Southwest Airline Case Analysis

Diagnosis:

The biggest problem that Southwest Airline has is over-conservative business strategies and unalterable operation philosophies. The top managers still think Southwest Airline stay in a weak position as they did 40 years ago, and still use similar strategies to operate the business, but the whole environment of airline industry has already changed. Southwest has been one of the most profitable airlines in US, and it met more opportunities and chall enges. If it continues to use the same strategies and philosophies as 40 years ago, Southwest would lose the competitive advantages and even lose the market shares in the long term.

Analysis:

The method I use is strategic group analysis.

At the time when the Southwest Airline started to grow, the airline industry had many problems, such as customer dissatisfaction, air-traffic delays and open skies agreement. Therefore, it can fast grow by applying its business strategies, for example, it operated without major hubs, tumbled the turnaround time, did not offer meals and reserved seats, and only used Boeing 737. These strategies decreased its operating costs dramatically, so that it was able to provide customers cheaper and faster trips. At that time, it had no competitors in its strategic group, and therefore, they generated a lot of profits and grew rapidly.

However, the airline industry has changed over time. Some major airlines have saved their costs through acquisitions, and some new airlines that also provide low-fare trips have developed. Southwest has more and more competitors that have similar market strategies. Therefore, its market share is shrinking and competitive advantage is challenged.

Recommendations:

1. Propose new business philosophies based on winner’s point of view, operate more progressively and seek more innovation in order to meet more opportunities of development.
2. Explore new market, especially international market. Canada and South America should be its first step. Along with the globalization, more and more people require international flights. Southwest had been the most profitable airlines in US, and there are limited opportunities of development in domestic trips. If it cannot take up some of this new market, it would be replaced in the near future.
3. Look for new ways to save costs.

(1). Gradually change Boeing 737 to other innovated fleets, such as Airbus 319.

(2). Reduce labor costs appropriately. The labor cost of Southwest ranks No.2 in 2010, whereas the number of employees is far less than other airlines.

Outcomes:

With these solutions, Southwest would keep comparative advantages and maintain their current market share, which is roughly 17.7%. More importantly, it would increase profits through opening up international flights. After AirTran’s acquisition, the profits of Southwest rose dramatically from $178 million in 2011 to $754 million in 2013, and a great amount of profits were attributed to international flights. Therefore, if Southwest continues to open up international routes, the profits would be considerable.