MANAGING FINANCE

Managing Finance: Southwest Airlines



Managing Finance: Southwest Airlines

Introduction

In 2006, Southwest Airlines marked its 34th consecutive year of profitability. No other airline came close to matching its performance. And Southwest had achieved those results while growing from an upstart to the largest U.S. airline in terms of number of passengers flown. Southwest had succeeded where others had failed by passionately pursuing both low cost and high customer touch. Low-cost tickets attracted passengers; extraordinary customer service kept them coming back. Staffed with energetic employees, Southwest developed a culture for making flying fun (Meyer, 2010). Southwest executives told employees to do what was best for the customer, and management rewarded individuals for going out of their way to enhance the customer experience (Kevin 1998 351). Friendly staff, personalized letters, and proactive problem resolution were the norm.

This paper holistically explores how Southwest Airlines has got global competitive advantage through international expansion. The paper presents the internal and external environmental forces applicable to Southwest, the success factors, and the business, corporate and international level strategies of the company. A review of company's history, products, and services, coupled with analysis of its international expansion determines how this company has got the competitive edge in this ever competitive business world.

Background and History

Southwest Airlines began carrying passengers in 1971 between Dallas, Houston, and San Antonio. From the start, the business strategy was to offer frequent, conveniently timed flights and low fares on short-haul routes. Restricted by the 1979 Wright Amendment from flying out of Dallas to non-neighboring states, the airline nonetheless grew both organically and by acquisition so that by the end of 2006 it served 63 cities in 32 states (Chris 2010 61). In 2006, Southwest's 482 aircraft carried more than 95 million passengers on more than 3200 daily departures. Profits were $499 million on revenues of $9.1 billion. Southwest's history of profitability was partly due to having the lowest operating costs, on a seats-per-mile basis, of all the major airlines. Several factors contributed to their low-cost structure, including the use of a single aircraft type, a high-utilization point-to-point route structure, and a fuel hedging program that protected the company from the full impact of rising fuel costs (Werner et al, 2008).

Management also attributed its low-cost advantage to hardworking, innovative, highly productive employees. South-west's 32,600 employees, 82% of whom were covered by collective bargaining agreements, owned more than 10% of the company's stock (Bailey 2002 51). Management was committed to retaining the low-cost airline status. Indeed, a key metric at Southwest was employees per plane, which had dropped from 90 in 2002 to 68 in 2006 (Brenner 2005 119). But Southwest considered its real competitive advantage to be its employees and the customer service they provided.

In early 2007 Southwest was functionally organized. The executive team was close-knit and most members had long tenure at Southwest, many starting at the bottom of Southwest's career ladder (Quinn, 2010). They pursued four overarching business objectives: financial success, operating efficiency, customer satisfaction, and safeguarding their firm ...