SOUTHWEST AIRLINES

Southwest Airlines

Southwest Airlines

Strategic Problems

In year 1978, deregulation occurred in the airline industry and competitive price war occurred among airlines. The reason behind competitive price war was due to the freedom in setting fares. All airline companies got the freedom to setting their entry and exit fares. Hub, point to point system and spoke system all comes under the operating structure of the airlines. Major airlines started to serve non-stop “long Haul” routes in most populated areas. The reason behind turned their attention towards densely populated areas is that it is highly profitable. There is high price competition among the major airline companies are all are keeping their price strategies lower to compete in the market. By lower the fare prices companies still have to bear operating cost and due to this their profit margin is squeezed (Swamedia.com).

In the mid of 1980s many acquisitions took place and most of the shares in airline industries were with 8 airlines. In 1990, due to recession most of the airline companies has to face carrier bankruptcy and fuel prices were also doubled. Many new airlines were also formed and most of the airline companies positions themselves as low fare airlines to get competitive advantage.

Southwest Airline Company

Southwest Airline Company is the largest low cost airline company of United States. Headquarter of Southwest Airlines is in Dallas, Texas. Southwest Airline was established in 1967 and adopted Southwest name in 1971. In 1994 Southwest was the eighth largest airline of United States. In 1994, it had net income of 179.3 million dollars.

Strategies of Southwest Airlines

The strategies adopted by Southwest Airlines are as follows:

Southwest Airlines focused on Point-to-point system. They avoided major airline hubs in the large cities.

They emphasis was on keeping low fares.

They were also keeping their operating cost as low as possible and were able to achieve lowest operating cost of 7.08 cents per ASM.

They gave exceptional customer services.

Southwest had different reservation, booking and seating arrangement.

They are employee oriented company (Southwest.com).

Low Operating Cost

The reasons why Southwest was able to maintain low operating cost in ASM industry and had highest loading factors are given below:

They tried to prevent major hubs and focused on secondary airports instead of focusing on primary airports.

They kept travel agent commission lower than other companies.

They offered their services in low fare prices

They reduced their maintenance cost.

They did creative advertisements to attract consumers (Swamedia.com).

SWOT Analysis of Southwest Airlines

Strengths

Cost Leadership Strategy

Southwest Airlines tried to maintain their operating expenses of per seat around 15 to 20% below average.

Southwest does not had baggage handling, meals, reservation system and assigned seat system.

One of the reasons for this strategy is that they had all planes Boeing 737s due to which they had to bear training cost and maintenance turnaround.

Southwest also embraced technology which helped them in reducing cost. For example ticket less travels.

They saved travel agent commission by giving their consumers facility of direct calls and reservation system.

Customer Service

Since consecutive three years Southwest got Crown for time performance, baggage handling and in giving customer ...