Southwest Airlines' International Expansion | Free Essay Example

Southwest Airlines’ International Expansion

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Topic: Business & Economics
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Abstract

Southwest Airlines is one of the most successful airlines in the American market. Southwest Airlines has successfully differentiated its services from those of its competitors. The company strives to replicate its success in the local American market in the international market. Southwest Airlines’ highly motivated employees would give the company a competitive edge in the international market. In addition, effective cost management of Southwest Airlines would give the airline a competitive edge in the international market. However, successful venture into the international market necessitates Southwest Airlines to change its strategies. Code sharing is one of the strategies that Southwest Airlines intends to use in venturing into the international market. Southwest Airlines plans to use the William P. Hobby Airport as its hub for international flights.

Introduction

Southwest Airlines is one of major airlines in the American domestic market. Since its inception in 1967 by Herb Kelleher and Rollin King, the airline has undertaken several strategies that have improved its competitiveness. Air Southwest was the original name of Southwest Airlines during the incorporation of the airline. In 1971, Lamar Muse, who was president of the airline at the time, issued promissory notes that helped in raising $1.25 million additional capital. This provided the company with capital for rapid expansion. The company changed its name to Southwest Airlines soon after the issue of the promissory notes (Lauer, 2010). Southwest’s business model strives to improve the quality of services and reduce the costs of services to customers. Operating a single fleet of Boeing 737’s enables the company to increase its efficiency and reduce maintenance costs (Doganis, 2006). Southwest has undertaken several strategies that have led to the creation of a niche market where the firm is the dominant player. The airline has achieved this by scaling back some operations and upgrading others. The success of the company in the domestic American airline market has necessitated the company to contemplate replicating its domestic success in international markets.

Characteristics of the Airline Industry

Airlines differentiate their services using size and type of cargo they transport. Low-cost carriers, airfreight carriers, and regional carriers are the major categories airlines. Low-cost carriers use the prices of their tickets to differentiate their services. On the other hand regional carriers use convenience and quality of their services to differentiate their services. Airfreight carriers specialize in the transportation of cargo. Airlines in each category may use several strategies to differentiate their services. A common feature of the above categories is the fact that all airlines have a hub from which they base their operations (Vasigh, Tacker & Fleming, 2008). The above characteristics relate to both the local and international airlines.

Some of the key competitive factors of the airline industry include cost structure of the airline, reliability of service, service locations, and workforce. People usually expect low-cost carriers to offer low quality. On the other hand, airlines that charge high prices for their tickets should offer high quality services (Vasigh, Tacker & Fleming, 2008). Despite Southwest Airlines being a low-cost carrier, the company offers high quality services. This improves the competitiveness of the airline. The ability of Southwest Airlines to offer high quality services at a low cost would improve the competitiveness of the airline if it ventures into the international market. The company may create a niche market from where it would get loyal customers. However, the company would face stiff competition from other airlines that are already in the market.

Organizational Structure

Southwest Airlines has a lean organizational structure. The leanness of the organizational structure facilitates cross-functional communication between employees of the company and the management. Southwest Airlines’ lean organizational structure enables employees to share their opinions with their managers or even the company’s president. In addition, the lean organizational structure of the airlines facilitates easy supervision of employees by their department supervisors who maintain direct contact with the employees (Jones, 2012).

Southwest empowers its employees to make decisions that would improve the efficiency of their activities without seeking for permission from their supervisors. Empowerment increases the motivation and productivity of the employees. In addition, Southwest Airlines provides employees with access to unlimited information on the company’s operations and financial profitability (Jones, 2012). Access to information enables the employees to have a clear understanding of the airline’s operations. This enables them to determine how their performance affects the overall performance of the organization. This makes the employees feel that they vital to the company.

Human Resource Management Policies

Southwest Airlines strives to formulate innovative ways of serving various stakeholders while ensuring that the airline remains profitable. The company’s human resource department has various policies that help in selecting the right employees for the company. Southwest Airlines hires employees due to their attitude then trains them to acquire the necessary skills, which would enable them to work effectively within the company. Southwest Airlines strives to satisfy employees to enable them improve their productivity. According to Southwest Airlines’ philosophy, satisfying the needs of the employees enables them to satisfy the needs of the customers. The airline puts the interests of its employees before the interests of customers. Southwest Airlines strives to create a harmonious working environment where employees feel like part of a large family. The airline has various schemes that reward high performing employees (Hayton, et al., 2012).

Since the airline industry is a service industry, employees are a vital competitive factor. This necessitates companies to ensure that they have highly skilled employees. In addition, airlines ensure that they have strategies that improve the motivation of their employees. These factors improve the quality of services that the airlines offer (Belobaba, Odoni & Barnhart, 2009). Southwest Airline has various employee schemes that strive to improve employee motivation. Improved employee motivation enables them to provide high services. The ability of Southwest airlines to motivate its employees while limiting its operating costs may give the airline a competitive edge over other airlines in the international market.

Marketing Strategies

Southwest Airlines uses a risk reduction marketing strategy. The company ensures that it promises its customers what it is capable of offering. This makes customers not to have the wrong expectations. The airline promises low priced tickets and high quality services. Southwest often under promises but over delivers on various services. The low price of tickets of Southwest Airlines has made customers associate the company with low prices. The airline uses ticketless travel to simplify its services (Wood, 2008).

SWOT Analysis

Strengths

Southwest Airlines uses a standardized fleet of aircraft. The standardized fleet reduces aircraft maintenance and other operational costs (Doganis, 2006).

Southwest Airlines has a strong brand, which is easily recognizable. The company has been in operation since 1971 (Noble, 2007).

Southwest has a dedicated workforce. The airline puts the interests of its employees first. This improves their commitment and productivity (Simons, 2010).

Weaknesses

Southwest Airlines does not have a first class section. This makes it lose customers who wish to receive first class service. In addition, Southwest Aircraft does not offer inflight meals (Potts, 2002).

Southwest Airlines has various strategies that strive to reduce labor costs. The airline requires employees to perform multiple jobs simultaneously (Hill & Jones, 2009). This creates a stressful work environment.

Opportunities

Southwest Airlines concentrates on its niche market. The airline does not have extensive involvement in the freight business. Expansion into this market segment would increase the profitability of the airline.

Growth of the Latin American market promises to lead to rapid growth of the Southwest Airline. The company stands to benefit the most from the growth in this market due to its ability to offer low prices and high quality services.

Threats

The airline industry has intense competition. United Airlines is one of the major competitors in the international market (Vasigh, Tacker & Fleming, 2008).

Venturing into the international market necessitates the airline to comply with regulations from various governments. This may pose several challenges to the airline (Vasigh, Tacker & Fleming, 2008).

Strategies for International Expansion

Despite its success in the US domestic market, Southwest Airlines focuses on short-haul routes. The average length of Southwest Airlines’ flights is 425 miles (Piercy, 2012). To facilitate continued growth of the airline, Southwest Airlines should venture into the long-haul routes and international markets. However, in so doing, the airline would be venturing into markets that have other dominant airlines. American Airlines and United Airlines are some of the dominant airlines in the market segment. For Southwest Airlines to expand into international markets effectively, it should form alliances with other companies. Alliances enable airlines to share airport facilities and integrate their services. Alliances are vital for profitability in international markets.

However, expansion into international markets may pose several challenges to Southwest Airlines. Entry into the international market necessitates the airline to use larger planes to ensure profitability. Southwest Airlines uses only Boeing 737 planes, which have a low capacity. Changing the type of aircraft may increase operational costs of the company. In addition, due to the long flight time of international flights, Southwest would have to introduce inflight entertainment. This would force the airline to increase ticket prices. These factors may change the image of the airline as a low-cost airline. In addition, the nature of international markets makes it difficult for foreign airlines to dominate domestic flights in another country. Venturing into international markets may force Southwest Airlines to use hub-and-spoke scheduling for international connections. This would pose several challenges to the airline since its uses point-to-point scheduling in other routes.

Southwest is pursuing an expansion strategy through code sharing. The airline has entered into negotiations with Canada, England, Mexico, and various Caribbean island countries. Volaris is one of the airlines that code shares with Southwest Airlines (Esterl, 2009). Code sharing allows Southwest Airlines to share the routes of these airlines.

Venturing into international markets would be beneficial to Southwest Airlines. Code sharing would enable the airline to share customers with other airlines. This would reduce the need for the company to establish its brand to the new customers. Southwest Airlines may also use acquisition to venture into international markets. Very few low-cost airlines fly internationally. Therefore, there is limited competition in low-cost international flights. Some of the low-cost airlines that fly internationally include JetBlue and Virgin Atlantic. Therefore, the Southwest Airlines would join these airlines in providing services to budget-conscious travellers.

Southwest Airlines plans to use the William P. Hobby Airport as its hub for international flights. The airport is meets federal standards for international airports. In addition, expansion plans of the airport would facilitate continued growth of Southwest Airlines. Southwest Airlines would use the airport to serve the Latin American market. This market has continued to grow over the past decade. Therefore, it provides a good opportunity for Southwest Airlines to venture into the international market profitably. United Airlines is one of the major American airlines that serve the Latin American market. Therefore, Southwest Airlines should brace itself for stiff competition from the airline. United Airlines claims that Southwest’s presence in the international market may make some routes be unprofitable.

Southwest Airlines has already provided a proposal to the City of Houston detailing its expansion plans. If Southwest Airlines gets the approval of the City of Houston, Customs and Border Protection would provide various resources to facilitate international expansion of Southwest Airlines. Operating international flights from Hobby would have great impacts on the economy of Houston. It may lead to a significant reduction in ticket prices. This is because Southwest Airlines normally offers low priced tickets. Southwest Airlines intends to use low fares to stimulate increase in traffic in the market.

Southwest Airlines intends to use the notion that it is an underdog in the airline market. This would improve the image of the company to customers who do not prefer large airlines, which are normally inefficient. This would help increase its competitiveness in the market.

Conclusion

Southwest Airlines intends to use its domestic success as a platform for venturing into the international market. The airline has used various strategies to create a niche market from where it sources its customers. However, success in the international market requires the airline to formulate other strategies. It is vital for the airline to ensure that the strategies do not diminish the strength of the company’s brand name.

References

Belobaba, P., Odoni, A. & Barnhart, C. (2009). The global airline industry. Hoboken, NJ: John Wiley & Sons.

Doganis, R. (2006). The airline business. London: Routledge.

Esterl, M. (2009). Southwest Airlines CEO flies uncharted skies. The Wall Street Journal. Web.

Hayton, J., Biron, M., Christiansen, L.C. & Kuvaas, B. (2012). Global human resource management casebook. London: Routledge.

Hill, C. & Jones, G.R. (2009). Strategic management theory: An integrated approach. Mason, OH: Cengage Learning.

Jones, P. (2012). Flight catering. Burlington, MA: Elsevier Butterworth-Heinemann.

Lauer, C. (2010). Southwest Airlines. Santa Barbara, CA: ABC-CLIO.

Noble, P. (2007). Evaluating public relations: A best practice guide to public relations planning. London: Kogan Page Publishers.

Piercy, N. (2012). Market-led strategic change. London: Routledge.

Potts, J.F. (2002). Customer-focused transit: A synthesis of transit practice. Washington, DC: Transportation Research Board.

Simons, R. (2010). Seven strategy questions: A simple approach for better execution. Boston, MA: Harvard Business Press.

Vasigh, B. Tacker, T. & Fleming, K. (2008). Introduction to air transport economics: From theory to applications. Surrey: Ashgate Publishing, Ltd.

Wood, R. (2008). Into the value zone: Gaining and sustaining competitive advantage. Lanham, MD: University Press of America.