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Southwest History and Growth
Corporate Level Strategy
Mission and Goal
Southwest has its mission statement since January 1988 as following: “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit”. The company uses a welcoming approach to deal with customers and employees, utilizing great customer service to deliver the best the industry can have. Therefore, to differentiate itself from other airlines, Southwest places a large dedication to its employees, giving them authority to make the necessary decisions to better assist customers with all the comfort needed. This strategy is key for Southwest to provide respect and loyalty for customers.
By following a simple goal: “A primarily short-haul airline that flies directly from city to city, with just one type of plane - the Boeing 737 - and the lowest costs”, Southwest has its horizon set, making sure to deliver a good service that excise “luxurious” rivals to gather market share, increasing profitability customer value.
Short/Medium-Haul
Southwest Airlines has their strategy focused on short/medium flights across the U.S. They participate in an extremely competitive market, where airlines are constantly hunting for competitor’s market share. Southwest uses different approaches to differentiate itself from the market. By providing good customer service, quick airplane turnovers, no baggage fees, low tickets price, efficient operations, and a great work environment, the company is able to maintain airplanes capacity in desired levels.
Connecting airports with a point-to-point strategy has allowed Southwest to provide service at lower costs. The choice of only using Boeing 737s, and training all the personnel to turnover the airplane in a fast and efficient manner, brings efficiency and pleasure to customers that enjoy a wider range of flight times.
Customer Service
Southwest’s hiring process is one of the strongest points that the company has been focusing to deliver superior satisfaction to customers. Employees are not only assessed on their qualifications and experience, but also on the attitudes they bring to their positions (Campbell, 2010). The process concentrates on prospective employees that fit the service culture of the company. This procedure ensures Southwest that when their newly trained personnel is out to perform, they will create constructive relations to customer requests based on their excellent abilities and passion to work. Southwest believes that training is important and crucial to deal with demands on ground, but abilities and high-class social skills are top-not on the company’s preferences.
By providing an example of what means to be “customer oriented”, Southwest delivers a sense of a friendship that can be perceived by their workforce. The company takes different approaches to support that mentality. Clients receive birthday cards and event invitations; and games and activities are provided during flight delays to diverge the feeling of impatience and disturbance to a relaxed atmosphere, stimulating team effort to deliver success.
Building this friendship mentality and focusing to hire the right personnel, gives Southwest the ability to permit employees to make reasonable choices for greater customer satisfaction. The spectrum of different requests by customers is wide, and examples such as a man that was going to propose to his girlfriend, asked the flight attendant if he could do it during the flight (Morell, 2012). The flight attendant promptly went to grab a champagne bottle at no cost to ensure that the moment will become unforgettable for the couple and all passengers. These decisions help the company to build customer loyalty are heavily appreciated in Southwest. It is extremely good in the long run for the company, and it also bring happiness in the work environment once employees are recognized as powerful participants.
No Assigned Seats
Southwest no-assigned-seat policy has helped the company to quickly overcome unpleasant situations. When flights are delayed or the flight network is compromised due to weather issues, or even planes that could not take off because of maintenance, passengers can easily board swapped planes without having to issue new boarding passes. This also favors the ability to use planes with different seat configurations if necessary (Stevenson, 2012). The velocity in which this policy helps to please customers in moments of frustration has big impact in the overall customer service. Passengers usually assimilate weather problems easier than other issues, but in any case they fell unpleased with the outcome of waiting at the gate. Therefore, speeding the turnover of airplanes and having the capacity to quickly overcome it, has brought Southwest distinct differentiation in the industry.
Boeing 737
Southwest has a love story with the Boeing 737. The standardization in the airline’s fleet is a crucial success to the company. Southwest has a big advantage in the industry, other companies fly a diverse range of airplanes, and by focusing on just one model, Southwest can maximize skills on their ground personnel, flight attendant and mechanics. Flight attendants can be substituted easily and have their schedule switched because their performance in any route will not be affected. Ground personnel will be more effective and secure when boarding, loading bags and amenities, and turning airplanes around for the next flight. Also, mechanics will be better prepared to fix problems that the fleet might have. They are specifically trained to perform precise tasks on the Boeing 737, boosting abilities and effectiveness.
Furthermore, the Boeing 737 helps the company to maintain its total low-cost model, enjoying cost efficiency per seat that is inferior to the current industry overall status. The initiative to preserve the standard method for maintaining and training personnel has been kept in effect for the recent AirTran acquisition. AirTran’s fleet had 88 Boeing 717s that Southwest is now transitioning to Delta, on a rate of nearly three airplanes per month, according to the Trefis Team.
Baggage Fees
A recent survey by Airfarewatchdog found that the most hated airline fees are baggage costs. Passengers hate the fact that they need to pay fees for their belongings on top of their fare. Using this principle, Southwest is one of the last US airlines (besides JetBlue) that do not charge for baggage on domestic flights. Southwest allows passengers to check two bags (50lbs and 62 inches) for free, and using this method as a great marketing strategy: “bags fly free”, “Southwest's planes have gotten about 10 percentage points fuller, reaching nearly 81% of capacity”(Nicas and Carey, 2013).
No Meals. No First Class
Since Southwest is focused on short hauls, the company emphasizes some policies that not all passengers in the market are happy with. Meals are not served in any flight. However, in selected flights, some snacks are served. Regular beverage services are provided, but beer, wine, and energy drinks have to be paid using credit card, cash is not accepted onboard. Southwest also does not provide first-class seats on their routes, instead, its economic cabin seats takes over the whole airplane inner length. Even though these policies might drive some costumers to different airlines, they are key aspects that help the company to gain in other sides, such as the low fares.
Selling Tickets Online
In 1996, when airlines were still heavily dependent on travel agencies, Southwest was one of the first airlines to create its own website to sell tickets online. This huge step started to change the industry, and nowadays the majority of tickets are purchased online, and customers also use it to search for the best fares available (Southwest Media).
Porter’s Forces
Southwest Airline Industry
Airlines provide services that go beyond any other industry in terms of timeliness and convenience. The industry is able to achieve its purpose by providing outstanding service to its clients; it offers transport to people in a timely fashion quality that can only be provided by modern airplanes. Southwest Airlines is one of the best companies in the United States, deriving its strengths from the profits it makes. Therefore, despite the challenges in the industry, Southwest is able to make viable decisions and adjust its policies more efficient than other greatly hampered airlines. Essentially, the services offered by Southwest are majorly limited to short-haul trips (Boguslaski, et. al, 2004).
The company focuses on offering city-to-city services and has devised methods of cutting its operational costs. Some of the measures adopted by the airline to slash on cost include; cutting on training and maintenance cost by using the 737 Boeing airplane, riddance of luxurious seats, and eliminating meals on board while ensuring a high degree of customer satisfaction. Therefore, the Porter’s five forces is a good tool to enhance understanding of an institution’s position within an industry while analyzing its strengths and weaknesses (Morrison, 2001).
Threat of New Entrants
Due to the fact that Southwest is very successful in its functions, it is likely to face high risks in the form of rivalry from both the existing, and the new competitors that intend to enter the industry. For instance, the existing companies are likely to imitate Southwest’s stratagems of cost efficiency, and also lowering their ticket prices in order to challenge Southwest. The end effect of this threat is that Southwest may not be able to enjoy the control of offering its low fare. Another threat to the company is that if a well-developed firm with more advanced technologies and facilities enter the airline market, there is a high possibility that Southwest Airline’s services will be interfered. On the other hand, there are key factors that limit the entry of new companies into the industry such as: cost disadvantage, government policies and large entry capital requirements. For those reasons, threat of entry can be categorized as medium, since southwest airlines have readily available resources in terms revenue to equally compete the emerging and existing firms (Caves & Porter, 1977).
Government policies regulate how and when the corporations can enter and leave the market. At times, the policies may require product and service differentiation to ensure fair competition in the industry. Consequently, the risk of Southwest losing business to its competitors is reduced due to the existence of these government policies. Additionally, the government employs measures such as licenses and permits to guarantee passengers safety, environmental protection and quality services. On occasion, the regime requirements may be very costly, thus discouraging new businesses from entering the market. Moreover, the period that it takes for a firm to get its operating license can be excessively long. Thus, the amount of money and time that the new firms will have to spend before joining the airline market is a factor that hinders many businesses from entering the industry (Jordan, 2002).
Threat of substitutes
The airline industry has a medium substitute risk level. A source of substitutes to the airline industry arises when the clients choose other forms of travelling such as train, ship, and bus as a mean of transport. However, these other forms of transport may be costly in terms of time, convenience, and effectiveness as compared to airplanes, thus, rendering the risk level in industry as medium. Airplanes offer the fastest mean of transport over short and long distances. However, telecommunication business is the greatest sector that challenges the airline industry. Many people opt to use online services such as the Email or online conferences to resolve problems and prevent the cost of tickets. Conversely, in cases where the parcels must be delivered in person, the service of airlines are still benefic, thus, making the airline sector safe from substitution threats (Porter, 2008).
The new developments in the railway sector have also formed substitute threat to the airline industry. The well-equipped electronic trains are also able to offer fast and convenient services. In addition, the cost of train tickets tends to be lower as compared to the plane tickets. However, Porter notes that such developments are healthy since they encourage the skills of innovativeness and efficiency, thus improving the level of customers’ satisfaction. Nevertheless, Southwest is not hindered from such advancements (Caves & Porter, 1977).
In conclusion, Southwest Airlines delights itself in their ability to offer timely services to their clients. The airline achieves this by reducing checking points and hiring highly competent staffs that perform their duties diligently. Therefore, the airline has managed to attain high customer satisfaction and loyalty, which makes them one of the best within the industry. Given that, Southwest Airlines is well known for its low ticket costs and good customer care, customers will repeatedly choose them over other airlines and other means of transport (Boguslaski et. al, 2004).
Bargaining Power of Southwest Airlines Customers
In an industry where consumer loyalty is at an all-time goal, companies such as Southwest struggle to differentiate themselves from one another in order to maintain growth in their business. Due to the nature of the services provided by airlines, there is little to no differentiation between them, which drives companies to either lower their airfares, offer routes that other airlines do not fly in, or have something other companies do not have. Southwest has a few points that set them apart from other companies; one of the biggest differences between them and their competitors is their “No Change Fees and Bags Fly Free” policy. As the name suggests, there are no fees incurred when changing your ticket and no fees for passenger’s luggage. This is a major selling point for the airline because the cheaper ticket combined with no extra fees is a massive attractor to customers. Southwest Airlines also has an innovative system with respect to seat assignment; there is no seat assignment. The impact of this policy to the airline has been invaluable to their success because it increased the rate of aircraft turnover at airports. By having a “first-come, first-serve” based boarding system, this reduces yet another fee that would increase ticket price, but most importantly it reduces boarding time allowing planes to depart faster and stick to the schedule. For the average businessperson flying, time is the essence and knowing a flight is more likely to stick to the time on the boarding pass is a huge selling point. The approach taken by Southwest Airlines is very unconventional for an airline company, however these small differences are what set them apart from others and allow them to gain a substantial share of the airline market in the areas they are present.
Bargaining Power of Southwest Airlines Suppliers
The airline industry is heavily dependent on two aircraft companies to build up their fleet: Boeing and Airbus. This poses an issue to the industry because of the dependence created on those two companies; in Southwest’s case that company is Boeing. There is little a commercial airline can do to have any bargaining power on their supplier because of the high-cost, high-skilled, and time consuming process that is building an airplane to carry thousands of people over the course of its use. This leaves companies at mercy of their aircraft supplier.
Degree of Competitive Rivalry
There is a high level of contemporary business competition in the airline industry. That is why it is important for each airline to realize its strengths and opportunities so that it can harness them achieve greater competitive advantage among other airlines (Barney, 2002). To thrive in the industry’s atmosphere of stiff competition, Southwest Airlines continues to build its brand among its current and potential customers. In this case, it faces very strong competitive rivalry from other existing firms in the industry. It has about 12 rival airlines. Out of the five Porter’s forces, competitive rivalry appears to be the strongest because it determines the profitability of the industry in the long term (Pereira, 2013). It can be destructive eventually because competitors engage in price wars and reduce profit margins (Barney, 2002). The rivalry in the airline industry is intense because it appears to be very stagnant, as the number of competitors remains the same.
Innovation enables a company such as Southwest Airlines to create sustainable competitive advantage because it forms a premise of uniqueness that strengthens the company’s brand (Barney, 2002). Existing airlines also capitalize on their own innovation strategies and the industry develops variety for the customers. To be different from other airlines, Southwest Airlines developed the Point-to-Point system where the customers’ check-in times determines the times which they are assigned to a boarding group (Lea, 2014). Since an airline’s competitive advantage may last a short while, it is important to develop sustainable competitive advantage. Other airlines will always try to equalize Southwest Airlines’ competitive advantage to create a plain field in the industry in terms of competitive rivalry. Both process and product innovation are more likely to identify Southwest Airlines among customers regardless of the other airlines’ efforts (Pereira, 2013). They include, low fare sales, new nonstop services, new destinations, cultural leadership, new vacation packages, technological innovation (DING) and excellent customer service among others.
The Internet facilitates competition in industries due to the rise of e-commerce. In this regard, offline companies are constantly competing with online companies to enhance business performance (Pereira, 2013). Web-based businesses continue to grow because of the online purchasing environment attributable to the growth of information technology. Southwest Airlines is known as the largest airline e-commerce site and one of its online innovations is a free online tool known as SWABIZ (Lindsay, 2010). Using the latter, business travellers can purchase ticketless travel after planning and booking. The airline does not rely on travel agents for flight bookings. In its advertising campaigns, Southwest Airlines intrigues, entertains and persuades (Lea, 2014).
Competitive rivalry forces airlines to invest so much in advertising campaigns so that each remains relevant among flight travellers. Other than building its brand on quality service and low fare costs, Southwest Airlines continues to maintain the image through various adverts and promotions. Its level of advert expenses is quite high as seen in the $159.5 million that it spent on the TV advert, “Bags Fly Free” (Lindsay, 2010). Competitive rivalry exerts too much pressure on airlines in such a way that they have to spend a lot to garner considerable profits in the stagnant industry. The airline industry has a low concentration ratio, given the intensity of competitive rivalry. Southwest Airlines has larger grasp of market share because of its low fare cost strategy and other innovations. Still, competitors such as JetBlue Airways continue to increase the degree of competitive rivalry.
Recommendations
Keep good customer service keeping the price strategy
References
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