Southwest Airlines 2008

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Southwest Airlines 2008

Problem Identification:
Will Southwest Airlines able to maintain its top position and level of customer satisfaction whilst expanding its business domain? SWOT Listing:
Strength:
* Attractive fares and marketing strategies.
* Point to Point flights.
* Best turnaround time compared to its competitors.
* First to sell seats through Internet sites.
* Positively Outrageous customer service.
* Maintained Co-operative labor relations.
* They always worked towards the employee development by constantly motivating, training and awarding them with accolades. * Low operating costs.
* Service changes adopted in 2007 further helped improve its standing in the industry. * Financials were secure(debt- equity ratio much lower than industry average). Weakness:
* Operated without a hub and spoke model which was considered as a cost saving method for other airlines. * Formulations of expansion strategies in the Northwest were unclear. * With inclusion of Northwest region in its flight schedule, its operation costs were going high. Opportunities:

* Expansion into the Northwest region, the most densely populated area of the country posed tremendous growth for Southwest airlines. * Venturing into the International market.
* Air Traffic in its functioning areas more than doubled after its establishment increasing its opportunities. Threats:
* Fluctuating oil price changes.
* Unprecedented rise in operating expenses.
* In cases of insufficient demand, point to point flights proved to be economically unfeasible.

PESTL:
Political:
* Airline Deregulation Act of 1978 led to entry of many players in the market and intense competition with low fares. * September 11 2001, terrorist attack led to tremendous losses(about $30 billion) of the airline industry due to the fear that was instilled in the flyers. * Fuel crisis of 1979 caused due to the Iranian Revolution caused difficulties to the industry. * Air traffic controllers’ strike of 1981 where higher wages were demanded by the controllers also caused difficulties to the industry. * Introduction of stricter government regulations for aircraft safety maintenance. * Open skies agreement in 2007 which lead to higher competition. * Rise in fuel prices in 2008 which put a damper on the industry’s profitability. * Limited labor flexibility caused due to Restrictive Labor Union Agreements. Economical:

* 80% of the airline operating cost were fixed or semi variable. This made this industry the worst net profit margin performers compared to other industries. * Fuel costs formed 17% of the total operating costs in 2004 and 31% in 2008. * Huge investments were required for gate acquisition and terminal construction. * Hub and spoke models were efficient in maintaining operating costs. * Low affordable pricing of fares- Two-tier pricing structure was developed by Southwest to cater to business travelers and price sensitive leisure travelers. Social:

* The deregulation act led to reduction of fares which in turn made the airline services affordable to a larger section of society. * The southwest spirit led to tremendous employee trust which was portrayed in their customer service. * The Positively outrageous customer service led to great customer trust. * Its operation strategies of low turnaround time led to an increase in its business travelers/time sensitive travelers. * After the 9/11 terrorist attack, Introduction of stricter government regulations for aircraft safety maintenance reduced the fear amongst the travelers and stabilized demand. Technological:

* Due to high fixed costs, airlines developed sophisticated software tools to maximize capacity utilization. * Airlines analyzed travel patterns on routes based on yield management systems. * Introduction of internet ticket booking helped save travel agent costs. * Galileo and Worldspan...
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