Today’s Southwest Airlines, Case Study Example

Introduction

A striking reality of modern business is that one corporation, long seen as less than competitive in its field, may reverse decline and gain both a prestigious reputation and vastly increased stability in a volatile market. This is essentially the story of Southwest Airlines.  In the later decades of the 20^th century, Southwest was typically viewed as a struggling and lower-tier operation, which actually reflected serious problems within it.  With new corporate strategies and management, however, along with a variety of highly effective marketing, safety, and employee tactics, Southwest reversed its earlier and vulnerable position to become, by 2013, a leader in domestic air travel.  The following then examines the elements within how this transformation occurred, offers some recommendations for the company, and generally notes how a single corporate ideology or culture fosters growth in a highly competitive industry.

Corporate and Generic Strategies

When the corporate strategies of Southwest are examined from the company’s beginning, it appears that Herb Kelleher was consistently at the center of how Southwest would develop.  Initially an investor in the proposed company in 1966, Kelleher exhibited from the start an intense commitment to Southwest’s role as providing low-cost, convenient, regional air travel other airlines did not offer. When he began the process of incorporating Southwest in 1967, competitors immediately blocked the company’s formation. Angered by what he perceived as nothing more than financial power manipulating the law, Kelleher persevered and won standing for the airline, even going to the U.S. Supreme Court (Gamble, Pereraf, & Thompson  404).  From the beginning, then, Kelleher implemented corporate strategy perhaps best described as rooted in tenacity.  Believing in the value of Southwest, he fought to defend and create it, and this implies an understanding of the need to address multiple facets of a business such as an airline.

This is both a corporate strategy and a generic one, in that the latter involves specific focuses on individual needs.  For example, broad differentiation is a generic strategy in which the company seeks to offer services apart from the competition and appeal to new markets of potential customers; through providing flights covering relatively short distances not covered by other airlines, Southwest did precisely this, which itself reflects Rollin King’s initial awareness of how frustrated Texas businessmen were in having to drive between Dallas, San Antonio, and Houston (404).  Similarly, Southwest’s leadership expressed, and expresses, the tactics of low-cost provider strategy, which entails best-cost efforts.  The corporate leadership fully comprehended that keeping fares low has little meaning if customers are unhappy with the experience.  Along these lines, focused differentiation is also linked to the broad model, as the airline’s early ambitions to connect cities within Texas went to a highly specific goal, which in turn would allow for the expansion through broad differentiation strategy.  What emerges from the above, then, is that no real distinction exists between corporate and generic strategies in this case, and because Southwest has translated the generic into its practical approaches.  For example, marketing to appeal to those travelers otherwise unable to fly between Texas cities is generic focused differentiation, and very much a corporate strategy as well.  Ultimately, Southwest employs all generic strategies, from being a low-cost provider, as in CEO Muse providing a 10 dollar flight between Houston and Dallas in 1971 (406), to the best-cost provider goal reflected in the airline’s commitment to customer service. Essentially, then, he success of Southwest Airlines, to begin  may be traced to the creation and implementation of core corporate strategies fully based on the generic.

Competitive Forces, Competitive Position

Of the five forces of competition, the three most applicable to Southwest are rivalry among competing sellers, buyer pressures, and suppliers of raw materials and other necessary resources.  The last force is in evidence through how increasing costs threaten Southwest’s ability to maintain low fares, which goes to its competitive edge.  This in turn links to pressure from buyers or customers, who are most interested in the airline that carries them most inexpensively and safely.  That these three forces dominate Southwest’s presence is based on how the airline was a relatively late entrant in the industry; in a very real sense, its impact was and is marked by comparison, and from the onset of the company.  Having carved out its niche, then, Southwest has had to consistently attend to issues of cost in order to retain its position as surpassing the competition in value and choice of destinations.  This being the reality, the other forces of other industries as offering substitute services and threats of new entrants in the field are minimal at best.  On one level, it is unlikely that any other means of travel would be more attractive or expeditious to customers than well-organized flights.  On another, as all major airlines are struggling to hold their market positions, the sheer costs and risks involved in a new competitor suggest this as improbable, and particularly as Southwest has so established itself as catering to regional needs.

As to how Southwest may best work against these forces and strengthen its various strategies, it appears that the company has long committed to doing exactly that.  Without question, rising costs of fuel and other materials have negatively impacted on most airlines, going to increased fares alienating customers.  Through what may only be highly focused investigation and reaction on the company’s part, however, the 2009-2013 financial data of the airline reveals a remarkably balanced profit and expense ledger. For example, the cost in cents of flying a passenger one mile in 2009 was 10.29, while the revenue was at 10.09.  Despite high inflation in the intervening years, these figures respectively translate in 2013 to 12.60 and 12.83, with the latter revenue figure indicating higher profit (410).  Not only has Southwest managed to keep costs relatively low, it has as well restructured to increase net revenue, and strengthening this approach then only relies on maintaining the practices already in place and clearly successful.  As to other strategies of outsourcing, vertical and horizontal integration, and offensive/defensive tactics, it is only recommended that Southwest continue its confident marketing, regarding the latter elements.  It appears that, when James Parker took over as CEO from Herb Kelleher in 2001, his own strategy was to carry on the efforts so efficiently set in motion by his mentor, Kelleher.  Southwest has in fact consistently emphasized a horizontal strategy; rather than seek to dominate the established airlines, it has instead opted to only expand its lateral base.  Parker also made it clear that, while evolutionary changes in any industry/company are inevitable, Southwest would operate as it had in the past and rely on the committed leadership that had made it successful (412).  All that may be added to this, then, in terms of augmenting standing, is a consistent adaptation to how competitors market and offer flights.  Southwest has benefited from its unique position in the industry, but this in itself usually generates heightened competition as rivals adopt its own practices.  The airline must never lapse into complacency, and should increase marketing efforts to retain its identity as it continues in its care concerning costs.

SWOT and Financial Strengths/Weaknesses

The history of Southwest is marked by an extraordinary range of both strengths and weaknesses, with some of the latter surprisingly proving to be strengths in themselves.  Without question, a major weakness was virtually inevitable in the company’s early days, as it needed to both compete with airlines long established and generate interest in regional flight as yet largely unknown in the Southwest itself.  The company struggled initially, as travelers paid more to competitors for similar flights. To reverse this, strengths of a perhaps questionable nature were introduced by then-CEO Lamar Muse.  At Muse’s direction, drinks were provided free of charge on short daytime flights, as flight attendant recruitment focused on physical attractiveness and uniforms went to “hot pants” and high-heeled boots (406).  It should be noted that this was 1971, and social values largely in place supported such efforts as not demeaning or sexist.  More to the point, Muse was responding to weak consumer interest, and proactively.  For example, it was correctly assumed by the airline that daytime passengers on short business flights would be generally uninterested in alcoholic drinks, just as promoting attendant attractiveness did not contradict Southwest’s longstanding and impressively supportive treatment of all employees.  All of this goes to tactical strength, a reality furthered by Muse’s strategy to increase flight offerings.  Not in a position to purchase more lanes, Southwest implemented the revolutionary ten-minute turnaround, in which ground crews were responsible for the multiple processes of preparing the plane and the passengers (406).  What then emerges is the significant strength of properly responding o a crisis in a thoughtful way, just as the new turnarounds relied on the opportunity to better attract passengers through more efficient boarding and on-schedule departures and arrivals.

If Southwest in these years may be charged with the weakness of “pandering” to questionable interests, this was, again, a response rooted in the times and discarded as social values changed.  As to threats, the most significant, discussed shortly as well, is the climate of fear still present regarding air travel.  Southwest does have the advantage here of being identified as a primarily regional carrier, so there is likely less of an impact on it as concerns terrorism.  Then, the company’s safety record is exemplary, despite a landing accident in Chicago in 2005 (437).  The company’s strength in being proactive in all regards is reinforced by how competitors, no longer able to afford cleaning crews, copied Southwest’s practice of having flight attendants clean the debris following flights (419).  This proactivity is also reflected in the financial standing of the company.  Southwest invests and spends, but always carefully and with a realistic eye to profits and losses.  For example, dramatically rising fuel prices inevitably went to higher costs for all airlines, but Southwest responded by investing in efforts more efficiently streamlining flight.  The tailored planes then drew less fuel, and this balanced expenses in modifications.  The airline was also an innovator in counteracting the increasing prices for jet fuel from 1998 to 2008; using fuel-hedging strategies, Southwest eventually saved approximately four billion dollars that would have been paid had the company not devised the financial responses.  Even the conversion, begun in 2001, from cloth to leather passenger seats was not initiated until it was established that the initial costs would be more than returned by decreased maintenance (420).  It seems that, in efforts ranging from enabling on-board Internet access to expanding its fleets of planes, Southwest has consistently assessed financial impacts in all regards.  When financial vulnerability or weakness has been generated by expenditure, the airline has nonetheless always balanced this with researched projections of ultimate gain.

External Forces

In determining what forces may bring about change in the industry in the next few years, there is the noted and significant element of fear of terrorism. As is widely known, any airline travel since 9/11 has been radically marked by intense security, and all airlines practice increased care in boarding processes.  Also as noted, it may be argued that Southwest’s presence as a domestic carrier at least partially modifies this potentially growing effect.  Domestic crises notwithstanding, the public tends to associate airplane terrorism with international agendas.  Nonetheless, it is still likely that ongoing incidents of terrorism, as in the recent Paris massacres, reinforce public fears since 9/11 and discourage flight of any kind.  It is usual for people to feel themselves most vulnerable when they fly, and this is greatly exacerbated by modern episodes of airplane violence. This in turn relates to how, despite public concerns, there is an increasing resistance to security measures perceived as violating personal rights.  In plain terms, and even as Southwest remains primarily a domestic carrier, a general resistance to flying may negatively impact on any airline’s presence or survival.

International Expansion

Regarding the question of how Southwest may more rapidly move into international markets, the most important point here is that any rapid change on such a scale defies the careful strategy that has always gone to the company’s success.  Certainly, Southwest has invested in expansion in this area.  By 2014, it had initiated an international reservations system, just as the company’s earlier acquisitions of new Boeing 737-800 and 737 MAX aircraft were done to accommodate the demands of longer flights.  Southwest has in fact begun international flying, while still keeping this within relatively modest parameters.  The international destinations currently or shortly available are Canada, Mexico, the Caribbean, and the states of Alaska and Hawaii (426).  What is critical, nonetheless, is that Southwest be as cautious in these ventures as it has been in other innovations.  Rapid expansion may be as disastrous for one carrier as it is advantageous for another, an the sheer costs involved in such expansion must then be all the more thoroughly strategized.  In 2012, the airline invested in costly updating of its fleet, in addition to purchasing new and larger planes (425).  International expansion presents a number of highly attractive potential gains, ranging from new and higher revenues to enlarging the company’s core competencies.  At the same time, however, as Southwest will remain a U.S.-based concern, there are no benefits accrued from establishing foreign presences beyond the necessary relationships with foreign airports, as such presences more serve the interests of other, product-oriented industries.  Any hurried effort to become a major international carrier would then both defy the company’s standards of professionalism and likely render it vulnerable, particularly as so many other airlines have long-established reputations in providing foreign travel.

Social Responsibility and Environmental Sustainability

When the entire trajectory of Southwest’s presence and efforts are examined, an interesting reality emerges; as the company has consistently emphasized the importance of all of its employees, social responsibility then derives from the ethical and ongoing respect for the workforce.  There is in fact no real dichotomy between how a company reflects social responsibility and how it treats its people, as employees exist apart from the organization and essentially are within the society as a whole.  Added to this is how Southwest, commercial agendas notwithstanding, has steadily served the interests of its customer base through offering more convenient and more affordable flight options. Beyond any other concern, corporate social responsibility demands ethical approaches to all stakeholders.  As both workforce and the customer population represent the primary stakeholders for any airline, Southwest then properly attends to this obligation.

This responsibility appears to have been a dominant concern of the company throughout its history.  CEO Muse, seemingly influenced by Kelleher, initiated from the company’s earliest years a determination to both take on management that was independent in its thinking and eager to engage in innovation, which empowered these particular stakeholders.  Other employee recruitment has been similarly empowering.  CEO Herb Kelleher, assuming control of the airline in 1981 for 20 years, maintained a “personal” approach that clearly motivated employees of all kinds.  Kelleher made a point of learning the names of the Southwest workers, as he also consistently listened to how the people responded to his questions (410-411).  More pragmatically, all Southwest employee policies stress the workers as the most important assets to the company, coming even before customers.  Kelleher’s ideology, still in place with Gary Kelly as CEO today, holds that valuing employees equates to creating the best possible experience for customers.  Interviewing practices are more personal and involved than in other airlines, as Southwest seeks individual thinking, judgment, and a willingness to promote a team effort as paramount attributes in candidates.  Leadership training is routinely offered, with the result that between 80-90 percent of supervisory positions and above are filled internally (432).  Current CEO Kelly continues these traditions, insisting that all employees be treated “like family” (413).  Few companies, within or outside of the airline industry, have so consistently and overtly expressed care for employees, as pilots, flight attendants, and other Southwest personnel average higher wages than their peers working for other airlines.

It should be noted as well that, when Southwest acquired AirTran, the transition from airline to airline regarding the employees proceeded remarkably smoothly.  Kelleher’s was determined that this would not result the massive lay-offs usual when such acquisitions occur, and a vast percentage of AirTran employees were successfully placed within the Southwest operations (424).  Another element going to employee participation and commitment, ironically, was the reality that all Southwest workers were exposed to continuous media reports of how the airline was struggling, and potentially facing collapse in its early years (408).  This generated a company-wide sense of needing to come together and support one another – and work through the crises – during the rough years.  While any corporation involves degrees of the impersonal, all the evidence suggests that Southwest has never been willing to lessen its commitment to employee welfare, which in turn serves the corporate interests by enabling better passenger experiences and generating customer loyalty.  Social responsibility, which certainly exists in how a company treats its workforce, is then firmly in place at Southwest.

Additionally, and interestingly, Southwest’s business strategies actually promote environmental sustainability, and chiefly because the airline focuses on utilizing all resources to their utmost.  The Southwest mission statement asserts, as the third proviso of four, that the company will reflect proper stewardship of environmental realities. What sets this specific statement apart from the typical such corporate affirmation, and what then adds integrity to it, is how the actual wording acknowledges that efficiency is the best means of promoting the environment (414).  More exactly, this is no randomized platitude expressing care; rather, it is a promise based on the fully rational awareness of how care in operations translates to both care of the natural environment and the practical interests of the company.

Recommendations

When the history and ongoing practices of Southwest Airlines are fully examined, only one recommendation to the Board is mandated; namely, that the company never deviate from its core strategies, which encourage business success through a consistent empowerment of all employees.  Moreover, the Southwest trajectory of investigating options, cots, risks, potential gains, and alternatives before implementing change must be maintained as well.  In so highly competitive industry, it is all too common that companies act rashly.  The failed Song airline, costing Delta billions, is an example of a poorly planned strategy based on little more than a weak effort to attract a younger customer base.  Southwest’s approach has always been more thoughtful, just as the company’s insistence on ethical treatment of all involved with it promote success. To the Board, then, it is urged that it always be mindful of what has created Southwest’s success from early days of struggle, and never deviate from the core principles so consistently beneficial to the corporation.

Works Cited

Gamble, John E., Peteraf, Margaret A., & Thompson, Arthur A. Essentials of Strategic Management: The Quest for Competitive Advantage. New York: McGraw-Hill Education, 2015. Print.