Generic Business Strategy

Generic Business Strategy

Southwest Airlines' generic business strategy can best be categorized by cost leadership. Southwest uses the cost-leadership business model to do everything possible to lower its cost structure so it can provide its services at cheaper costs than its competitors. Southwest has been the most profitable U.S. airline for years now. Its fares have been 25% or more below its competitors (188). Southwest is able to lower its costs and increase profits because of its ongoing quest to increase operating efficiency. Southwest focuses on lowering costs of inputs and the costs of converting inputs into outputs, which are the flights that customers pay for. There are a few ways that Southwest does this.

It begins by carefully selecting human resource inputs. Existing employees do all the hiring, and only end up hiring 3% of those who are interviewed per year. This is done so existing employees can decide if interviewees will fit into Southwest's culture and be team players. Southwest also focuses on increasing efficiency (188). It does this by having employees work as a team to prepare everything necessary to get the planes back in the air. Southwest is able to land a plane and have it in the air again in 30 to 40 minutes, much shorter than its rivals. Southwest also requires fewer employees to run more efficiently than its rivals (189).

Another way Southwest increases its efficiency is by only using one type of plane, the Boeing 737. This means far less pilot training and maintenance costs. Southwest typically flies into low-cost, lower-trafficked airports, which saves on landing costs. It operates on a "hub-and-spoke" network, meaning planes usually land at least once before reaching the final destinations. This allows southwest to easily fill with passengers and use resources better. One last way Southwest saves on costs is by not offering free meals or other perks to its customers (189).

Southwest streamlines and simplifies its operating procedures to improve efficiency as well. This is only possible with the cooperation of all employees, as mentioned previously. To motivate its employees to work well, Southwest offers them a generous profit-sharing plan, which includes stock in the company. Over 20% of the company's stock is owned by employees. Southwest purchased its closest low-cost competitor, JetBlue, in 2011. Both of these airlines consistently receive the highest ratings in customer satisfaction (189).