Strategic Issue
What is the issue?
Southwest Airlines is the American airline company known as one of the most low-cost airlines in the country. It is the largest company in the United States which carries the biggest number of passengers per year domestically. “Southwest Airlines has been profitable every year for 31 years – an unsurpassed record in the highly turbulent, frequently unprofitable, airline industry.” (Gittel, 2005)
Why is it an issue?
The company is well-developed and is currently considering several changes in structure and policies all of which deserve some discussion. These changes may alter the structure of the company and affect its market position.
Strategic Alternatives
Alternative # 1
What: Entering long-haul and other air transportation markets. Recently Southwest Airlines has been considering an option of entering the long-haul air transportation market. This market is comparatively small and undeveloped due to the fact that not so many airline companies offer long-haul flights because of the extraordinary costs for such flights; moreover, long-haul flights are more complex.
How: Whether or not the company should enter the long-haul air transportation market depends on the goals of the company’s management. Entering this market is likely to involve considerable expenses, but it may result in high revenues with time. However, this is connected with certain risks for the company since it has already shown itself to be a good advantage as a short-haul airline company and may not handle the competition at the long-haul air transportation market.
Other airline markets the company could enter would be national and regional airline markets. Entering both these markets is risky for Southwest Airlines because, along with advantages, it brings a number of disadvantages. The company will lose its fame of a largest short-haul airline company and will be merged with a number of smaller companies working for one and the same monopoly, which will also result in the company losing its regular customers. Together with this, entering national airline market, it will be protected from bankruptcy (since national airline companies are financed by their governments) and entering regional airline market, Southwest Airlines will become a part of an enormous corporation, since regional airline market works for the area of 24 countries (which will bring company large profits with time).
Who: The alternative should be implemented by the management of the company.
When: There is no need for the alternative to be implemented immediately. The company will need some time for think over the advantages and disadvantages of entering other markets.
Where: The alternative should be implemented in the US air transportation market.
Alternative # 2
What: Expanding trans-border flights.
How: Southwest Airlines has recently claimed its desire to expand to Mexico and Canada with its flight, which can be extremely beneficial for the company. This is a big step forward in terms of expanding the company’s trans-border flights and on the way of becoming an international airline company. This is likely to improve the company’s position at the market and make it well-known not only for the American but for Canadian and Mexican passengers as well.
Who: The management of Southwest should examine the company’s structure in order to find out whether it is ready for such changes.
Where: The alternative should be implemented in the US, Canada, and Mexico because it is likely to affect airline markets of all these countries.
When: The period of time is not limited; the company may implement this alternative any time.
Alternative #3
What: Solving Southwest’s problem with debts and ensuring safety for passengers.
How: In 2001 Southwest’s long-term debt reached $1.8 billion. It is hardly possible to become a problem for the company especially now that it is expanding its trans-border flights. However, this does not mean that the company should take additional debts for it will be impossible to pay them off later. The profits the company will obtain from its expansion are likely to cover only the old long-term debt of the company. Taking into account the risks it is facing due to expansion, it would be unreasonable for the company to take new debts for the company might not be able to pay it off in case of bankruptcy.
In 2002 Southwest adopted a policy according to which obese people have to buy two tickets to travel on the company’s airplane. This policy may be regarded as the company’s desire to obtain more profits for paying off the debt. Though it may seem unfair for those people since 2002 have to pay double price for the flight, it is fair to those who had to experience inconveniences prior to the adoption of this policy (some passengers complained that they sometimes got no more than a half of their seat). This strategy may be considered efficient since the company managed to achieve the desirable results. Moreover, this strategy was beneficial for both the company management (in terms of profits) and the customers (in terms of convenience).
The best way for Southwest Airlines to protect its customers from the possible terrorist attacks would be to enhance safety measures. Passengers’ luggage should be examined carefully; passengers with any kind of weapon or objects which are potentially dangerous should not be admitted on board the plane. Safety measures should be organized in a way which would not be intrusive and inconvenient for the passengers.
Who: The implementation of this alternative lies on the company’s management, particularly the security department.
Where: The alternative should be implemented in the United States air transportation market.
When: Company’s debt is long-term this is why it still had from 5 to 7 years left to implement the alternative.
Alternative # 4
What: Conducting poll among the passengers for fighting with competition.
How: Delta Air Lines and Northwest Airlines are currently the main competitors of Southwest Airlines. The first two companies have recently cut their costs which allowed them competing with Southwest Airlines in fares. It is hardly possible that this rivalry is threatening Southwest Airlines since the company has a firm base of regular clients; nevertheless, certain precaution measures should still be taken. This might include polls among the passengers on how to improve the services which they get or whether they will or will not change the airline company if the costs for Southwest flights do not reduce.
Who: The alternative should be implemented by Southwest’s management; the departments responsible for advertising should conduct the poll.
Where: The alternative should be implemented in the US and the countries where the company will be performing.
When: If the company is much concerned with the competition, the implementation of the alternative should start at the shortest possible time.
Works Cited
Gittel, J.F. (2005). The Southwest Airlines Way. McGraw-Hill Professional.