Southwest Internal Analysis

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Southwest Airlines Internal Analysis

Introduction

This internal business analysis is on Southwest Airlines, which was founded in 1967 by Rollin King and Herb Kelleher. The main focus for Southwest Airlines was to provide low cost flights for their customers, and also have exceptional customer satisfaction. Southwest is a leading airline company that continues to do well in an industry that has been historically challenging. For instance, in the span of two years (2005-2007) five major airlines have filed for bankruptcy. The challenges are great in the airline industry, because competitors are trying to imitate the “low-cost” offering of Southwest. Many companies have tried to do what Southwest has done, and many have failed to stay in business. Surprisingly, many of those companies were started by ex-employees of Southwest. Southwest currently has a profitability record for the past thirty six years, which is spectacular in such a challenging industry. Herb Kelleher has been replaced by Gary C. Kelly, as the president when he resigned in May of 2008. Southwest is in the process of expanding the locations they serve so that they can increase market share, and also find ways to cut costs without losing their quality. In order for southwest to continue their consecutive financial success there is a necessity for excellence in the execution process of their strategy.

Business Level Strategy

The business level strategy (BLS) that Southwest focuses on is Cost Leadership. They are the leading airline in the United States for providing low-cost fares to their broad customer base. Southwest has found innovative ways to reduce cost within their cost structure enabling them to offer lower fares than competitors and still maintain a profit. One way that has helped Southwest save time and money is their standardization of their airline fleet. This tactic is known as the “one-model-fleet” by the airline. Having a single airplane model in a fleet has allowed Southwest to “lower inventory, record keeping and maintenance costs, and it minimizes the number of technical manuals, tools and spare parts.” Another methodology that has played an important role in their thirty six years of profitability is their fuel hedging practices they’ve practiced since the late nineties. This tactic has saved the company millions of dollars, and in 2007 alone has saved the company 727 million dollars. Another cost saving measure that Southwest has implemented is the use of blended winglets on all of their 737-700’s models. This change is supposed to improve performance by extending the airplanes range, saving fuel, and lowering engine maintenance costs and reducing takeoff noise. More recently, Southwest began to use EcoPower engine wash services. This is going to allow Southwest to save an estimated $20 million dollars in fuel costs. All of these tactics by Southwest are designed to save on expenses that they incur doing business. Many airlines cut cost by laying off employees, but Southwest has established a “no layoff policy” that is currently still in effect. This shows how committed the company is to their employees, and how they are an integral part of their business.

Resources

Southwest has plenty of resources that have contributed to their success as an airline company. Their intangible resources have created their competitive advantage in relation to their competitors. The reason for that is the simple fact that their tangible resources are not difficult to replicate. It’s the technique that Southwest uses to connect their resources that has enabled them to be successful in the airline industry. Their tangible and intangible resources are as follows:

Tangible:

The main tangible resources that Southwest has are its training center, employees, headquarter facility, acquisitions, partnerships, take off and landing spots, frequent flyer reward program, self-service check-in kiosks, and their fleet aircrafts. In 1986, Southwest...
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