s flying with Southwest Airlines to check two bags under 50 pounds for free. As of 2009 and still today, no other airline offers two free checked bags. The closest competing airlines have come to Southwest’s free bags policy is JetBlue which created a $15 charge for checked luggage in 2015. This free bag policy adds to Southwest’s competitive advantage and gives customer’s added incentive to fly with the airline.
Another way Southwest Airlines has made their customers happy is by taking care of their employees. Empowering the front lines is an essential part of Southwest’s business plan and innovation process. This business plan gives lower-level employees a voice that is heard. Compared to other competing airlines, Southwest pays their employees well and offers great benefits along with flexible scheduling. The company even openly admitted that it values employee happiness more than customer service. This dedication to employees makes Southwest a company that people want to work for and on average, employees at Southwest are happier than those at competing airline companies. Happy employees boost the in-flight customer experience which in turn creates happier customers.
In 1967, Rollin King and Herbert Kelleher had an idea to change the way people fly. These entrepreneurs created an uncontested market space and captured new demand by creating affordable flights that were easy and painless for the customer. Southwest focused on the wants of customers while also valuing their employee’s happiness. Their Blue Ocean and cost differentiation strategy with significantly low air fares made competitors irrelevant. Southwest cut out large gestures, luxurious flights, and several amenities and instead executed the little things. Since the beginning developments and expansion of Southwest Airlines, the company has added more customer benefits to compete with other large airline companies such as the free bag policy. The company that started as a small entrepreneurial establishment focused on a solid business plan, innovation efforts, calculated response to competition, and strategies that resulted in a highly profitable and successful airline industry that has become one of the most flown airlines in the United States.
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