Introduction
Southwest is one of the leaders in the short-haul air travel industry. The company was founded in 1967, and 2020 every year is profitable for it (Parnell, 2017). Southwest has established itself as a no-frills company; no food is provided on board, and reservations are also not possible (Parnell, 2017). One of the main advantages for customers is the absence of additional fees for luggage and strict adherence to the schedule (Parnell, 2017). Simplicity, low cost and accountability to customers have given Southwest a strong reputation as a reliable carrier.
Industry, Life-cycle, Competitors
The short-haul industry is making a comeback after the pandemic. Such flights are in demand because they are often cheaper and faster. The company operates in the short-haul domestic airline industry and accounts for an estimated 11.0% of total industry revenue (IBISWorld, 2022). Southwest is maturing in the business lifecycle and has a strong reputation for over 50 years in the industry. Although Southwest operates on shorter routes, global carriers such as Delta Air Lines and American Airlines are its competitors, providing customers with an alternative.
Potential Profitability
Short-haul domestic flights remain popular but may eventually be completely replaced by international airlines. The pandemic has created a serious dip in profits for airlines, but with closed borders, domestic flights remained in demand (Yu, 2021). At the moment, the popularity of domestic flying is recovering to pre-COVID levels. In the future, stable demand can be expected. However, over the next decades, after a period of industry maturity, profits may decline.
Critical Success Factors
Airlines focusing on domestic flights stand a good chance of beating their international competitors. American Airlines predominantly remains very popular as customers have few alternatives. Small domestic companies often turn out to be unprofitable, losing out to large monopolists. The situation with Southwest Airlines is radically different: despite the strong competition, it remains in demand. Cheap flights and the absence of additional fees are critical success factors.
Affecting Forces
Southwest’s activities are influenced by political, economic, and technological factors. Laws strictly regulate the activities of airlines to comply with safety requirements. From an economic point of view, the peculiarities of the market force airlines to raise airfare prices constantly. The airline industry is under a market structure known as an oligopoly, which implies service uniqueness and imperfect competition. Technological advances force airlines to constantly adapt to innovation.
Corporate-level and Business-level Strategy
On the corporate level, Southwest is pursuing a strategy of stability or combination, maintaining its appeal to loyal customers and making small expansion attempts. A few years ago, the organization began to operate international flights, but the strategy is still concentrated mainly on domestic flights (Detar, 2015). Southwest’s overall strategy is to compete with international airlines by providing more affordable travel. Southwest’s business-level strategic plan is to offer broad destinations at the lowest possible cost. Another strategic goal for Southwest is to ensure maximum comfort through additional steward training.
Business Strategies of Competitors
The main competitors for Southwest are major carriers offering international flight services. The strategy of major carriers such as American Airlines is to capture the largest market (Atallah et al. 2021). Securing even the most remote destinations allows carriers to get the most customers while still serving popular destinations. Once they have the largest number of customers, companies can set high prices and impose surcharges for check-in, food, luggage, and other services.
Marketing and Financial Strategy
Southwest’s financial performance remained stable prior to the pandemic. In the period from 2020 to 2021, indicators were falling rapidly, but by the end of the period, they begin to return to pre-COVID times (IBISWorld, 2022). The company’s 2021 revenue is $15,790 million, slightly lower than in 2019 but well above 2020 (IBISWorld, 2022). The financial strategy is to maintain profits and invest in a comfortable environment for customers and employees. The marketing advantage is provided by friendly and cheerful stewards at every flight. Advertising to the carrier is done by loyal customers who regularly use the services of the company.
Purchasing Strategy
The airline focuses its expenses on providing maximum flight comfort. The company pays special attention to the education and training of employees who ensure the safety and positive experience of each flight. Southwest invests in innovative development to remain competitive. Saving on food for passengers, Southwest provides the opportunity to carry free luggage. The overall strategy can be described as a contribution to the care of passengers.
Other Strategies
Southwest’s main strategy for attracting customers is not only providing affordable flights but also a strong bonus system. Rapid Rewards gives regular bonuses to loyal customers by reducing the cost of flights and attracting more frequent flyers (Parnell, 2017). The organization demonstrates responsibility to each passenger, having the lowest percentage of delays and flight cancellations (Parnell, 2017). The combination of loyalty and a different policy makes Southwest an attractive alternative for passengers.
SWOT
Alternatives
Alternative action scenarios for Southwest would be an orientation to the international market and the introduction of additional services. An increase in the number of international flights would significantly expand the circle of the company’s customers but would entail additional costs. Additional services could include trucking and new customer services such as seat reservations, which could cause customer churn. However, Southwest compares favorably with its competitors due to its low-price strategy and the absence of additional paid options. The company goes its own way and does not require critical changes.
Flywheel and Doom Loop
Flywheel and Doom Loop are concepts that are used to reflect the stages of business processes. The “flywheel effect” reflects the overall feeling of viewing a company that has gone from good to great (Collins, 2011). Such companies are the result of long discipline and loyalty to the idea. Each wrong decision can lead the company to a Doom Loop (Collins, 2011). These concepts are applicable to the aviation industry, allowing the development of a suitable strategic plan. The main recommendation for success in this industry is a commitment to the concept of sustainable development, building a flywheel. Sharp and ill-considered decisions must be left in favor of a clear plan and gradual changes. The absence of dramatic shifts has led Southwest to the fact that the company remains popular 50 years after the launch.
Conclusion
Southwest is a successful company in its sector, which at this stage has reached a level of maturity. Concentration on domestic flights and a loyalty system allow them to keep regular customers. To expand the number of service users in the future, the company may increase the number of international flights. However, currently, the strategy is effective, allowing Southwest to quickly recover from the adverse effects of the pandemic.
References
Atallah, S., Hotle, S. L., & Mumbower, S. (2018). The evolution of low-cost Carrier Operational strategies pre-and post-recession. Journal of Air Transport Management, 73(1), 87-94. Web.
Collins, J. (2011). Good to Great: Why some companies make the Leap…and others don’t. HarperCollins.
Detar, J. (2015). Southwest Airlines Takes Off Toward Global Expansion. Investor’s Business Daily. Web.
IBISWorld (2022). Southwest Airlines Co. Company Profile. Web.
Parnell, J.A. (2017). Strategic management: Theory and practice (6th ed.) Academic Media Solutions.
Yu, D. (2021). Divergence of aviation finance markets: Lulls before the storm or growth? The Journal of Structured Finance, 27(3), 9-17. Web.