Southwest Airlines Internal Analysis Introduction This internal business analysis is on Southwest Airlines, which was founded in 1967 by Rollin King and Herb Kelleher. The main focus for Southwest Airlines was to provide low cost flights for their customers, and also have exceptional customer satisfaction. Southwest is a leading airline company that continues to do well in an industry that has been historically challenging. For instance, in the span of two years (2005-2007) five major airlines have filed for bankruptcy.
The challenges are great in the airline industry, because competitors are trying to imitate the “low-cost” offering of Southwest. Many companies have tried to do what Southwest has done, and many have failed to stay in business. Surprisingly, many of those companies were started by ex-employees of Southwest. Southwest currently has a profitability record for the past thirty six years, which is spectacular in such a challenging industry. Herb Kelleher has been replaced by Gary C. Kelly, as the president when he resigned in May of 2008.
Southwest is in the process of expanding the locations they serve so that they can increase market share, and also find ways to cut costs without losing their quality. In order for southwest to continue their consecutive financial success there is a necessity for excellence in the execution process of their strategy. Business Level Strategy The business level strategy (BLS) that Southwest focuses on is Cost Leadership. They are the leading airline in the United States for providing low-cost fares to their broad customer base.
Southwest has found innovative ways to reduce cost within their cost structure enabling them to offer lower fares than competitors and still maintain a profit. One way that has helped Southwest save time and money is their standardization of their airline fleet. This tactic is known as the “one-model-fleet” by the airline. Having a single airplane model in a fleet has allowed Southwest to “lower inventory, record keeping and maintenance costs, and it minimizes the number of technical manuals, tools and spare parts. ” Another methodology that has layed an important role in their thirty six years of profitability is their fuel hedging practices they’ve practiced since the late nineties. This tactic has saved the company millions of dollars, and in 2007 alone has saved the company 727 million dollars. Another cost saving measure that Southwest has implemented is the use of blended winglets on all of their 737-700’s models. This change is supposed to improve performance by extending the airplanes range, saving fuel, and lowering engine maintenance costs and reducing takeoff noise. More recently, Southwest began to use EcoPower engine wash services.
This is going to allow Southwest to save an estimated $20 million dollars in fuel costs. All of these tactics by Southwest are designed to save on expenses that they incur doing business. Many airlines cut cost by laying off employees, but Southwest has established a “no layoff policy” that is currently still in effect. This shows how committed the company is to their employees, and how they are an integral part of their business. Resources Southwest has plenty of resources that have contributed to their success as an airline company. Their intangible resources have created their competitive advantage in relation to their competitors.
The reason for that is the simple fact that their tangible resources are not difficult to replicate. It’s the technique that Southwest uses to connect their resources that has enabled them to be successful in the airline industry. Their tangible and intangible resources are as follows: Tangible: The main tangible resources that Southwest has are its training center, employees, headquarter facility, acquisitions, partnerships, take off and landing spots, frequent flyer reward program, self-service check-in kiosks, and their fleet aircrafts.
In 1986, Southwest opened a multi-million dollar training center for their flight crews. As all businesses, employees are necessary if you’re conducting business on a large scale. The connection between Southwest and its customers are their employees, which makes the employees role that much more important. Although, the employees are tangible, the culture of the employees is intangible aspect that has been difficult for competitors to imitate. The training center for their employees was an investment Southwest made early on knowing its importance to the long term success for the company.
The headquarters for Southwest is another tangible resource, which is located in Dallas. The headquarter similar to many other companies allow top management to effectively communicate the organizational goals of the company. Acquisitions and partnerships that Southwest has completed throughout their duration allow the company to expand their services to more than 64 cities in the United States, and obtain more take-off and landing spots. The frequent flyer program is another tangible resource that Southwest possesses, but interestingly has not had a major impact on Southwest’s bottom line.
With the help of IBM, Southwest was able to offer about 250 self-service check-in kiosks. The reason for having the kiosks for their customers was to reduce the amount of time the customers spend in line and to improve the airport experience. In the very beginning, Southwest only had 3 Boeings in their lineup but now they have more than 243 aircrafts in their lineup. Intangible: The main intangible resources that Southwest has are its brand, unique culture, and reputation. Southwest has a brand that is known widely when referencing the airplane industry.
The brand that they represent is one that is reliable, convenient, employee centered, customer oriented, and at the same time providing a low cost alternative to their customers. This has helped dramatically in their formation of their culture, because even in the beginning their main focus has been on its employees. Southwest has a culture that is unmatched in the industry, and one of the main reasons they have been wildly successful in a challenging environment. Early on Southwest made the decision to sell one of their airplanes rather than laying off their employees to show their loyalty to its employees.
All of these factors have enabled the company to maintain a reputation that is respected among the industry. The reputation that they have has enabled them to reap the benefits of being recognized as a leader in the industry. For example, Southwest has earned several Triple Crown awards, which is an award for having the best on-time record, best baggage handling, and fewest customer complaints. Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage: Is the Resource of Capability Valuable? | Is the Resource or Capability Rare? | Is the Resource or Capability Costly to imitate? Is the Resource or Capability Nonsubstitutable? | Competitive Consequences| Performance Implications| No| No| No| No| Competitive disadvantage| Below-average returns| Yes| No| No| Yes/No| Competitive parity| Average returns| Yes| Yes| No| Yes/No| Temporary competitive advantage| Average returns to above-average returns| Yes| Yes| Yes| Yes/No| Sustainable competitive advantage| Above-average returns| Result from the chart: Capabilities The capabilities of Southwest Airlines are the origin of the firm’s ability to create a competitive advantage over other airlines in industry.
Southwest focuses on three main functional areas within the organization, which are management, human resources, and marketing. Management The management capabilities of Southwest Airlines are the main reason why the company has been so profitable, utilizing an effective low cost organizational structure throughout the entirety of the company. Using only one type of plane fleet, the Boeing 737 series, which allows minimizing inventory and resources needed for training, maintenance, parts, and is also a very reliable plane.
This helps in the quick turnaround times at the gates, which keeps more planes in the air at any given point in time. In the 1990’s Southwest employed an aggressive fuel hedging tactic saving the company millions of dollars in hard times, while still being able to provide low ticket prices to consumers. Another important area management focuses on is the management of human resources that emphasis both employees and customer alike. Human Resources Focusing on customer service, Southwest Airlines opened a multi-million dollar training facility for its flight crews in 1986.
The heart of this training facility is to promote human capitol and share knowledge throughout company. By focusing first on their own employees, southwest can ensure that the employees will then focus on the customer. Through motivation and empowerment in the training of its employees, Southwest can provide customers a comfortable experience while retaining employees and making it hard for competitors imitate. This is proven with its Triple Crown Award for best on-time record, best baggage handling, and least customer complaints. Marketing
One way to promote value and differentiate itself from competitors is Southwest’s humorous advertisements. Exercising the LUV ticker symbol, Southwest promotes its customer driven services and prices. While in the late 1980’s Southwest started a rewards program that has retained loyal customers, but has not been proven successful for leisure travelers. With the low cost abilities, timeliness flights, rewards, and focus on the customer, Southwest Airlines has carried out an exceptional marketing strategy. Core Competencies Employee Loyalty
Within the first two years of operation Southwest suffered huge losses and had to make some major financial decisions. These decisions lead to the selling off an aircraft and keep all of the employees created the “no lay off policy”. Then in 1973 Southwest was one of the first companies to incorporate profit sharing where employees owned at least 8% of the company stock. This leads to higher employee satisfaction, retention rate, and increases the want for the company to do well, this way the employees focus more on creating value for the customer.
Management Skills Southwest Airlines management has tailored numerous sets of activities around a low cost structure creating value for the customer. With short domestic, point-to-point flights, no additional in flight features and no seat reservations allows for a short turnaround time, which makes for less crowded airports and maximizes flight time. Along with fuel hedging and low maintenance costs, the design of these best-fit activities show that the excellent management skills are a core competency that creates a competitive advantage over other airlines.
Conclusion Through the intertwining of its resources, Southwest Airlines has created a unique set of capabilities and competencies that has continuously allowed successful implementation of its business level strategy. With a focus on low-cost leadership and customer service, Southwest Airlines creates value with reliable on-time departures and a unique company culture. This provides a sustainable competitive advantage that is hard for competitors to imitate and provides a string foundation for Southwest Airlines’ future success.