Southwest Airlines Corporation

Southwest Airlines Corporation

Question 1: What is Southwest's strategy? What is the basis on which Southwest builds its competitive advantage?

Answer: Southwest is using a mixed strategy of both Differentiation as well as Cost Leadership. The company has used many creative approaches to its operations and management, which have led to them being able to offer services differently as well as at a lower rate. For instance, Southwest prefers to use less congested airports, has no assigned seats, pays its crew by trip and employs a good system of online ticket sales. The CEO Herb Kelleher highlights the firms philosophy of putting employees first stating that having happy employees leads to happy customers which leads to happy shareholders. This simple philosophy is seen in action in Southwest's various management strategies such as profit sharing and involving employees in the recruitment process for new hires. They build their competitive advantage on consistently offering good quality service for affordable prices. In 2003 they saved about $455 million by hedging their fuel and oil needs and passed on the savings to their customers. They also reduced their turnaround time to less than 25 minutes which leads to flights spending more time in the air and less time on the ground, which leads to higher revenues and lower costs. Their employees have a low turnover rate and high pay which keeps them loyal and willing to work hard for the company.

Question 2: How do Southwest's control systems help execute the firm's strategy?

Answer: Southwest maintains healthy relationships with their employees. They possess an in company university program called the University of People which helps reinforce the company culture and philosophy. They encourage in-flight contests and reward personal initiatives. They make sure they pay their employees good salaries as well as include profit sharing to instill a sense of ownership and responsibility that helps motivate them to work hard to improve company efficiencies. This is seen in the instance of turnaround time wherein Southwest uses fewer employees and finishes in less time than most other airlines. Additionally, the pilots of Southwest are not enlisted in a national union which allows them to work more hours as they wish. With their strategy and effective control systems they have created a culture of hard work, high energy, fun, local autonomy and creativity.