Case 2. Southwest Airlines.
I- Strategic Profile and Case Analysis Purpose
Southwest airlines were founded in 1971 by King and Herb Kellerher. They started with a low cost strategy in a risky market where profitability depends a lot on fuel prices and external factors, such as the willingness of consumers to pay ticket prices. They started growing a lot with various strategies that permitted them beat a lot of their competitors, but in order to stay in the market they need to improve those strategies and come up with new ones to stay differentiated from the other airlines. Now they’re ranked the top 7 airline that controls the share of the market, but new strategies will be needed for them to continue to be a profitable company. The purpose of the case is to find the strategy that better suits Southwest Airlines to continue operating with their low-cost focus and at the same time differentiate themselves from the rest of the competitors. II- External Situation Analysis
A. General Environmental analysis
* Consumers of Southwest airlines are price sensitive and are looking for the lowest prices. * Consumers that aren’t as concerned about comfortable flights as much as reliable ones. * Not influenced by costumer reward programs.
* Concerned about convenience and scheduling.
* Asian marketing plummeting in 1998, causing jet fuel costs to drop to 35 cents per gallon. * Increasing of fuel costs from $11 to $34 per barrel.
* Terrible drop in the air travel industry after 9/11.
* 2008 recession, from which Southwest got out successfully. * Risks because of the difficulty to be a profitable business.
* Problems with the FAA in 2008 for violating mandatory safety checks, and subsequently paying $10.2 million in fines. * The pressure of safety regulation.
* The great amount of firms in the industry that file for bankruptcy.
* Walkouts by the labor union in 2008 because of unequal pay for members of the ground crew and no raises since 2005.
* On-line methods to check in and purchase tickets.
* Reliability of the Boeing 737, that makes it more cost efficient being the only airplane model in the firm. * Blended winglets to improve performance.
* The use of EcoPower as a more efficient and effective engine washer.
* Southwest airlines new route to Mexico.
* New expanding routes to England and the Caribbean.
B. The Industry Analysis
1- Threat of new entrants:
* (L/M) New entrants could be exited for this growing business, however, little have what it takes to stay in business after a short living period. * (M) Due to new and more efficient technologies, new competitors could find a way to get involved in the industry.
2- Bargain Power of Suppliers:
* (H) The always rising fuel prices make it hard to the firm to have a control over its supplies. * (L) There’s a risk f discontinuity of the plane or pieces if they discontinue operating just the Boeing 737.
3- Bargain Power of Buyers:
* (H) With all the competitiveness, buyers are going to demand lower prices and more benefits. * (L/M) Buyers that are attracted to price will purchase the product regardless the brand. * (M) Larger groups (like families) are going to pressure the airline to give them benefits.
4- Threat of product substitutes:
* (L/M) Other transportation means for relatively short distances, like train and buses. * (L) Trains and buses for larger distances. However, the prices of all industries will be directly proportional to petroleum costs.
5- Intensity of rivalry among competitors:
* (H) National competitors, such as jet blue, are beginning to understand and apply the lowering costs strategies to successfully stay in the market. * (H) International competitors...