SOUTHWEST AIRLINES Case Study Analysis
The South West Airlines is the second largest U.S based Airline in the world comprising of 144.6 million total passengers boarded in 2015. The Airline was founded in 1966 by San Antonio and is currently managed by Gary C. Kelly. In 2016, the company’s portfolio comprised of 704 Boeing 737 aircrafts serving in 97 destinations in 40 states which includes Columbia, Costa Rica, Puerto Rico and more. The company’s main competitive advantage includes charging low fares from customers, providing improved customer experience, adopts low cost operating model, employs fuel hedging and derivative contracts, has rigorous employee hiring and training models and policies and provides attractive compensation to its employees as compared to other rivals.
The company faces intense competition from Deltas Airlines, America Airlines and United Airlines. The company has been enjoying profits since its inception and was named as the World’s seventh most admired companies for the 22nd consecutive yearin the Fortune’s list of most admired companies. In addition, it received many awards such as the best domestic airline for customer service, brand of the year in airline industry award and received top rankingamong the best customer service and loyalty credit card lists.The company strongly believes in innovation, introducing new technologies and strategies in order to provide a top notch travel experience to its customers.
The company experienced difficulties in employing its current pricing strategywhich is the core reason of its success due to rising oil prices and intense competition from rivals. The company profits reduced by $162 million in 2015 as a result of recession, fare wars by competitors and volatility in fuel prices. On the other hand, the company experienced duplication of its strategic models by various rivals in the airline industry which made it even more difficult for the company to continue employing its low fare model, low cost operations, strong culture and employee productivity which are the main factors of the organization’s success. In order to maintain its current profitability and performance, the company might need to reduce the dividend per share, salaries of the employees or increase the airline fares which is against the corporate culture of the company.
Current Situation and Most Recent Strategies:
The current operating model of the company includes charging low fares from its customers, providing top notch travel experience to its customers by offering convenient flight schedules with feasible timings and multiple destinations in order to facilitate business customers. The organization expanded its business significantly by acquiring AirTran Airways in 2010 which employed the same business model the Southwest employs and serves 70 airports in U.S, Mexico and Caribbean.
The most recent strategies which the organization pursued includes fare structure strategy which offered fares in four categories in order to facilitate the business customers, senior customers and price sensitive customers. Some of the fares were non-refundable and could be used for future travel with the Airline while some were refundable and changeable. This strategy was used by the organization in order to stimulate sales at times where reservation was weak. The organization used only Boeing 737 aircraft which provided many cost saving benefits including simplification of the maintenance process and scheduling planes for particular flights. The organization also used point to point route structure strategy which proved to be cost efficient as the time aircraft was at the gate was reduced.
The company used cost effective value chain activities in order to continue employing low cost operating model, these activities include installation of blended winglets to upgrade the aircrafts, offered online purchase and booking of tickets to customers in order to eliminate the fee of selling agent. In addition, the company served to less congested airports to reduce the fuel costs related to the planes waiting for clearance to land. The rise in operating expenses as a result of increasing oil prices, was also managed by the company by using fuel hedging and derivative contracts. In order to reduce the administrative cost, the company introduced Enterprise Resource planning system, free wireless internet services and mobile applications were used in order to allow the customers to use mobile boarding passes. In addition of this, the company entered into an agreement with Boeing and Delta Airlines to sublease or lease Boeing aircrafts as it involved high maintenance and repair costs. Similarly, these fleets were replaced by larger and efficient Boeing aircrafts, which enabled the organization to serve new destinations or airports and involved lower operating costs.
In 2016, the South West Airlines also launched a new reservation system and international services to Jamaica, Bahamas, Latin America and Liberia. The Rapid Rewards Frequent Programs was also upgraded in order to improve the experience of domestic and international customers. Transfarency campaign was launched by the organization in 2015 which included no hidden charges associated with checked bags, flight changes or preferred seating………………………..
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