Download Industry and Competitive Situation Analysis: Southwest Airlines

INDUSTRY AND COMPETITIVE SITUATION
ANALYSIS: SOUTHWEST AIRLINES
TEAM 2
CAITLIN CLARK
STEPHEN MASSIMI
WILL MAYRATH
KATIE TREVINO
MATT VANTANKHAH
On A Wing and A Prayer…and A Napkin
• In March 1971, Southwest Airlines founder
Herb Kelleher discussed plans for a new type
of airline with a sketch on a napkin.
On A Wing and A Prayer…and A
Napkin, continued
• The notion for the new business concept was
“If you get your passengers to their destinations
when they want to get there, on time, at the
lowest possible fares, and make darn sure
they have a good time doing it, people will fly
your airline.”
On A Wing and A Prayer…and A
Napkin, continued
• Southwest Airlines’ first flight took place on
June 18, 1971
• Service started with three Boeing 737-200
airplanes to reach three destinations: Dallas,
Houston, and San Antonio
On A Wing and A Prayer…and A
Napkin, continued
• Today, Southwest Airlines operates more than
500 Boeing 737 aircraft with destinations in
more than 60 cities nationwide
• Daily, Southwest Airlines has 3,300 flights
INDUSTRY AND COMPETITIVE
SITUATION ANALYSIS
Chief Business and Economic Characteristics
of the INDUSTRY Environment
• Economic factors
– Current state of the
economy
– Jet fuel prices
• Political factors
– Increasing regulations
• Competitive factors
– Highly competitive
industry
• Geographical and Social
factors
– International/domestic
– Business
– Everyday travelers
• Technological factors
– Airport technology
– Codeshare relationships
Chief Business and Economic Characteristics
of the COMPANY Environment
• Economic factors
– Current state of the
economy
– Jet fuel prices
• Political factors
– Increased regulation
– The Wright Amendment
• Competitive factors
– Low cost position
– Convenience
– Customer satisfaction
• Geographic and Social
factors
– Domestic
– Everyday
travelers/business
• Technological factors
– Airport technology
– Codeshare relationships
Driving Forces of Change—INDUSTRY
• Current economic conditions
• Events out of the control of the airlines
– Natural disasters
– Terrorist attacks
– Regulation
• Competition among airlines
Driving Forces of Change—COMPANY
• Industry forces
– Current economic conditions
– Events out of the control of the airlines
– Competition among the airlines
• Labor
• Reliance on technology
• Cost control
Strength of Competitive Forces—
INDUSTRY
• Fractional Ownership Airlines
– NetJets is a company that threatens the airline
industry in the future by offering shared
ownership of an airplane
• Convenience, quality, and prestige are niches
• Surface Transportation
– Traditional transportation for shorter trips such as
busses, cars, and trains
• As these modes of transportation become more
efficient, it will become more cost effective to use them
Strength of Competitive Forces—
COMPANY
• Southwest Airlines competes domestically with a number
of competitors in the airline industry
– AMR (American Airlines, American Eagle, AmericanConnection),
Delta Air Lines, United, and others
• Southwest Airlines competes mainly on the basis of low
cost and outstanding customer service
– Due to Southwest Airlines’ fuel derivative instruments, their low
cost strategy is difficult to imitate
– Southwest Airlines’ outstanding customer service is easily
imitated
• Most of Southwest Airlines’ competitors use a hub-andspoke route system as opposed to Southwest Airlines’
point-to-point route system
Positions of Competition
• 3 main competitors of Southwest Airlines
Competitor Predictions
• Southwest Airlines has introduced the “Bags
Fly Free” deal
• American Airlines may follow this trend,
possibly limited to domestic flights
Keys to Success
•
•
•
•
•
Embracing the employees
Lowest airfares in the industry
Boeing 737
Management style
Innovations
Overall Industry Attractiveness and
Profitability
• The airline industry is not necessarily an
attractive industry for new companies
– Factors include the current economic crisis and
the high start-up costs associated with the airline
industry
• For existing companies, however, the industry
has huge potential
– Southwest Airlines’ unique strategy components
set them apart from the competition, positioning
them to earn exceptionally high profits
COMPANY SITUATION ANALYSIS
Current Strategy Statistics
• Southwest Airlines has continued to perform
well for years while maintaining the same core
strategy
Accounting
+/-
Net income has dropped steeply, but
liabilities are also decreasing
Financial
+
Continues to maintain high market
cap of $6.5 billion
Marketing
+
Humorous and attractive advertising
Innovative deals
HRM
+
Excellent long-time leaders
Loyal employees
SWOT Analysis
• Strengths
–
–
–
–
–
–
Customer service
Low cost airfare
Frequency of flights destinations
71 employees to operate plane
Advantages of Boeing 737
Less crowded airports
• Weaknesses
– Dependence on passenger revenues
– Load factor
– Inability to fly internationally
SWOT Analysis, continued
• Opportunities
– Expansions into new, smaller airports
– Increased Rapid Rewards
– New Boeing 737s
– Freight business possibilities
• Threats
– Oil prices
– September 11, 2001 affects
Advertisements
Relative Cost Position
Operating Expenses (in millions)
Relative Cost Position, continued
Percentage of Oil Needs Hedged
Hedged Price per Barrel
Strategy Issues and Problems
• Southwest Airlines’ strategy, overall, does not
have any obvious problems
• The almost sole dependence on passengers’
personal revenues to sustain Southwest Airlines’
business could become a problem in the future
• Southwest Airlines should make immediate
efforts to break into international travel to take
full advantage of the benefits and shelter
themselves from any future problems that may
arise
STRATEGY FORMULATION
Southwest Airlines Mission Statement
“The Mission of Southwest Airlines
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.
To Our Employees
We are committed to provide our Employees a stable work
environment with equal opportunity for learning and personal
growth. Creativity and innovation are encouraged for improving the
effectiveness of Southwest Airlines. Above all, Employees will be
provided the same concern, respect, and caring attitude within the
organization that they are expected to share externally with every
Southwest Customer.
”
Corporate Leaders
• Gary Kelly
– Chairman of the Board, President, and CEO
– 22-year veteran of Southwest Airlines
– Began as Controller and moved up the corporate
ladder until he achieved his current position in
July 2008
• Laura Wright
– Senior Vice President—Finance and CFO
– Began at Southwest Airlines in January 1988
Current Overall Strategy
• Competitive Strategy
– Low operating costs generates low priced airfare
– Customer satisfaction through productive
employees
– Convenience through frequent flights and the
point-to-point system
Current Overall Strategy, continued
• Corporate Strategy
– Internal growth
• Do not acquire other airlines
– Domestic travel only
Southwest Airlines Strategy
Suggestions
• Codesharing
– Occurs when one company uses another
company’s resources to offer a wider range of
services to customers
• Southwest Airlines sells tickets to some destinations in
Canada
– Passengers use a Southwest Airline ticket to board a WestJet
aircraft and are serviced by WestJet employees
» WestJet also sells tickets for this same flight, but they
service these Southwest Airlines customers as well
Southwest Airlines Strategy
Suggestions, continued
• Codesharing, continued
– Southwest Airlines’ History of Codesharing
• Formerly in a codeshare relationship with ATA Airlines
– With ATA Airlines’ bankruptcy in 2008, the codeshare relationship
was terminated
– Southwest Airlines’ Current Codeshare Agreements
• July – November 2009: Southwest Airlines enters into
codeshare agreements with WestJet and Volaris
– This allows Southwest Airlines to be able to expand services into
Canada (through WestJet) and Mexico (through Volaris)
• Unfortunately, Southwest Airlines postpone these codeshare
agreements in May 2009
Southwest Airlines Strategy
Suggestions, continued
• Codesharing, continued
– Southwest Airlines’ Future Strategy
• Codesharing is the perfect avenue for Southwest
Airlines to expand into markets outside of the United
States
• They should not only consider relationships with these
current companies but also with other companies
• Many bureaucratic steps to be approved by all
governments involved and time taken to groom these
markets make it imperative that Southwest Airlines
enter into these arrangements as soon as possible
Southwest Airlines Strategy
Suggestions, continued
• Expanding Fleets and Adding New
Destinations
– Southwest Airlines may benefit from increasing
the number of Boeing 737 jets in operation from
537 to approximately 600
– New destinations at highly trafficked airports may
increase revenue and provide greater customer
service
– Currently services 64 destinations in 32 states
Southwest Airlines Strategy
Suggestions, Continued
• Expanding Fleets and Adding New
Destinations, continued
– Several highly trafficked airports are currently not
serviced by Southwest Airlines
Passengers
September 2009
September 2008
Domestic On
3,265,185
3,139,569
Domestic Off
3,062,240
3,125,883
Subtotal
6,327,425
6,265,452
Southwest Airlines Strategy
Suggestions, continued
• Increase Rapid Rewards Benefits to business
– Seek out companies that require a tremendous
amount of traveling
– More credits per flight
• Time-shares
– Allow companies to purchase partial aircraft time
– Convenience of having aircraft nationwide
– Providing quick turnaround time for customers