Business Policy and Integrative Summary
Case Analysis: Southwest Airlines (SWA)
Southwest Airlines (SWA) is a competitive Airline that ferries passengers in the United States. In fiscal 2008 December 31st, SWA offered services to about 64 cities within 32states with U.S Market niche. According to Ben-Y�sef (2005), roughly 78% of SWA’s clients take a non-stop flight on regular basis. Predominantly, the company services are short-haul routes entailing high frequencies. Such services are complemented by medium towards long-haul routes, with transcontinental services inclusive as well.
Within the fiscal 2008, SWA had an average length of stage aircraft trip of 636miles, duration averaging at an approximate of 1.8hours. Mission statement for SWA in dedication of quality standard, customer service, full of warmth, individual pride, friendliness and company spirit, has been strong competitive edge. SWA’s mission always highlights the company’s desire in serving diverse customers, specifically offering directions when decisions related to the clients are being undertaken. Customer satisfaction within the industry has also been achieved driven by the firm’s mission statement, as indicated by the transportation department is the U.S.
SWA has been in the forefront to avail convenience its excellent services to various clients, on effective service-delivery strategy (Cento, 2008). The firm’s Customer Service Commitment has been incorporated in firm’s official contract on carriage. Such an action has facilitated reinforcement in pledging to avail affordable, safe, timely, reliable, efficient and courteous air transportation or services offered in handling baggage in all flights. Similarly, such pledges ensure fair returns in organization’s shareholders investments. SWA business model or strategy has been copied worldwide, and it has been an inspiration to other cheap airlines such as Ryanair and EasyJet. SWA airline has adopted the plan of profit sharing from the U.S airline industry. Such a plan in addition to others has enabled employee-base to own approximately 10% stock of the company. Unionization of SWA is rated 87% with the pilots association being a fully recognized union representing the pilots (Doganis, 2006).
Boeing 737 sustenance has enabled the airline minimize the costs of operation, thereby simplifying maintenance, training or ground operations. Application of fuel hedging financial technique has facilitated the company’s bolstering of its profitability and thwart most of the fiscal disadvantages within the airline field (Page, 2009). Southwest airlines have specialized on a strategy based on internal growth and causing limitations to explore the international routing. In order to maintain profit margins, SWA has been very proactive and aggressive in containing fuel costs thereby earning the company a great reputation.
SWA has been faced by an increasing exposure to a raw oil market yearly and high stiff competition due to the U.S legacy carriers in reducing fuel cost. Southwest recorded the first loss in 2008 due to the fuel hedging contracts which had less value due to oil price reduction. Adoption of pressure washing system belonging to Ecopower-water improves fuel efficiency. Such a system is aimed at cleaning contaminants or grime, off the engines turbine blades while the aircraft is still packed at the gate. According to Cento (2008), SWA was among the first airlines to own website, where customers would view route maps, schedules or information on the company. Adoption of the technological applications enabled various clients to make flight bookings online. 2009 investigations by a maintenance company from outside revealed that Southwest airlines had 10% improper parts on its jets.
Southwest airlines have been rated to have the best quick turnaround services, taking 20-30minutes with flights above 3300 daily. More efficient crews can even take 15minutes. SWA operates and serves 68destinations within 35states. Intense competition and congestion within some airports has not been cost effective for Southwest, resulting into 15states not covered by Southwest services. Southwest only serves few destinations outside U.S indirectly via codeshare partners while other cheaper carriers serve international markets directly (Healy et al, 2007).
Internal Factors: SWOT Analysis
Strengths
Southwest Airlines provides a remarkable and innovative environment to its workforce in order to facilitate excellence service delivery. For example, by the adoption of profit sharing strategy from the U.S, the company has ensured ownership of 10% of the company’s stock by employees (Ben-Y�sef, 2005). Promoting a culture of positive warm employees has enabled the company to confront the competition within the airline business. Similarly, the company has adopted a recommendable customer service strategy which has been its drive in all its operations. SWA customer services have been of standard quality, full of warmth, individual pride, friendliness and innovative company spirit. Thirdly, adoption of fuel hedging and Boeing 737 sustenance has enabled the company to generate high levels of profits plus thwarting fiscal disadvantages within the business operations. With Boeing 737, operation costs have been reduced due to maintenance, training and ground operations (Middleton & Asprey, 2003).
Weaknesses
SWA concentration on the strategy of internal growth has served as a draw back factor for the company. This is because the airline has been incapacitated to venture into the international routing directly, giving an opportunity to the cheaper airlines to venture those markets. Secondly, the Southwest airlines have been exposed to raw oil market every year and exposure to stiff competition as well. Such a state has been facilitated by the U.S legacy carrier’s adoption of fuel costs reduction attributable to bankruptcy issues. Similarly, reduction in oil prices led to the SWA reporting loss margin within a period of 17years in fiscal 2008 (Middleton & Asprey, 2003). This scenario was facilitated by its fuel hedging contracts which were perceived to be of less value owing to declining gasoline prices. Finally, SWA was found to be offering unsafe flights according to an outside maintenance company investigation. Such an action was rated as severe an irregularity by the Federal Aviation Administration (i.e. FAA) and the company thereby suffering a fine under FAA ruing of nearly 10.2million.
Opportunities
Southwest airlines have an opportunity to venture into international market airlines directly. Just as SWA had purposed to codeshare with ATA prior to its shutdown to initiate international flights in fiscal 2009, the goal should not be discarded. Southwest should be vigilant in quickening the codeshare agreement with Canada as previously purposed and ensure implementation (Gittel, 2005). SWA should negotiate with Flight and Pilot attendant work groups for a contractual agreement so as to seize the opportunities and advantages that come with the international operations. Secondly, SWA has an opportunity in expanding its reach among local customers under its seating system. SWA’s seating system has been dependant on the time of client’s arrival. SWA should adopt a system of assigned seats which would serve partly as a reservations technology, hence promoting convenience and efficient services among customers. In addition, SWA has an opportunity to upgrade its competitive edge with the cheaper airlines which have had free and direct entry into the international airports. Some of these airports have demonstrated tough competition and their grounds are congested. Southwest Airlines should work towards venturing into these markets and cover the 15markets that they have not covered.
Threats
Due to its booming reputation, Southwest airlines are being faced with the threat of its website falling in the hands of illegal users. As observed with the boardfirst.com in the federal district at Dallas, the company had illegally or impermissibly used commercially SWA’s website in adopting a customers’ boarding group system, which had earlier been rejected by SWA. However, the company was shutdown due to the irregularity. Secondly, SWA faces a big threat in loosing business to its competitors who may capitalize on its aircraft safety issue to reach-out to global clienteles (Cento, 2008). Claims of impending danger due to the jets having improper parts should raise an alarm to Southwest airlines. Finally, SWA faces a threat in profit decline. SWA application of hedging and purchase of fuel options in advance can place the business at a risk. Nevertheless, even though in the past the situation has facilitated fuel costs balancing, it’s never a guarantee that this will always be the case. Fuel costs may reduce in the future, making the company to make huge losses (Cohen, 2004).
Growth Strategies
SWA has several strategies that it can apply to counteract its constraints within the Airline market. First, Codesharing strategy would enable it to venture international market directly. This growth strategy would yield fruits if adopted in the first three-years to some. In year one, SWA may settle for joint venture in volatile niches in global market. Secondly, adopting a safeguarding measure strategy for its properties such as its website to prevent illegal users would bear fruits. Thirdly, Southwest airlines can apply improvement strategy to its aircrafts to ensure customer safety. This ought to be a continuous procedure throughout 5 year period. Similarly, SWA can adopt wage review for its employees in order to boost employees’ morale in workplace. This can be adopted in the final phase after going global under joint venture in year three.
Plan of action and implementation
Codesharing strategy should be highly adopted by the Southwest airlines. Such an initiative within the first and second phase would ensure the company’s venture into markets that were prohibited previously. SWA would also gain in safeguarding a larger market share, allowing it to service international markets. With such an opportunity, the company will be capable of counteracting the competition rate from other airline. Similarly, in the third phase SWA can incorporate adoption of a strategy in safeguarding measures to its website, to avoid illegal users such as the Boardfirst .com. Such a strategy would ensure that no other corporations misuse Southwest airlines achievements for its own selfish gains (Berghe & Verweire, 2004). Additionally, in the fourth phase, SWA can undertake an improvement strategy to its aircrafts to ensure safety of its customers.
Previously, claims of Southwest airlines being unsafe was threatening, and would cost the business progress incase the FAA took action. Southwest airlines can establish networks and contacts with the jets manufacturers to ensure they supply quality aircrafts. SWA’s employees seem to be enjoying a friendly environment. For future anticipations, the company should adopt a strategy on employees’ wages review within the fifth phase. Such a step would give promising returns in the future and ensure the company’s customer base is enlarged. This is because employe
Methodology to evaluate effectiveness of the strategy implementation
For every strategy implemented, it’s very important to evaluate the results. For SWA to know how the strategies have been effective, they can analyze the performance for the last 5years of operations (Berghe & Verweire, 2004). Performance evaluations will be based on revenue outcomes, profitability, customer base or the extra market share acquired within the previous 5operational years.
Conclusion
As drawn from analysis above, it’s important for SWA to continuously evaluate operations in order to secure a more reputable customer base, higher profitability, larger market share or even revenue earnings. Such distinct achievement can only be achieved by keenly evaluating the threats, and weakness the company faces and act on them. With such a support, the company can withstand stiff competition from upcoming and existing airline.
References
Berghe, L. & Verweire, K. (2004). Integrated performance management: a guide to strategy implementation. New York, U.S.A: SAGE publishers. New York, U.S.A: SAGE publishers.
Ben-Y�sef, E. (2005). The evolution of the US airline industry. Morristown, NJ: Springer Publishers.
Cohen, W. (2004). The art of the strategist. New York, U.S.A: AMACOM Div American Mgmt Assn publishers.
Cento, A. (2008). The Airline Industry: Challenges in the 21st Century. Oxford, UK: Springer Publishers.
Doganis, R. (2006). The airline business. Auckland New Zealand: Cengage Learning publishers.
Gittel, J. (2005). The Southwest Airlines way: using the power of relationships to achieve high performance. London, UK: McGraw-Hill Professional publishers.
Grant, T. (2001). International directory of company histories, Volume 39. Farming Hills, Michigan: St. James Press publishers.
Healy, P. Peek, E. & Palepu, K. (2007). Business analysis and Valuation. Sydney, Australia: Cengage Learning EMEA publishers.
Middleton, M. & Asprey, L. (2003). Integrative document and content management: strategies for exploiting enterprise knowledge.
Chocolate Avenue, Hershey: Sherldea Group Inc (IGI) publishers.
Page, S. (2009). Tourism management: Managing for change. Oxford, U.K: Butterworth-Heinemann publishers.