While the airline industry in the USA has not made thriving financial headlines, Southwest Airlines has emerged as a successful organization. It has been able to make profit consistently and has sustained itself through difficult situations like recession, energy crisis, and September 11 terrorist attacks.
Problem Statement :
The problem under consideration here is: How can Southwest Airlines achieve a sustainable growth in future in spite of increasing operational expenses?
Detailed Analysis :
a) External Environment Analysis:
Political - Legal
* 1978 Airline Deregulation Act intended to remove government control over fares, routes and market entry (of new airlines) from commercial aviation. When airline deregulation came in 1978 Southwest Airlines began planning interstate flights from Dallas Love Field. * Under the 1979 Wright amendment, Southwest and other airlines were barred from operating, or even ticketing, passengers on flights from Love Field to destinations beyond the states bordering Texas. * Change in the federal ticket tax in 1997 on flight routes that are one thousand plus miles also affected Southwest Airlines. This tax system replaced a percentage tax with a tax that included a flat segment fee that caused conflict with the low-fare carriers. This caused Southwest to lose some of their cost advantage. * In 2006, Wright related legislation was passed by the US government. Because of the agreement, nationwide service became possible for Southwest. * Strict safety regulations post September 11 terrorist attacks increased operating expenses. * Open Skies Agreement in 2007 allowing European carriers greater access in U.S market tends to increase competitive pressure.
* Rising fuel cost ( Fuel cost consisted of 17% of total operating cost of Southwest Airlines in 2004 but the limit increased to 31 % in 2008) * Economic turmoil in US after September 11 terrorist attack, though Southwest Airlines not affected significantly. * Many customers are price sensitive.
* Increased use of internet in recent years among customers which inspired Southwest Airlines to sell seats from an Internet site.(In 2007, 74% of Southwest tickets were booked online) * Increasing rate of air traffic control delays
* Customer satisfaction immerging as critical factor in airline service
* Inclement weather condition
b) SWOT Analysis of Southwest Airlines:
* Low priced tickets
* High frequency flights
* Low operating costs
* Less turnaround times (15 minutes for Southwest compared to 45 minutes industry average) * An exceptional and unique customer service (For Ex. An Austin passenger who was going for a kidney transplant when missed the connective flight, was flown by a Southwest pilot in his private plane. There are many other examples also) * High employee satisfaction (employee turnover rate 7 %, lowest rate in the industry) * Adaptation of new age technology (Southwest Airlines is the first national carrier to sell seats from an Internet site. In 2007, 74% of Southwest tickets were booked online). * Highly controlled growth
* Using only Boeing 737 which reduces complexity in maintenance * A good brand image
* Low debt to equity ratio, much lower than industry average
* Increasing operational expenses (It provided highest salaries for pilots of narrow-body jets) * Low cost tickets may lead to less profit if operational expenses increase at a higher rate. * Not much customization present in travel experience in Southwest (no segment seating provision was there). * Operates only domestic flights.
* Losing a great leader Herb Kelleher in 2008 after he resigned from the Board of Directors of Southwest Airlines.
* Expansion opportunities and high...