Southwest Airlines Case Study
Southwest Airlines has been a cost leader in the airline industry with continuous growth and profits for the past 35 years. It has been the fourth largest domestic carrier with low priced routes and a no frills policy - free of in-flight meals and baggage transfers. The low cost fares, almost comparable to automobile transportation costs, have created both an unprecedented growth and new markets for this airline. Southwest was able to achieve this cost leadership by sticking to its strategy of exclusively selecting point-to-point high consumer demand routes as opposed to a traditional hub-and-spoke model of routing used by most large carriers. Also its routes operate between low traffic secondary airports to reduce the gate fee and congestion of the major airports. The airline only flies one type of aircraft, Boeing 737, to control maintenance, training and spare part costs. Southwest always emphasized caring for its employees by offering them company profit sharing, encouraging employee participation and creativity, and going with long-term union contracts. Southwest was the first to create an internet-based reservation system as opposed to using traditional travel agencies. Its reservation-less first come first serve seating allowed them to achieve a fast turnaround between the flight arrival and departure times, thus keeping the flights in the air for longer. Finally, Southwest executed aggressive fuel hedging to wither the continuous fuel price increases and thus lowering the operating fuel costs to be the lowest in the industry. Porter’s Five Forces
1. Competitive Rivalry within the industry was high. Southwest differentiated in cost leadership with the lowest cost per available seat mile. However, many new entrants such as JetBlue mimicked Southwest’s strategy and were able to lower the prices by trimming the margins. 2. The threat of new Entry was low due to high startup costs. Due...
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