Introduction
Southwest Airlines is a low-cost American airline founded in 1967 and headquartered in Dallas, Texas. According to Dias (2020), it is one of the largest airlines in the United States, operating over 4,000 daily flights to over 100 destinations. With a focus on providing low-cost air travel and delivering high-quality customer service, the company has established itself as a leader in the airline industry. Furthermore, the airline’s unique culture, which emphasizes fun and creativity, has been recognized as one of the best to work for in the United States (Dias, 2020). Despite facing problems in recent years, like increased competition and rising fuel costs, Southwest continues to grow and maintain its position as one of the country’s largest and most successful airlines. This essay will conduct a strategic analysis of the company and address the critical strategic issues that it is facing, to develop a set of recommendations to maximize the company’s long-term performance.
History of Southwest Airlines
Southwest Airlines was established on March 15, 1967, by Rollin King and Herb Kelleher. Its initial operations were focused on intrastate flights within Texas, connecting Dallas, Houston, and San Antonio (Braz & Freire, 2019). In 1979, however, as stated by Braz and Freire (2019), the company expanded its operations to include interstate flights to adjacent states. Throughout the 1990s, the airline continued to expand its services to cover the east and southwest regions of the United States.
However, the early 21st century saw the airline industry face significant financial challenges, leading to the restructuring of Southwest Airlines Co. In response to these challenges, the company implemented several key measures, including appointing a new president, Colleen Barrett, in 2001 and launching new programs such as online boarding passes for guests in 2004 (Braz & Freire, 2019). In addition, the airline participated in several reality shows on the A&E Network between 2004 and 2005 to enhance its brand image and recognition. In 2008, Barrett was succeeded by Gary Kelly, who remains the company’s president. Currently, the company operates in 45 states and various Central American destinations, earning revenue of USD 9 billion in 2020 (Braz & Freire, 2019). Today, Southwest Airlines is a major player in the airline industry, with a rich history of expansion and innovation, and continues to provide reliable and affordable air travel to millions of passengers worldwide.
Mission and Vision Statements
Southwest Airlines is committed to providing its customers with affordable air travel and exceptional customer service. The company’s mission statement is “To deliver the highest quality of customer service with warmth, friendliness, individual pride, and company spirit” (Dias, 2020, p14). The statement underscores the company’s emphasis on maintaining a strong customer focus and fostering employee engagement. On the other hand, the airline’s vision statement is “To be the world’s most adored, most frequently flown, and most profitable airline” (Dias, 2020, p14). The vision captures the airline’s ambition to be the preferred airline for customers worldwide while achieving financial success. Southwest Airlines’ mission and vision statements serve as a guiding principle for the company and its employees, shaping its strategy and decision-making processes. These statements reflect the company’s commitment to providing affordable air travel, maintaining a strong customer focus, and fostering employee engagement.
Southwest Airlines is renowned as a pioneer of the low-cost carrier model, bringing a revolutionary shift to the traditional airline industry with its innovative approach to air travel. The company is recognized for its distinctive corporate culture, emphasizing employee satisfaction and customer service. Furthermore, the airline follows a straightforward business model of providing passengers with low fares and a comfortable travel experience (Cote, 2018). By operating a single aircraft type, the Boeing 737, Southwest Airlines has successfully kept maintenance costs low while facilitating efficient scheduling (Cote, 2018). As stated by Taplin (2021), the strategy has enabled the company to emerge as one of the largest low-cost carriers in the US, covering 99 destinations in the US, the Caribbean, and Mexico. The airline has revolutionized the traditional airline industry by implementing a unique, low-cost carrier model that prioritizes customer satisfaction and employee well-being while maintaining low maintenance costs and efficient scheduling.
Southwest Airlines’ success in the airline industry can be attributed to its unique corporate culture. In 2019, the airline carried over 150 million passengers and operated over 4,000 flights daily (Dias, 2020). One of the key factors setting the company apart from other airlines is its corporate culture. The airline’s brand identity is distinct, with entertaining flight attendants and lively onboard announcements (Taplin, 2021). The company emphasizes customer service and trains its employees to provide a warm and friendly travel experience for its passengers. In 2020, Fortune named Southwest one of the 100 Best Companies to Work for, underscoring the airline’s commitment to creating a supportive and enjoyable work environment for its employees (Taplin, 2021). Overall, the company’s unique corporate culture, focus on customer service, and commitment to employee satisfaction have helped it establish itself as a leading airline with a distinctive brand identity and a loyal customer base.
Problems Faced by The Company
Despite its success, Southwest Airlines has faced several challenges in recent years. One of the main issues has been customer complaints about canceled flights and delays, which have led to a decline in customer satisfaction. Some customers have also expressed concerns about the company’s technology, which they believe needs to be updated and hindering its ability to provide a seamless travel experience. Additionally, the company has faced several lawsuits related to flight-related issues, which have put additional pressure on the company’s reputation and financial performance. Despite these challenges, Southwest remains a significant player in the airline industry and continues to be one of the most popular airlines among travelers in the US. The firm has a strong brand and a dedicated client base and has shown its ability to adapt to changing market circumstances while expanding and prospering.
External Environment Analysis
Airlines’ expansion has been stunted by several political concerns, chief among them being the current trade dispute between the US and China. According to Roy (2020), tariffs on imported goods have reduced the expansion of airlines’ cargo divisions, putting further strain on the industry’s profit margins. In the United States, airline operations are overseen by the “Federal Aviation Administration,” which often establishes regulations for airline firms (Wensveen, 2018). The FAA establishes airline licensing requirements and grants carriers economic permission to serve in the country in addition to maintaining passenger safety in all operations (Wensveen, 2018). Nonetheless, Southwest faced several cases of misconduct by customers. For instance, On May 25, 2021, the company’s flight attendant lost two teeth in an attack in the US due to unruly passengers (Wood, 2021). Consequently, the FAA has mandated that US airlines take comprehensive procedures to report disruptive people as part of its attempt to create a no-fly list of disruptive passengers.
Economic Factors
The airline sector in the United States is developing quicker, and the emergence of COVID-19 in 2020 only halted the rise of the airline industry. The North American airline business was estimated at $ 59.2 billion in 2020, with a predicted increase to $ 104.99 billion in 2026. The global aviation industry was valued at $ 169.72 billion in 2020 and is predicted to increase at a CAGR of 4% between 2021 and 2026. (Braz & Freire, 2019). Nonetheless, the biggest issue impacting the expansion of the aviation business in the US is growing fuel prices which, to Braza and Freire (2019), surpassed $1.67 per gallon, raising the entire cost of airline operations. The continuing coronavirus pandemic has also generated an aviation catastrophe due to several travel restrictions and aircraft cancellations.
Social Factors
The millennial generation has the greatest proclivity to travel since they travel more often than any other group of people. Generation X and millennials desire to see fascinating new places, influencing their travel plans (Barlan & Borbon, 2022). However, the travel demand was significantly influenced during COVID-19 owing to an increased possibility of illness transmission among persons. Despite this, the airline industry is predicted to develop faster in the post-COVID era owing to changes in consumer behavior and an increase in individual desire to visit leisure destinations.
Technological Factors
Technology factors play a vital part in the evolution of the aviation business since technological advancement helps to assure consumer safety, convenience, and the airline firms’ strengthened competitive position. Despite fuel-efficient technologies, Suma and Vinay (2019) postulate that digitization and safer flying technology also assist airlines in succeeding in a highly competitive world. Consequently, the airline sector is developing game-changing technologies to enhance customer service. Furthermore, numerous airline businesses are advocating using robotics to improve automation in the aviation sector and assure service timeliness for customers. Not only that but other technologies, such as artificial intelligence and virtual reality, are being utilized to increase automation and provide a better customer service experience (Suma & Vinay, 2019). The company is also constructing an innovation center to educate staff better and increase innovation in its operations.
Environmental Factors
Environmental concerns have grown in relevance in aviation since aircraft emissions substantially influence the environment. Noise from aviation traffic generates unpleasant feelings and has a harmful influence on inhabitants’ health. Aviation accounts for 11% of all emissions related to transportation in the United States, and this figure is likely to rise as the aviation sector expands (Ehrnrooth, 2018). Consequently, President Biden has put in place several policies to encourage zero-carbon aviation and meet climate objectives by minimizing the effects of climate change. Furthermore, the president proposes a sustainable aviation fuel tax credit as part of the build-back better program to cut costs and increase sustainable fuel production for aviation.
Legal Factors
Airline firms must comply with different rules and legislation, such as the clean air act, resource conservation act, and clean water act, to further promote environmental preservation. Moreover, airline companies in the US are governed by the FAA, which determines if companies satisfy safety norms and requirements (Wensveen, 2018). Carriers must also follow the Federal Aviation Act of 1958 and the Airport and Airway Development Act of 1970.
Five Forces Analysis
Table 1: Five forces analysis of Southwest Airlines
Internal Environment Analysis
Southwest Airlines has various benefits and strengths over its competition. The firm remains a highly lucrative operation in a competitive world of passenger air transportation. In 2019, the firm recorded its 47th straight year of profitability, with a net profit of $514 million in the fourth quarter (Southwest Airlines Reports 47th Consecutive Year of Profitability, n.d.). Furthermore, Southwest Airlines has a cost-cutting approach, with the lowest operating costs in the US aviation business. Another advantage of the firm is its utilization of single-type aircraft with the company having only Boeing 737 planes in its fleet (Southwest Airlines Reports 47th Consecutive Year of Profitability, n.d.). As a result, airline personnel needs training in operating and servicing various types of Boeing 737 aircraft, lowering coaching expenses and enhancing efficiency. Moreover, rigorous training on single-type aircraft translates into increased safety because all crew has a thorough grasp of the aircraft. Several factors contribute to Southwest Airlines’ performance and competitive advantage.
Weaknesses
However, there are things that the airline may need to address to compete with its top rivals. The company relies on the US market and provides few overseas flights. Southwest Airlines’ main destinations are the 48 continental states, excluding Alaska. Furthermore, the airline is primarily a single-revenue firm with little revenue variety. For example, in 2019, over 93% of operational income was derived from passenger tickets (Southwest Airlines Reports 47th Consecutive Year of Profitability, n.d.). The remaining 7% was dedicated to other revenue streams, and almost 0.7% was assigned to freight and postal revenue (Southwest Airlines Reports 47th Consecutive Year of Profitability, n.d.). Additionally, although having a single-type aircraft firm might be considered an advantage, it also diminishes the airlines’ industry position. For instance, Boeing aircraft problems may cause the bulk of the airline’s fleet to be grounded, resulting in revenue loss and a strained customer relationship. As a result, Southwest Airlines must address its reliance on the US market, a single income source, and a one-type aircraft strategy.
Opportunities
Southwest Airlines’ possibilities for continued success in the sector lay in addressing the identified flaws. Southwest Airlines, as a firm with a limited number of foreign destinations, may profit from worldwide expansion. For example, the airline might launch additional routes to underserved areas. Moreover, it may concentrate on providing low-cost flights to key tourist sites, establishing Southwest Airlines as a sought-after airline in the tourism market. Airlines may develop relationships with low-cost travel agents to provide charter flights to certain tourist spots. Southwest Airlines may grow its business and attract new consumers by providing low-cost long-distance flights. Furthermore, the operational revenue of the organization should be increased to cover various income sources. Specifically, as the logistical demands of the e-commerce sector develop, Southwest Airlines’ freight business may be extended. Finally, the corporation may grow its fleet by including different kinds of aircraft. Overall, Southwest Airlines has various chances to develop the firm and raise revenue by resolving the company’s flaws and reacting to market requirements.
Threats
The airlines’ biggest risks include rivals, increasing fuel costs, and Boeing 737 difficulties. According to Braz and Freire (2019), Southwest Airlines’ main rivals are American, JetBlue, Delta, United, Alaska, Frontier, Spirit, and Republic airlines. The corporation understands that the acts of other airlines, such as price, scheduling, and capacity, impact its operations and income (Braz & Freire, 2019). Finally, problems with Boeing 737 aircraft might significantly affect the corporation if Boeing orders the aircraft to be grounded. As a result, the airline’s income and reputation depend on a single aircraft model. Southwest Airlines faces internal as well as external dangers.
Southwest Airlines VRIO analysis
VRIO analysis is a framework used to evaluate a company’s internal resources and capabilities to determine its potential competitive advantage. It assesses whether a company’s resources are valuable, rare, difficult to imitate, and organized to enable the company to exploit them effectively. A positive VRIO score indicates a company’s sustainable competitive advantage, while a negative score suggests that its competitors may easily replicate its resources.
Table 2: VRIO Analysis of Southwest Airlines
Non-Core Competencies and Competitive Disadvantages
Southwest Airlines has introduced several technology programs, such as a fast reward program and expansion of customer self-service capacities, to maintain continuous operations and decrease operational expenses. However, the airlines’ technical activities need to be in step with the technological initiatives of competing companies. Along with this, the company has had several technical challenges, resulting in flight delays and the cancellation of around 500 flights (Boamah, 2019). One of the primary issues that the company has experienced is a network connection, which has also impacted the airline’s reservation system (Boamah, 2019). Currently, the company’s financial resources are one of the primary areas of worry since the outbreak of COVID-19 has had a detrimental influence on Southwest Airlines’ overall financial condition. This is a result of the temporary suspension of the tourist and travel business. Consequently, the corporation had a net loss of $ 3.1 billion, with operational revenues falling by 92% in April 2020 compared to 2019 (Southwest Airlines Reports 47th Consecutive Year of Profitability, n.d.). The company’s entire financial status and present period are shown in figure 1.
Furthermore, the company developed a direct-to-customer distribution strategy through an internet website, which enables the corporation to create significant money by providing a low-cost option to clients. The strategy saves the organization money by eliminating the need for third-party distribution channels. However, it remains a non-core skill for the firm since many other airline service providers offer the direct booking to their consumers.
Core Competencies, Resources, and Capabilities
The main strengths of the airline include cost-effective strategies, fuel economy, effective human resource management, ancillary services, and a point-to-point model. The company continues to participate in programs that minimize fuel usage and increase the organization’s fuel utilization. Since 2009, the firm has also been able to reduce average gasoline costs via appropriate modernization and the implementation of new fuel initiatives, as shown below:
Southwest Airlines ensures the use of fuel-efficient Boeing 737-300 planes in its fleet, which reduces GHG emissions. Its primary strength lies in cost control and providing affordable rates to customers. Moreover, its point-to-point route structure enhances efficiency, which enables customers to access regular flights at reasonable prices. The airline places significant importance on human capital, contributing to its strong competitive position. To ensure this, it offers programs and policies to enhance employee training and growth, conducting monthly surveys to improve job satisfaction and recruit, develop, and retain exceptional workers.
Critical Strategic Issues
One of the major critical strategies of Southwest Airlines is its over-dependence on the US market and its few overseas destinations. This lack of diversification in its revenue stream also makes the company overly dependent on passenger fares, which account for 93% of its operating income (Southwest Airlines Reports 47th Consecutive Year of Profitability. (n.d.). This leaves the company vulnerable to external factors that may affect passenger demand. Furthermore, the company’s single-type aircraft policy also exposes it to potential problems with the aircraft and the risk of having a majority of its fleet grounded, which could result in financial loss and a strained customer relationship.
Southwest Airlines faces several other strategic issues in its industry that can negatively impact its operation and revenue. The main issues are its competitors, rising fuel prices, and issues with the Boeing 737 aircraft. Competition is a significant threat to Southwest Airlines, as the company has several competitors in the passenger air transportation industry. The primary competitors include American, Jetblue, Delta, United, Alaska, Frontier, Spirit, and Republic airlines. These competitors can affect the company’s operation and revenue by adjusting their pricing, scheduling, and capacity, making it challenging for Southwest Airlines to remain competitive. Rising fuel prices are another threat to Southwest Airlines. As fuel is a high cost for the airline industry, any increase in fuel prices can substantially impact the company’s profitability. This increase in cost can force Southwest Airlines to increase ticket prices, resulting in a decline in passenger demand.
Strategic Options
Southwest Airlines has several strategic options to enhance its value. The internal growth strategy involves expanding the fleet, reducing its reliance on Boeing, offering more daily flights, and extending the range of cabin classes available to passengers. However, this strategy may increase operating and training costs. The external growth strategy involves forming partnerships with travel agencies to provide charter flights to popular destinations or developing new tourist routes. Both strategies face intense competition within the industry, but they offer the potential for new revenue streams.
A decision matrix can be used to identify the best strategic option, including operating costs, fleet capacity, revenue, and net profit. However, this approach may not account for external factors or long-term outcomes. Ultimately, fleet expansion is the most promising strategy for Southwest Airlines, as it will reduce reliance on Boeing and allow for a broader range of cabin classes. Increasing the number of planes in the fleet could provide a buffer to help the airline maintain its schedules, even if there are mechanical issues or other delays. The increased costs associated with new aircraft can be addressed by introducing new routes, expanding the freight business, and other measures. Thus, Southwest Airlines can achieve substantial growth with a more diverse fleet.
Recommendations
From the research, it has been determined that the company is one of the top low-cost carriers in the United States, focusing on providing high-quality service to its customers. Even with this, the company’s focus on low-cost strategies and point-to-point model may limit its growth potential in the long term by hindering its ability to fly longer routes. To address this, the following changes are proposed to enhance Southwest Airlines’ long-term competitive position:
Firstly, the company should adopt advanced technologies to improve customer service and overcome technical network issues. Additionally, the IT infrastructure should be modernized to cater to international travelers and manage complex ticketing systems. This could involve implementing a new reservation system or upgrading the existing one. Such an investment could improve efficiency, reduce errors, and decrease customer wait times. Self-service kiosks or mobile applications could streamline the check-in process, providing a better customer experience. Furthermore, the company could explore indirect distribution channels to boost its brand image and generate revenue by allowing third-party ticket purchases, such as through travel agents.
To increase revenue and maintain operating costs, Southwest Airlines should consider implementing various discounts and promotions to attract more customers. In addition, expanding the range of auxiliary services to include taxi services, hotels, and car rentals can help the airline diversify its income and improve its competitive advantage. Finally, it could also pursue market development to expand its reach to international destinations and fly greater distances, which may require investing in new aircraft.
Conclusion
In conclusion, Southwest remains a significant player in the airline industry and continues to be one of the most popular airlines among travelers in the United States. However, the company has recently faced serious problems, including canceled flights and delays. A comprehensive analysis of the firm’s internal and external environment using various analytical frameworks such as SWOT, PESTLE, VRIO, and five forces analysis has revealed crucial strategic issues faced by the company. The use of outdated technology, stiff competition, rising fuel prices, and dependence on boeing flights are examples of such issues. Thus, the recommendations provided eliminate these issues and offer a long-lasting solution.
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