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Sumit thaker (59)

Southwest airlines: In a Different World
Introduction in 1971, Herbert D. Kelleher with other few business partners started an Airline services. Up till 1991, Southwest served low-fair air transportation among 32 cities in 14 states with over 20 million customers annually in the United States. Although the industry suffered a major blow from the unfavourable economic conditions, the company was still holding strong; while other airline companies were in debt. The major success to their continued success was due to their low-cost model and competitors were aware that they cannot match Southwest Airlines low prices therefore, by dropping the price even lower; Southwest Airlines can force a company to go bankrupt. After Southwest Airlines entered the airline industry it soon became a market leader by pursuing a low cost differentiation strategy. This strategy allowed them to charge 60% lower than the average coach fair and develop a consumer base around their excellent service. There are three primary reasons to why this strategy was successful in the past. First, the company demanded process efficiency, second, the company developed a cheap almost inimitable culture of outstanding service and finally, the company successfully engaged in fuel hedging. Early in the company’s existence, the Southwest Airlines saw the automobile as its primary competitor and not the other airlines in the industry. Their goal was to charge fares that were below the cost of driving an automobile. This goal drove them to be cost efficient and demanded maximum utilization of their assets. One primary way they increased their efficiency was by using the point to point system rather than the hub to spoke system. This often meant flying into airports where few carriers were located. The benefit of this system was that there was low congestion at these low populated airports and thus the company could have a quick turn over for its planes. They further made

Sumit thaker (59)

this model more efficient by striving to make these point to point flights 90 minutes or less. Quick and maximized flight times meant higher revenues for the company. Southwest increased their efficiency by processing their customers through the airport faster. They did this by not taking any seating reservations. During the boarding process, all customers would board the plane at the same time. Southwest sped up efficiency on the ground by having only one type of plane, the Boeing 737. This led to the standardization of their cleaning and prepping processes. In addition, this led to standardization in a typical pilot routine. It is also the largest airline in the United States by number of passengers carried domestically in a year and the third largest airline in the world by number of passengers carried. Southwest is also one the most profitable airlines in the world posting a profit for 34 consecutive years.

Crucial Factors:
September 11th was the worst day for airline companies around the world. There was close to a 20% drop off in airline traffic in the fourth quarter of 2001. The U.S. commercial airline industry was in turmoil and companies began taking out loans to cover a $3 to $8 million daily cash drain. Almost one fifth of the airline industries employees were laid off. U.S. carries lost a combined $7.8 billion in 2001, and 3.3 million dollars of that money came in the fourth quarter. Southwest Airlines did not lay off any employees. They did not cut any flights. Southwest's management philosophy for the last 20 years has been to manage the company in good times so that the company and its employees would e okay in bad times. When the towers fell, Southwest had the lowest operating cost of any U.S. airline. It also had $1 billion in cash and had the strongest balance sheet and credit rating of any U.S. airline.

Sumit thaker (59)

They were able to quickly borrow $1.1 billion to pay bills and employees. Southwest had to struggle to gain a market foothold and to get into the airline industry.

Porter Analysis
It conduct a Porters Analysis to investigate Southwests competitive environment. Suppliers include those who provided service/products necessary for Southwest Airlines to their business function. For Southwest Airlines, suppliers included mechanics (and other maintenance people), providers of fuel, food (the snacks that are offered). The suppliers did not have much bargaining power. Customers included both residential and commercial sectors. There was no bargaining power for customers, as there was no threat of backward integration; it was unlikely that customers of Southwest Airlines were going to build their own airplanes and flew themselves. Rivalry among competitors set the price-Southwest Airlines was a discount airliner. Rivalry was increasing, as the market decreased, and competitors downsized, the competitors become more or less equal in size and capacity. This means that as economic conditions worsen, competitors downsize and then compete for the same remaining market. The threat of new entrants was low, the demand was not high. On top of that, there were hurdles, not necessarily the greatest; the huge capital requirement. Substitute products include the train and bus which cover long distances.

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References:

(n.d.). Retrieved from http://www.antiessays.com/free-essays/20337.html

Sumit thaker (59)
(n.d.). Retrieved from http://www.studymode.com/essays/Southwest-Airlines-Hbr-CaseAnalysis-551668.html (n.d.). Retrieved from http://www.studymode.com/essays/South-West-Airlines-A-Different949627.html

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