SOUTHWEST AIRLINE CASE STUDY: ASSIGNED QUESTIONS

1. SW Successful?
Yes. The company, per given information, enjoyed 30 consecutive year of
profit. It had an effective strategy that led to its positioning as a reliable low-
cost carrier that helped it win and retain customers.

2. What factors are contributing to its success?

a) Elimination of frills to provide low cost air travel

b) Effective strategies dedicated to maintaining faster turnaround time
c) Coordinated efforts of employees both on-ground and in-flight operating
as a team

3. What strategies did SW follow to give it competitive advantages?

Fares below the cost of driving a vehicle between connecting cities

Selection of older, less congested airports
Point-to-point service
High frequency of flights
No interlining with other airlines
Uniform fleet of Boeing 737s
Absence of meals
Limited amount of checked luggage on aircraft
Agents to assist with on-flight servicing
Payment to SABRE using agents for booking recommendation
Ticketless travel program and later Southwest.com
Embraced unions, most strike free

4. Did SWA follow rules or was it a game changer?

Yes SWA was a game changer. At a time when seats in intrastate flights and
their fares were high, SWA emerged with cheaper than road travel service.
Their focus revolved around delivering no frills but prompt service.
Customers convenience was at the core of their strategies.

5. How does SW airlines make money?

SWA adopted a cost leadership strategy per which they controlled costs by
eliminating frills over intrastate flights. Their strategies also combined
innovation ex. SABRE computer ticket reservation, launch of ticketless
booking and Southwest.com.

SWA also employed marketing strategies that generated enough interest.

6. What is SW Airlines competitive strategy?

 Cost leadership strategy

7. How does SW Airlines makes money even when other airlines do

not? What are the most important contributors to its financial
success?

a) Dedicated focus towards keeping costs low

b) It only connected point-to-point networks with high on time service,
popular among frequent fliers
c) Frequency of departures high as turnaround time lower than competitors
d) Innovation Paperless tickets, employees encouraged to be creative

8. How should management react to SW failing next-to-last amongst all

other major airlines in on-time performances as of September 2002?

The management needs to analyze route structures, sticking with its point-to-
point service strategy that bypassed air traffic congestion and contributed to
faster turnaround time.

Expanding with long haul flights should also be cautiously done, monitoring if
it affects turnaround time and hence on-time service which have been the
hallmark of SWAs delivery.

9. Would you recommend a growth strategy? How would you go about

it?

SWA can certainly look to extend their portfolio with introduction of long haul
flights. This is in light of the successful Baltimore-Oakland flight. Thus SWA
can look to include more stations however, only those that align with its
point-to-point service strategy and at the same time do not negatively affect
its turnaround time and levels of on-time service.

10. What are the implications for Southwest of the actual or threatened
bankruptcies of the other US airlines?

All airlines after recovering from a precarious financial situation, thanks to

government bailout, went low fare. This meant competition for SWA.

11. Exhibit Analysis

Exhibit 1

SWA footprint in the states of Montana, North Dakota, South Dakota,

Minnesota, Wisconsin, Wyoming, Colorado, Kansas, Iowa, Georgia, Maine and
South Carolina. Most cities connected are close to international borders while
others in the interior are of commercial importance which reflects the focus
on business travelers. Exclusion of interlining from its operations explains the
proximity of stations both intrastate and interstate.

Exhibit 2

Spike in passenger revenue in 2000 by almost 45%. SWA was able to post
upward income for 2000 in spite of fuel cost per gallon having risen by almost
50% compared to 1999. The load factor in this period did not raise much.
Thus the increase in income registered in 2000 can be attributed to controlled
expenses which are less than half of the previous year (99). The dip in
income in 2001 however, is due to the glaring expenses. This was the year
when the US witnessed terrorist attacks. Southwest cancelled approximately
9000 flights.

Exhibit 3

After the 9/11 attacks President Bush signed the Air Transportation Safety and
System Stabilization Act. The cash equivalents surge can be explained by the
cash grants received courtesy the Act that provided qualifying US carriers
with $5 billion. SWA received approximately $235 million under this act.

Exhibit 4

The steady rise in number fleet size is indicative of the number of routes
added to the existing network. Also firm orders went up by almost 50% in
2003 as SWA began retiring old aircrafts with new ones and also extending its
presence.

Exhibit 5

Represents the hierarchy in the organization

Exhibit 6

SWA deployed more staff/agents on ground (from 3.5 to 5.5 on frontline)

owing to security issues post 9/11 attacks.

Exhibit 7

Revenue per seat mile dropped from 8.95 to 7.57, yet revenue-cost is still
positive for SWA and healthy when compared to competitors.
Exhibit 8 -Passenger miles dropped for all players post 9/11.

Exhibit 9

The subsequent drop from firs place in June 2001 to second last in July 2002
hints at stagnancy or even degradation in operational efficiency. Other
airlines on the other hand have exhibited significant improvement which is
threatening.

Exhibit 10

Indicative of SWAs careful approach towards extending its route structure.

The difference between the hypothetical number and the actual is hints at
tremendous scope for extension.

12. Services Marketing

A quicker turnaround effectively means that an aircraft that just arrived is

ready to take-off again. This translates into increased frequency in the
number of flights. Increase in frequency thus provides travelers especially
those on business trips to catch flights at convenience.

An effective turnaround however, is a combination of multiple factors-

Selection of less congested airports to operate

Fleet uniformity
Hassle-free distribution of tickets
Quicker security procedures
Elimination of frills