Mba 8820 - Southwest Airlines 2002: In Industry Under Siege

MBA 8820

For Class Three

Southwest Airlines 2002: In Industry Under Siege

This case gives you a good overview of how Southwest Airlines has succeeded in a tough environment. Specifically, the case talks about how the firm has been able to develop its own basis for competitive advantage and to prosper where larger and richer rivals have trouble. After reading through Chapter 5 you should have a good idea of the role that resources and capabilities play in building and sustaining competitive advantage. Note how it is that some resources become "valuable" in competition (rather than just "necessary") and why other firms are not able to match the resource base of firms such as Southwest. In doing your analysis, stick with the situation in 2002. We will bring it up to date at the end of the discussion.

For class discussion:

1) Look back on the material that we have discussed in the prior class and apply it here. What are the Key Success Factors in this industry? How do the five forces drive industry competition and profitability?

Differentiated and a low-cost service offering.

- High rivalry between airlines companies

-Airlines power over suppliers

-Bargaining power of customers lead to price undercuts

-Low barriers with deregulations

The airline industry has always been competitive. In an analysis of the most profitably investments as per our class discussion, surprisingly, airlines come in at the lowest return on each dollar invested at around 2.5%.

Southwest Airlines experienced 30 consecutive years of profit a mere two years after it's founding in 1971. Many airports began requesting Southwest service for their passengers, but throughout Southwest's expansion, the company aimed to maintain a manageable growth rate and focus on their core competencies of low price fares that would compete with the cost of driving to the destination.

In the mid 1990's, the major carriers entered into price wars to undercut competition. Although, these dealings did affect Southwest's bottom line, Southwest still manage to continue to turn a profit and expand due to their expansion into a reservation system and their commitment to a culture and experience that passengers were drawn to.

2) Using concepts such as Porter's "arrow" from Chapter 5, identify the key activities within the firm that Southwest emphasizes in order to make their strategy successful. How are they able to build sustainable competitive advantage with these elements?

Southwest Airlines competitive advantages are their point-to-point services which are generally targeting the frequent business traveler. With several regular flights per day, if a passenger happens to miss their flight, they will be automatically booked onto another flight. Secondly, Southwest strategically secured routes through secondary airports which generally had lower fixed costs for the airlines and less congestions for passengers ease. Finally, Southwest focused on quick, reliable turnaround time using only one version of aircraft, allowing for familiarity among staff and greater efficiency in turnaround. Passengers were not assigned seats, simply boarding sections, which allowed for passenger loading to be conducted more efficiently.

The traditional airline model is the Hub and Spoke model, which in essence takes most passengers from the origination, through the hub, and then transfers them to their destination. Southwest's point to point system was more reliable because it did not depend on the on time arrival of an earlier flight for departure.

Southwest also implemented the first and most simplistic frequent-flier program: purchase eight flights and get one free. Southwest's initially connected with four computer reservation and ticketing systems and also the powerful SABRE system. This allowed travel agents to view flight information and even print tickets. In 1994, Southwest was only connected through the SABRE systems which pushed Southwest to develop the "ticketless" travel program as well as Southwest.com.

Porter 5 forces

The Southwest airlines case can be analyzed with Porter's five competitive forces model. Southwest airlines benefited after the airline deregulation in 1971, and were able to lay the groundwork for a successful airline. Throughout their growth, Southwest differentiated from the competition by taking a friendly, warm and welcoming approach to flying. Their low cost flights undercut the competition,