Business Strategy – BAD 4013 – SUMMER 1999 Case Study Southwest Airlines I. Strategic Profile and Case Analysis Purpose 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. Twenty-seven years ago, Rolling King, owner of floundering commuter airline, and Herb Kelleher, King’s lawyer, got together and decided to start a different kind of airline that would provide a short-haul, low-fair, high-frequency, point-to-point service in the United States. The company began service on June 18, 1971 with flights between Dallas, Houston, and San Antonio (“The Golden Triangle” as Herb called it). Southwest Airlines is the fourth largest customer airline carrier in the United States. They use all Boeing 737 jets in order to save money on training and maintenance. The average age of company’s fleet is only 8.4 years. The average trip length is 451 miles with an average duration of about one hour and 23 minutes. Southwest Airlines averages more than 2,400 flights per day, almost twice the industry average. The average one-way airfare is $75. Southwest Airlines flies to 54 cities in 28 states. Southwest Airlines is recognized as the industry leader in focused low-cost airfare by introducing new strategic competencies such as ticketless travel and selling seats through Internet sites. Southwest Airlines is also known as “Southwest Spirit” which represents their unique organizational culture. The case questions whether Southwest Airlines should expand their operations to Northeast. Actually, they already began new services to Manchester in New Hampshire on June 7, 1998 and to Islip in New York on March 14, 1999. So, our critical question for Southwest Airlines is whether they should expand their operations overseas, especially to Europe since it is the second largest emerging market for the airline industry next to the United States, or whether it should remain focused on the domestic market.
II. Situation Analysis A. General Environmental Analysis 1. Technology Technology is expected to have s tremendous impact on the future of the airline industry in the future. In the future, business travels will not loose time when flying. Airlines will be able to offer satellite based telephone systems capable of handling calls to and from anywhere in the world, in-flight faxes, computer, and date transmission services. Technology in the design, development, and operation of the airplane itself will allow the plane to virtually fly itself. Hands-off piloting, navigation, and landing of aircraft have become routine. Computer technology will continue to refine the cockpit.
2. Demographic Trends Although the percentage of change in predicted population from 1997 to 2005 is only 6.9%, the make up of the United States will change dramatically. The fastest growing age group will be 55 to 59 year olds, projected to increase by 43% between 1997 and 2005. The fifty something population is considered the biggest spenders. Growth is expected from 40 to 64 year olds with a decrease in
population in the 25 to 39 year olds. What does this mean to the industry? Frequent flyer is defined as between 45 to 54, married, own their home, income level from $50,000 to $100,000 (median income = $65,143), two income earners in home, no children, and use credit card and bank cards for travel/entertainment. They travel for business but do travel on vacations. They travel in the United States but also to foreign countries. The West will be the fastest growing area in the United States between 1997 and 2005 at 17%. The Middle Atlantic area, which includes Pennsylvania, New Jersey, and New York, will be the slowest growing area in the United States. The Northeast is expected to grow 2%, the Midwest by 4%, the South by 9%, and the Pacific states by 9%. The West will surpass the Midwest in population by 2005. The South and the West will be home to 59% of...