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INTRODUCTION

IATA

ICAO

Callsign

WN

SWA

SOUTHWEST

Founded
Commenced
operations
AOC #
Focus cities
Frequent-flyer
program
Fleet size
Destinations
Company slogan
Headquarters

March 16, 1967

June 18, 1971

SWAA304A

List of Airports[show]

Rapid Rewards

694[2]
102
Without a heart, it's just a machine.[3]
Dallas, Texas, USA

Key people

Gary C. Kelly

(Chairman, President,

CEO)

Colleen Barrett

Herb Kelleher

(President Emeritus)

(Co-Founder, Former

CEO, Chairman Emeritus)

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Rollin King

(Co-Founder, Former

Executive)

Revenue

US$ 18.61 billion

(2014)[4]

Operating income

US$ 2.23 billion

(2014)[4]

Net income

US$ 1.14 billion

(2014)[4]

Total assets

US$ 4.27 billion

(2014)[4]

Total equity

US$ 6.78 billion

(2014)[4]

Employees
Website

47,000

(2013)[4]

www.southwest.com

Southwest Airlines Co. (NYSE: LUV) is a major U.S. airline and the world's largest lowcost carrier, headquartered in Dallas, Texas. The airline was established in 1967 and adopted
its current name in 1971.The airline has nearly 46,000 employees as of December 2014 and
operates more than 3,400 flights per day. As of June 5, 2011, it carries the most domestic
passengers of any U.S. airline. As of November 2014, Southwest Airlines has scheduled
service to 93 destinations in 41 states, Puerto Rico, and abroad.
Southwest Airlines has used only Boeing 737s, except for several years in the 1970s and
1980s, when it leased some Boeing 727s from Braniff. As of August 2012, Southwest is the
largest operator of the 737 worldwide with over 650 in service, each averaging six flights per
day.
As an employer, Southwest was ranked #15 in the Glassdoor Employees Choice Awards
2015.

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CASE PROBLEM
The current paper discusses leadership changes that occurred in Southwest airlines in the
2001 when herb Kelleher promote two of his close aids for leadership positions; Colleen C.
Barette, Vice-presidents for customers, promoted to be the president and chief operating
officer, and James F. Parker, general counsel promoted to be the chief executive officer. Since
Southwest's airlines experienced leadership change, radical change in the organizational
cultural experienced too. Instead of working as teamwork, there were increasingly distance
between employees, managers and top management. Before changes, the top management
was very close to its employees and personally contacts them and celebrates their birthday
and events.
However, after changes, keeping in close touch with personnel become an increasingly
challenging task to the new leaders. Furthermore, warm employee relations at southwest
seemed to be absurd over time. Unions played a great role in the game and were becoming
more aggressive in expressing their frustration. Employees uttered that the new management
spend too much time in the back offices of Southwest while managers uttered that the feel
their organization culture is at risk because of the actions taken by Southwest's new
management during negotiation with Unions. The paper argues that the growth of the
company and the consequent in crease in the number of employees also posed challenges of
keeping the culture intact. Furthermore, Southwest was experiencing cost increasing in fuel
and wages. For example, the cost per average seat mile (ASM) went up from 7.07 cents in
1995 to 8.8 cents in 2006. Most of Southwest's Airlines customers reserve online (71.2 %)
and the labor cost advantaging narrowing between major airlines after restructuring, the new
management expressed that further cost reductions are very difficult and only could be
achieved though increase modest fare increase and employee layoffs. These two available
solutions for the new management are directly contradicting southwest culture.

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Industry Analysis

Porters five forces


In order to analyze the industrial environment of Southwest Airlines and evaluate the nature
of the competition faced by the company, this essay uses Porters Five Forces tool developed
by Porter E.M (Porter, 2008). The Five Forces analysis is as follows:[level-free-restricted]

Competitive Rivalry
The competitive rivalry in airline industry has been increasing especially through mergers
and acquisitions. Delta Air Lines, which acquired Northwest Airlines in 2008 and recently
merged with United Airlines and Continental, have become formidable rivals. They are
offering their passengers access to numerous cities throughout the US and connecting them to
four continents of the world which Southwest Airlines does not do (Mouawad, 2010).
Moreover, new rivals have emerged following the footsteps of Southwest. Airlines such as
JetBlue Airways and Allegiant Airlines are threatening Southwests market share in the nofrill, low-price trade by offering lower costs and attending customer service (Mouawad,
2010).

Entry Barriers
There are high barriers to enter this industry as it requires a large initial capital investment. In
conjunction with the price wars and low profit margins, it has become difficult to make profit
in this industry. It is very common for airlines to project losses in their financial statements.
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Therefore a new entrant must be able to handle losses at the beginning. Another barrier to
entry is the limited availability of landing slots at the US airports. The slots are already
reserved by established airlines and are difficult to obtain especially in airports with high
passenger demand (Czemy 2008).

Threat of Substitutes
There are many substitutes in terms of long distance travel such as cars, trains, ferries; and
these are usually cheaper. However, air travel has the absolute advantage in terms of time.
Hence, the threat of substitute is relatively low.

Bargaining power of suppliers


Boeing and Airbus are the main aircraft suppliers for large airlines. Boeing is the supplier of
aircrafts to Southwest Airlines. During the last few years, Southwest Airlines has renewed
some of its aircrafts with Boeing 737-800 aircraft and plans to completely switch over to
them in near future (Southwest, 2013). Since there are high switching costs for Southwest
Airlines from Boeing to Airbus related to the training costs of pilots and training engineers
to adapt to Airbus aircraft the bargaining power of Boeing is high.
Also, Southwest Airlines is heavily depended upon on the price of oil for its profit margins,
which implies high bargaining power of oil suppliers. Price hedging is limited and high rises
in prices can manipulate Southwests fuel costs. Additionally, Southwest Airlines primarily
uses regional airports and avoids large and expensive international airports. Hence, the
bargaining power of both these suppliers is high (Thompson and Gamble, 2012).

Bargaining power of buyers


Consumers have high bargaining power which is mainly attributed to their price based
preference. Receiving the same service, the consumers will select the airline which offers
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them best value for their money. Due to the widely available information technology tools,
consumers have the ability to compare flights services and prices before making their final
selection. Since the switching costs for customer is very low, the bargaining power of buyers
is high.

PESTEL ANALYSIS

Political and Legal factors


Southwest Airlines domestic operations are significantly influenced by government bodies;
primarily Federal Aviation Administration (FAA). For instance, the 1979 Wright
Amendment prohibited the airline to fly non-stop or provide through-plane service from
Dallas Love Field to any other than 7 permitted cities. Recently, a law has been passed to
repeal the Wright Amendment to be in effect in 2014
Southwest Airlines has on numerous occasions won legal battles against rivals in the US
courts

Economic factors
Airline industry is severely affected by fuels costs. A rise in the price of oil has a major
impact upon Southwest Airlines profitability (Mouawad, 2010). The future trends of oil
prices are volatile and the fuels cost account for almost 40% of airlines operational costs
(Thompson and Gamble, 2012).
Due to economic downturn, customers demand for air travel has reduced due to cuts in
personal and business expenses across the US; however, the consumer demand for low-fares
no-frills air travel has remained undeterred and indeed undergone growth (Southwest, 2010).

Social Factors

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Southwest Airline has a strong commitment towards customer service (Thompson and
Gamble, 2012).

The overall viewpoint of Southwest Airlines is that the company is in the customer
service business it just happens to fly airplanes.
o The company hires a customer service aspirant for employment based on their
attitude, regardless of experience.
o There is a position of Vice President of Customers established within the
company.

Technological factors
Technological developments have both created new opportunities as well as threats for
Southwest Airlines.

Emergence of information and communication technologies has enabled robust


communication and subsequently provided customers with an alternative for frequent
travelling.

It has also enabled Southwest Airline to expand its outreach directly to consumers
through e-commerce. For instance, Southwest Airlines was able to introduce ticketless
travel through the use of technology (Thompson and Gamble, 2012).

Southwest Airlines reservation system is considered to be outdated. It needs to update


so that the company can sell international tickets, provide passport information to
federal authorities, and better handle customer relationships, along with other services
(Mouawad, 2010).

Environmental factors
The aircrafts emissions have a higher impact to the environment as they travel several
kilometers above the surface of the earth.

Aircraft emissions cause significant damage to the atmosphere (Penner et al. 2001).

The community noise is another major environmental concern.

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Noise from the air traffic is not only the reason for irritation and an unpleasant
experience and has serious health issues. (Aircraft Noise is Unhealthy, 2008).

Swot Analysis

Strengths
Has experienced very fast growth since its inception in 1971.
Offers credit based on the number of trips with the airline instead of the total
miles traveled.
Was the first to offer senior discounts, ticketless traveling, and services for
air freight delivery.

Carefully considers each applicant so that they are sure to hire the best
employees which leads to
excellent service for their customers.

Offers reasonably priced travel packages with low frills and excellent
customer service.
Low cost approach to flights that has drawn consumers to their services.
Excellent employee relations leads to higher ticket sales as they all work as a
team.

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Weaknesses

Does not offer segmented seating options.

Space to carry freight and cargo is limited.

Does not offer international flights.

Dependant on a single airplane producer.

Very short trips earn the same amount of perks as a long, extensive flight.

Scrutiny of potential employees based on personality before skill could be dangerous.

Having a reduced amount of Line Supervisors can lead to rogue employees.

Opportunities

Expansion into international and other national markets.

Research and development to advance procedures and services with the industry.

Was the first to offer senior discounts, ticketless traveling, and services for air freight
delivery.

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Applying new technologies to make the travel experience more enticing.

Extend flights to further destinations.

Expanding services to include services for leisure or business classes.

Considering applicants with large skill bases but lower amounts of enthusiasm.

Threats

The economy reducing the number of travelers for leisure.

Online ticket reservation systems from competitors.

Government regulations that add to operating costs.

Terrorist threats causing less people to be willing to fly.

Prices for oil and gas.

Costs for airline security have increased annually.

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QUESTIONS
1.Is there anything that you find particularly impressive about Southwest
Airlines?
One of the most impressive characteristics about Southwest Airlines is their fun, loving,
determined company culture that believes first in making employees happy which then results
in happy customers. Herb Kelleher was adamant about listening and allowing employees to
think and to most importantly be heard. The strong value of the happiness of their spunky
employees is their competitive advantage against other rival airlines in the industry.
Southwest is able to create a competitive advantage not only with their low prices but also
offering a fun and humorous experience when flying. Another characteristic of Southwest
that is impressive is Herb Kellehers role in the company even after stepping down and
retiring from the CEO position and that he will remain a Southwest employee till July 2014.
His decision to stay active in the company reflects his dedication and passion for the future
success of Southwest Airlines

2. Does the AirTran acquisition make good strategic sense for Southwest?
I believe that the AirTran acquisition is a good strategic decision for Southwest:
AirTran had revenues of 2.5 billion and operating income of 128 million
Is a low-fare, low-cost airline like SouthWest
Serves 70 airports in the US, Mexico and Caribbean; 19 that already coincide with
airports served by Southwest
Their largest airport is in Atlanta and if Southwest buys them they can translate 2 million
additional passengers annually in the Atlanta market share alone

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3. What grade would you give Southwest management for the job it has
done in crafting the companys strategy? What is it that you like or dislike
about the strategy? Does Southwest have a winning strategy?
Southwest deserves an A for their unique crafting of their strategy to keep their fairs at a low
cost and differentiating themselves in other ways (better customer service) than rivals to
become the most profitable airline in the US. Their ability to succeed by their winning
strategy is proven in their capability of creating a profit year after year despite a downturn in
the economy where as their rivals and the industry as a whole suffered drastically. The US
airline industry lost billions of dollars in profit from 1980-2009 yet Southwest reported a
profit every year since 1973 due to their strategy of low operating costs, low fares, and
customer pleasing service. What is appealing about their strategy is their determination and
keeping their promise of keeping their costs the lowest across the industry and finding other
ways to make up for the lost cost in low prices
which has been crafted since the start of Southwest. Herb Kellehers
determined and outgoing personality is how the strategy was crafted and
still how it remains today. Their strong values in their corporate culture are
reflected through their customer service and their prices.

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CONCLUSION AND RECOMMENDATION


The current study attempts to enhance our understating by exploring various situations that
face Southwest airline, which primary occurred because of the company desire to expand and
the extensive competition in the market. The competitor could not be developed without
understanding the secret of Southwest airline succession. While Southwest airline, as pioneer
in the airlines industry should seek effortful to exploit opportunities and develop various
strategies that are complex and not easy to mimicry by rivals. The new leader of Southwest
should promote and encourage personnel by adapting various framework and models that
appears the in management filed. The current study underpin two but important model that
could be in one hand, change the attitude of employees and thus enhance the organizational
culture, and on the other hand, enhance the competitions and cost reducing of the firm the
market.

Bibliography
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