Southwest Airline Industry Analysis

Southwest Airline Industry Analysis

Introduction

The airline industry (SIC Code 4512) is one of the key sectors in the US economy; contributing close to 5% of the country's overall GDP, employing more than ten million people, and generating more than half a trillion in annual revenues.

Inputs

Electronic ticketing does away with the need of having many reservation agents and clerks. By cutting out the intermediation costs, it has the potential to also generate significant cost savings for the airline industry. IATA (2009) reports cost savings of up to $3 billion in 2008 as a result of the use of e-ticketing. Not only does e-ticketing help to save costs by cutting out intermediation costs, it also enhances accuracy and increases efficiency. As far as the use of radio frequency identification (RFID) tags is concerned, IATA (2009) writes that the use of RFID can help to eliminate a fifth of all cases of mishandled baggage as well as loss of baggage. In the next two years, it is estimated that the use of RFID tags will help eliminate half of all cases of lost or mishandled baggage. This will be a big improvement for the industry, considering that baggage loss and mishandling is the second most critical factor in customers' evaluation of how pleasant their trip has been (Sweet, 2009).

Operations

Additionally, most of the airlines have taken up internet-based distribution. Through selling airplane seats online, they have been able to disintermediate their distribution channels, in the process achieving substantial cost savings. Many of the low cost carriers also operate only one type of aircraft, which has enabled them to enjoy significant savings on aircraft maintenance and training costs. A good example of an airline following these strategies is the SouthWest Airlines. Other ways in which the achievement of cost savings is pursued include ...