Southwest Airlines: Expanding Beyond the Southwest

Authors Avatar

Southwest Airlines:

Expanding Beyond the Southwest

Maastricht University

Faculty of Economics and Business Administration

Maastricht, March 9th, 2004

Bächle, K. (175447), Fixson, S. (180319), Vetten, R. (198862)

International Business Economics

Strategic Management

Group 5, Subgroup 4

Assignment Session 9

Tutor: Swaan, W.

Southwest Airlines was founded in 1966 and began its service in June 1971 with flights to Dallas, Houston, and San Antonio. The company has become the fourth largest major airline in America under the guidance of Herbert Kelleher as its CEO. The Airline offers low-fare seats, high-frequency flights, point-to-point carrier, on-time flights, and no-frills carrier services. The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. Southwest Airlines provides employees a stable work environment and encourages their creativity and innovation.

Analysis of airline industry structure

The structure of the airline industry can be analyzed with the help of Porter's Five-Forces-Model. The elements of an industry structure are industry competitors, buyers, new entrants, suppliers, and substitutes. The competitors in the industry can be grouped into different categories: major airlines, national airlines, and regional airlines. Southwest, after expanding its routes through America, has become a major airline, still relying on flights averaging just less than one hour. The competitors have also to be analyzed according to the services they offer. Southwest is a company offering no-frill flights and keeping the gauge quite low. Other competitors are valuing customer service much more, offering meals during the flight, make reservations for the seats during the flight, and so on. Also switching costs have to be taken into account. Southwest Airlines mainly uses the same type of aircraft to keep maintenance and repair cost low. Overall, the industry is characterized by slow growth. The influence of the buyer or here the customer is great. For short distance flights customers prefer low-cost, reliable, on-time flights because they are not that much involved in taking the decision. The customer concentration is quite high because airlines are mostly centred on big cities. Information search is handled via reservation centres or via hotlines. Threat of new entrants is not that big, because the airline industry is quite stable. The barriers to entry into the industry are high regarding the capital investment to set up an airline. Also a high level of knowledge and experience is required to be successful. Suppliers play an important role in the airline industry. Most of the airlines use the same type or brand of airplanes like Boeing. So it is of special importance to keep a good relationship with your supplier. The threat of substitutes is of significant importance because airlines can decide to change their company strategy and start to compete against Southwest airlines in price. Therefore, low switching cost are afforded, but is not impossible to imitate the philosophy of Southwest. Overall, the airline industry is relatively stable and of slow growth. So, the high costs of entering the industry and the number of established competitors are a substantial entry barrier and lower the attractiveness of the industry.

Join now!

Major resources of Southwest Airlines

The resource base of a company or the assets can be divided into tangible and intangible resources. First, regarding the tangible resources of Southwest Airlines, one can mention the 124 airplanes, the halls, where they are stored, and other assets which amount to 1.837.291 thousand dollars in 1991. The intangible assets are much more interesting. Here one has to differentiate between relational resources and competences. The relational resources of Southwest are all relationships with the environment. The competence side contains knowledge, capabilities, and attitude and is nearly completely represented by Herbert Kelleher. He became the ...

This is a preview of the whole essay