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SouthWest Airlines Circumstance Study

SouthWest Airlines Case Study

Executive Summary Hundreds of men and women travel by air; Southwest Airlines provides low-fare air travelling service among 58 towns in america. Even though the industry suffered a major blow from the terrorist assault of Sept 11th, the company is still positioning strong; while other flight companies are in debt. The info was majority collected and analyzed from the web; options such as "Information Week, " and "Wall Avenue Journal. " Based on the acquired understanding of Southwest, the business maintains continuous sales. The major success to their continued success is because of their low-cost model and rivals are aware that they can not match Southwest Airlines low prices therefore, by dropping the price even lower; Southwest Airlines can force a company to go bankrupt.

Introduction In 1971, Rollin King and Supplement Kelleher started out an air travel service with one particular idea: "If you get your individuals to their vacation spots when they want to get there, promptly, at the cheapest possible fares, and make darn sure they celebrate doing it, people will travel your air travel. " These were right about this. Southwest Airline is now a major flight, in truth, the fourth greatest airliner in america that is trading under the Image LUV on NYSE.

The quest of Southwest Airlines is commitment to the highest quality of customer support delivered with a sense of warmness, friendliness, individual pleasure, and company spirit. It mostly provides short haul, high-frequency, point-to-point, low-fare air vehicles service among 58 places (59 airports) in the United States.

Here are some amounts that will give a brief idea how the company is functioning: Net income: $241 million Total travellers carried: 63 million Total RPMs: 45. 4 billion Traveler load factor: 65. 9 percent Total working income: $5. 5 billion The air travel industry has been struck hard by the terrorist episode of September 11th. There's a 13% insurance increase for the airlines and the government is enforcing fees regarding security problems. The operation cost increases significantly and there are less people traveling on airlines. Most of the airliners are losing money expect a few. Southwest is one of those airlines which have remained profitable.

Organization of Southwest Airlines is referred to as an upside-down pyramid. The top management is at underneath and supports leading range employees (~35000), who will be the experts. That is Plant Kelleher's unorthodox leadership style, where management decisions are made by everyone in the organization, not just the top executives. The company is described to not have much focus on structure; instead employees should think widely without constraints such as titles. Kelleher, for example, is said to know the brands of practically all his employees.

Southwest Airlines is characterized as a C-corporation with length distinguished as a normal perpetual living. The shareholders are not normally responsible for debts of the organization and they maintain an operation that is normally more structured, requiring more meetings and (in some areas) more reporting requirements. Management is very centralized through the panel of directors (elected by the shareholders) and the officials (elected by the directors). The organization is taxable entity, even though the income which would normally be taxed at the corporate level can normally be paid out in earnings (and in other deductible ways) so that there is in truth no tax at the corporate level. As far as transferability appealing, it is normally fully transferable and elevating capital is within the decision of open public companies.

Southwest Airlines prices employees, initiating the first profit-sharing plan in the U. S. air travel industry in 1974 and offered it since. "In 2000, Southwest offered its employees a record-setting $138M in earnings sharing. This tax-deferred payment represented yet another 14. 1 percent of every employee's annual salary.

Methodology To be able to explore Southwest Airline's corporate and business structure, the method where we obtain our information is a crucial component inside our quest. Therefore, this research describes a technique that utilizes Southwest Airline's public website to achieve background record, company particulars and financial reports. In addition, the library's digital journals, business research databases (Wall Neighborhood Journal, Business Week) and certified se's on the web such as Yahoo! are also major resources for our analysis in conducting a fundamental SWOT examination and acquiring information regarding the company's main competition and customers.

Our research will never be limited by just Southwest Flight, our research will involve Boeing 737 and a several opposing companies. Research on these additional matters will be specific, materials that pertains or aids in elaborating our advice for the business of Southwest.

Results Based on the attached figure within the past four years of Southwest Airlines' financial improvement, they have maintained dependable net sales. In 1999, they had total world wide web sales of $4, 735 million which had increased to $5, 585 million. Their slight drop in 2002 to $5, 521 million was due to the September 11th incident. However, this is little or nothing compared to other major air travel industries where they have lost a lot more. Many have even gone bankrupt and been compelled to close down. Actually, Southwest Airlines was the only major US air carrier to remain profitable since then; albeit Southwest Airlines were afflicted by the indegent economic conditions. Few of their main rivals are Continental Airlines and North american Airlines. Substitute products include the coach (Amtrak) and bus (Greyhound) which cover long distances. While these alternates cannot offer the velocity of travel, most of Southwest Airlines' customers are drawn to the reduced price.

Suppliers include those who provide service/products necessary for Southwest Airlines with their business function. For Southwest Airlines, suppliers include mechanics(and other maintenance people), providers of gasoline, food(the snacks that are offered). The suppliers don't have much bargaining power.

Customers include both personal and commercial sectors. There is absolutely no bargaining power for customers, as there is no threat of backward integration; it is improbable that customers of Southwest Airlines are going to build their own airplanes and soar themselves.

Rivalry among opponents pieces the price-Southwest Airlines is a discount airliner. Rivalry is increasing, as the marketplace decreases, and competitors downsize, the competitors become more or less equal in size and capacity. This means that as economic conditions worsen, competitors downsize and then remain competitive for the same staying market.

The threat of new entrants is low, the demand is not high. In addition, there are hurdles, definitely not the greatest; the FAA. Government regulations and restrictions imposed on those involved in this industry. Such would be authorities sanctions consequent of international issues.

At a glimpse, the company's way to obtain competitive benefit is its low price tickets. Most of its customers are folks who are eager to forego in-flight foods, direct routes and extravagant seats if that could imply for a cheaper solution. Not to imply Southwest doesn't provide direct plane tickets, but that emerges at an increased price. Southwest Airlines is at better form than its opponents after recent problems on Sept 11 for a simple reason: their low-cost model.

Terrorist episodes on the entire world Trade Center got a devastating influence on the flight industry, especially because the instrument of destruction of the problems was hijacked airplanes. The public lost faith in the airline industry immediately following September 11th, and for many air travel companies this meant entering severe debts or even declaring bankruptcy. Even over time, the majority of the air travel industry experienced lower income and substantial downsizing. However, for smaller companies like Southwest, they were able to make money and were in a far more enviable position than the larger counterparts.

The reason for Southwest Airline's success is due to their low-cost model. The Southwest Airlines is composed only of Boeing 737s and offers only coach seats (there is no business or high grade). Southwest Airlines also do not offer in-flight dishes, only peanuts and other treats. Southwest is easy and immediate at the purpose of their service; "a mainly short-haul airline that flies straight from city to city, with just one kind of plane--the Boeing 737 - and the lowest costs". With a straightforward goal, Southwest has excised many of the "luxuries" that competition have offered, such as luxury seating; this is manufactured noticeable by their decision to enforce a rule for passengers who could not fit into the seats to get an additional chair. This rather unpopular move (whereas other airlines could have suggested a more luxury class chair) is easy in its purpose-get people from point A to point B. Services, such as in-flight foods and luxury seating, that have become standard to challengers, have been seen as pointless for an air travel that provides a short-haul trip from city to city at the lowest cost. To own opted for a first class, business class, or any form of luxury course seat could have been surplus baggage; most people would like to do without it if it designed for cheaper solution price.

While Southwest Airlines offers no frills, Southwest Airlines do meet customer expectations as it pertains to service. They starting their model on the motto, which says that "if they're happy, satisfied, dedicated, and dynamic, they'll take real good care of the customers. When the customers are happy, they keep coming back. And that makes the shareholders happy, " Southwest has very good relations with almost all their employees. Employees are either of 3rd party unions or have adaptable deals which allow employees to work longer hours.

Southwest Airlines, however, is not without weaknesses. Regardless of how successful, Southwest Airlines assists only 29 expresses and cannot compete against the bigger companies that provide nationally or even internationally. Furthermore, Southwest Airlines will not utilize a hub system that allows for bigger competition to reach further away.

Such competitors know that they cannot match Southwest Airline's prices; their market is larger and is not feasible to offer cheaper tickets at the expense of no in-flight meals. Instead, competitors narrow the purchase price difference between Southwest Airlines and themselves and pressure on the quality of the frills (such as roomier seats). Others, through use of air travel hubs, will be the only ones who is able to economically serve remote customers.

Another weakness of Southwest Airlines is their preference of Boeing 737s. Being limited by one kind of airplane leaves them with little versatility when the model gets an awful reputation or a critical flaw is observed. Such would be a costly venture because of this company, who've used only 1 type of airplane and in the face of a dire situation would face a costly opportunity of finding substitutes or counteracting bad publicity.

Southwest Airlines' success is mainly because they have focused sharply on the goals. This is apparent by their no-frills, low-cost model: their goal is to provide the cheapest form of brief flights between two metropolitan areas; providing the bare necessities. Driven by the idea that customers can be satisfied without having expensive options available to them, Southwest Airlines have stepped on the toes of many of its bigger competitors.

Southwest Airlines was able to differentiate themselves from other rivals by offering the cheapest prices. This appealed to many people who weren't impressed with the additional services such as in-flight meals or wanted to avoid busy international airports. Coupled with the utilization of the internet, Southwest Airlines almost became a trend, a sort of an underground strike, bypassing travel companies and their fees. Southwest Airlines provided a medium in which city-to-city transportation was possible with the cheapest costs.

Part with their success is because of their targeted group; Southwest Airlines acts only 29 claims - a considerably smaller part of geography, when compared to those who serve customers coast-to-coast. As the company could enjoy their success in the last years, recent events and poor financial conditions have made competition brutal. Now, the bigger companies are trying to emulate Southwest Airline's style. By narrowing the price space, the luxurious services previously deemed too expensive has become less expensive.

A possible disadvantage is the fact that because Southwest Airlines' strategy has proven so effective, it will be duplicated and emulated by its competitors to a spot where it could lose the originality. This may result in rivals offering low rates to the areas covered by Southwest and beyond, making Southwest Airlines' range and limitations more obvious. It would be very possible soon where a huge company, using its hubs(something Southwest does NOT have), basically presenting Southwest Airlines' low-cost model to a wider market, encroaching and outdoing Southwest Airlines.

When a relatively small, new company can take on major players within an extremely competitive industry, gain market talk about, please customers and employees as well, it is time for others to get sucked in. We will primarily examine Southwest Airline's competitive business strategy of the maintenance of an inexpensive and exceedingly reliable service strategy (forgoing perks such as meals service, first-class inclination and assigned seating), as a major transportation firm. We will in the end make supplementary advice and improvements based on the stratagem with their already flourishing company. As the company that still faces continuous growing difficulties before them, it is vital for Southwest Airlines to grow on their existing achievements. Our analysis and promising suggestions will be developed with intent to better serve customers by bettering their routing system, offering increased availability and minimizing delays. As business consultants, we anticipate to pave just how of 1 of the primary travel industries into becoming the best of the greatest.

Recommendations: Southwest Airlines could actually operate their business relatively undisturbed. It was only in the indegent economical conditions that all of a sudden Southwest Airlines' method of operation became the ideal model because of its competitors. As the publicity is beneficial in raising staff morale, and boosting stock prices; Southwest Airlines is now target of opponents' concentrate.

A technique that Southwest Airlines can do to inflict harm to competitors is to slash prices. This type of tactic is typical of a large company that has a monopolistic rule in an industry squeezing other competition. This tactic is advisable when competition are near individual bankruptcy or are in dire situations. Because competitors cannot match Southwest Airlines' prices, the most they can do is narrow the difference of the price difference. Southwest Airlines, which includes consistently made a good profit, can raise the price gap by minimizing their prices. Southwest Airlines will incur losses out of this move, but the goal of this move is to drag the competition further into debts. Because this move affects both companies, this move is very high-risk and really should not be done unless Southwest Airlines is sure their competition is near personal bankruptcy. Possible reasons for this move is always to get rid of the weakest competitor in the industry, which would free up the market organised by that company.

The reason behind the creation of Southwest Airlines started out when its founders noticed an opportunity. Recurrent trips between places were exploited by providing a quicker form of travel. Southwest Airlines has weathered through several turmoil and has proven itself to obtain potential for to be always a innovator of its industry. The poor economic conditions has put many airline companies with debt, while Southwest Airlines was able to make money. With its competition weakened, Southwest may take the effort and expand-not foolishly, but with the same drive and exact execution the business was founded under. The genius behind Southwest Airlines' success is location; of course, if researched properly, this is applied to other areas. The appeal of Southwest Flight is the cheap seat tickets, as they provide none of them of the luxuries(such as in-flight foods).

Southwest Airlines' no frills strategy may well not be pleasing to all or any, it would be good for Southwest to produce a few changes where the aesthetics would be more accommodating. Upgrading seating may be considered a costly business, but it would open up Southwest Airlines to a larger market.

The medium of choice for customer recommendation is the internet. Internet recommendations have been the key source of customers (it further spend less by charging a lesser fee to e book seating through the internet than by having a travel sales agent). Along with the saturation of discount websites, however, Southwest Airlines is shedding the hold it organised advertising on the internet. More websites offer competitive rates and special discounts-which if Southwest Airlines does not take immediate action can end up burning off customers. Since advertising through the internet is dangerous, as people hate pop-ups or spam e-mails, it is our basic consensus that Southwest should find ways to be detailed on these price contrast websites. Before, there weren't many sites that offered price evaluation and finding bargains was difficult. With these sites, information is available at the fingertips of the net surfers who is able to make better prepared selections. Southwest Airlines should ensure that their tone of voice is read through this medium, as it will attract people in search of deals.

Conclusion First of all, Southwest Airline is rolling out a great low priced model for days gone by thirty year that will fit today's market the best. They have expanded from a tiny company with basically three aircrafts to 1 of today's major airliners that flies between 58 towns hauling over 60 million customers each year. As everyone can see, Southwest Airline has been a huge success. Now, it is given an opportunity to grow a great deal larger at this extremely hard and critical time for the air travel industry. Following the incident of Sept 11, Southwest Flight is mostly of the airliners that continued to be profitable; other air travel companies are losing huge amount of money due to the insurance raise, the security cost and lack of customers.

We recommend Southwest air travel to consider this possibility to expand to greater regions. It's the time for Southwest flight to make use of its low price tickets to drive its competition out of business and take over their market. We consider, giving up a few of the revenue to slice the ticket price even lower and update hardware can open Southwest Airline to a much bigger market that will bring more profit in future. Implementations of cost conserving technology such as internet is required to lower the procedure cost to give customers better offers.

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