Identify Current Strategy
Southwest Airlines Co. is a major domestic air carrier that is the worlds only short-haul, high-frequency, low-fare, point-to-point carrier according to the President and CEO Herb Kelleher. Southwest has always been able to quickly seize any strategic opportunities whenever they arise. Southwest is the only company to ever hold the Triple Crown for annual performance. Some of the key factors that contribute to Southwests success are its conservative growth pattern, cost-containment policy and the commitment of its employees. Southwest has made its mark by concentrating on flying large numbers of passengers on high frequency, short hops at bargain fares. Southwest flies out of smaller satellite fields rather than major congested airports as they generate a higher turnover rate in the process. Deviating from their conservative strategy a little bit, they are introducing longer, nonstop trips as well as coast-to-coast travel.
Southwest continues to be the least expensive airline in the industry, as competition cannot meet the fares that Southwest is putting out into the market. The competition of competing airlines would incur substantial losses if they stayed competitive with Southwests fares. Another key factor is that they have only one type of airplane that is used, Boeing 737s, which helps lower their costs dramatically for training, maintenance and inventory.
While most airlines have turnaround times of up to an hour due to congested airports and cleaning services, Southwest does it all in 20 minutes or less, recognizing that planes only earn money while they are in the air. Southwest has a great team spirit as they believe that the employees come before the customers as they are given great amounts of information to better understand the company, its mission, customers and its competition as information is power and with information is a better job being done. They maintain a lean staff as they have negotiated flexible work rules that enabled it to meet rapid turnaround schedules as everyone helps everyone out with their high productivity. Southwest always sets itself apart from the rest of the industry as they have a fun loving, rebel reputation. Their ads always try to convince the customer that what the airline offers is of real value to them. Southwest promises safe, reliable, frequent, low-cost air transportation topped off with outstanding service.
Southwest has also been aggressively marketing its products on the internet as well as they are one of the elite 10 companies that are doing business the right way on the internet as they are turning browsers into buyers.
Evaluate Current Performance
Southwest Airlines continues to operate profitably as it made $474.3 million in a growing net income on $4.7 billion in 1999 revenues. It has a record of over 27 consecutive years of operating at a profit. Its debt of $871 million has been the lowest against all U.S. carriers and also has the highest Standard and Poors credit rating in the industry with a rating of A. Assets are increasing as they reached $5.65 billion from $4.71 a year ago. Their debt and equity are both rising as they have issued common stock with retained earnings of $505 million. Their income expenses have come from negative $21 million to positive $7 million over a year time. Overall, the company is making very smart and strategic moves as it is enjoying growing profits as net income rose 9% to go along with an increase of 13% in total revenue.
Perform External Audit
A positive factor external to the company is that there is a consumer need for a less expensive and easier way to perform interstate travel in the southwest as major airlines charge an enormous amount for such travel. Due to their strategy of short-haul, high frequency, short-hops, low-fare, point-to-point carrier, they have created their own market share that has eliminated a lot of their competition and they have generated high profits as a result of it. The companys reputation as one of the most admired companies is a positive factor as well as they also have the highest credit rating from the Standard and Poors. The increase in Internet usage is key as they are heavily marketing themselves on the Internet. Competition is another factor as it is both positive and negative, as it is the fuel to which makes Southwest a growing company while they thrive off of competition. It makes the employees closer as well as makes the company stronger. Competition of course also hurts revenue, as the major airlines that offer more services with competitive rates are taking away Southwests customers. Negative factors include mostly competition as stated before as well as the economy going down. Fear of flying is another factor as people look towards other ways of travel rather then flying. Tax requirements are another key factor as the new tax system replaces a percentage tax with a tax that includes a flat, per-segment fee that hits low-fare carriers harder such as Southwest.
Perform Internal Audit
Positive factors that are within the company are that they have low costs, as they are very thrifty in their operations. The fact they use the same airplane being the Boeing 737, helps lower costs dramatically. They are the least expensive airline in the market, as larger carriers cannot match the offers on fares that they are selling at. Southwests belief that employees come first as the employee retention policy has contributed to employees of Southwest feeling a great sense of loyalty to the company as productivity goes up as a result. The great turnaround time is also key for profitability reasons as the quicker that they get the plane in the air, the more revenue being taken in as more people are flying as a result.
Negative factors within the company are their possible change in strategy as it may be changing to go long-haul instead of short-haul as they are introducing some longer, nonstop trips which will deviate from their conservative approach of short-haul low-fare carrier. Another factor is the fact that the customer is not valued first as keeping the employees happy is a key for company success as it creates a better work environment.
Summarize Critical Issues
The critical issues involving Southwest are that they have a great strategy that has created a marketplace all its own, as they have eliminated a lot of the major airlines that are trying to compete with their low wages. It has a great reputation and credit rating that helps their consumer base deeply. The productivity of the company due to the employee regard as being most important is a key factor, as there is loyalty brought into the workplace that is not seen in many companies as it is like one big family. The changing of strategy plays an important role in the future of the company as it is deviating away from their conservative, small growth style as they look to expand to bigger markets and try to compete with these large airlines that have a great customer loyalty already and they value the customer before their employees. Overall, competition is extremely critical, as they must fight to get their revenue and maintain their growing net income and total revenue.
Formulate New or Modified Strategic Alternatives
Southwest can modify its advertising as it may try to reach out to internet advertising more as competition is strong and they have to keep their low rates as well to compete with the competitive market. In trying to expand, look into international routes of Canada and Mexico especially, as it would greatly increase revenue as the low fares would knock out a lot of the competition. Trying to reach out more towards customer needs as well as to valuing the employee should be looked upon as it will generate more repeat customers. Investing more within the company should be looked upon as they have such a high credit rating that they should issue more common stock as they should utilize their reputation as a source to profit.
Develop Specific Strategic Recommendations
I think that Southwest should expand their markets but not to an extreme as I wouldnt want them to deviate too much from their very successful strategy. I would like to see them expand their markets to Mexico especially as I feel that they can generate high revenues due to their low fares that cannot be beat as well as their high turnover rates that would give them a greater competitive edge against competing markets. The possible issuance of more common stock might help generate more revenue as well as their company name is growing in popularity, as they are one of the more admired companies around. In issuing common stock, Southwest could use the equity to expand into other markets and would make an impact in the airline industry even more then they have already. Customer needs are very important with business, as they cannot be forgotten about. With the employees being #1 within Southwest for some consumers that may not be enough to get their business. Southwest should look towards pleasing the customer in other ways as it may grab their business as well.