Swa Strategy

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Industry Analysis Case Study B: Southwest Airlines Strategy (Captain Marvel)

The Success of the Southwest Airlines Strategy

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“How successful has Southwest’s strategy been?” o Southwest market cap > total of all other airlines § By being UNIQUE!

Notes

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Southwest has been the only consistently profitable airline since deregulation, and it has implemented none of the standard tactics. If the answer to its success is not the industry, it must be the strategy.

Industry Analysis Case B

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Southwest Generic Strategy

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“What is Southwest’s strategy?” Low Cost • • • • • • 737 only No amenities 2nd tier airports 15 min turnaround § High productivity Short haul / point to point Culture Focus • • Underserved markets Family customers



“Why do people fly Southwest? What is the value proposition from the customer perspective?” o Convenience (vs. buses / trains) o Low price!

Notes

Southwest focuses on underserved markets (ie. a geographic focus) and offers a low price to customers.

Industry Analysis Case B

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Low Cost vs. Low Price

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“Is Southwest’s strategy low cost or low price?” o Need low cost position to enable low prices!



The generic Southwest strategy is focus, low cost

Notes

Low prices and costs are two sides of the same coin. However, we think of them as low cost strategies.

Industry Analysis Case B

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Low Cost Position – Activity Alignment

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“How does Southwest have the low cost position? What choices has it made that enable it to be low cost?”

Notes

We will analyze the various aspects of Southwest’s configuration of activities in order to understand how each and every thing it does contributes to its cost advantage.

Industry Analysis Case B

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One Type of Plane - 737

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Using only 737s saves on: o Training o Maintenance o Fewer spare planes

Notes

Flying one type of plane – the 737 – gives Southwest considerable cost savings.

Industry Analysis Case B

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HR Policies

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“Does it make sense for Southwest to pay above average wages?” o NET NET – YES – § Lower turnover § Lower hiring costs § Lower training costs Employee ownership is also important to build productivity o Good labor relationships o Herb Kelleher influence

Notes

HR practices are consistent with their activity system – it enables improved productivity and motivation.

Industry Analysis Case B

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Second Tier Airports

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“What are the cost benefits of flying out of second tier airports?” o Lower gate costs o Less competition o Less congestion = no wait time! “Who has flown out of Newark on Friday evenings? What was the average ground hold time?” o About one hour!



“Ironically, Boston’s most convenient airport isn’t even in Boston” - Southwest Airlines Advertisement

Notes

Southwest’s choice of second tier airports allows it to compete where other airlines are not.

Industry Analysis Case B

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Point to Point Route Structure

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“What are the cost benefits of a point to point route structure?” o No delays o No ticketing o No bag transfer

Notes

One of the key differences of Southwest’s strategy is that it flies a point to point route structure and not a hub and spoke structure.

Industry Analysis Case B

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No Amenities

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The avoidance of any extras or service fripperies, such as meals, obviously reduces costs, and allows the 15 minute turnaround

Notes

Industry Analysis Case B

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15 Min Turnaround

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“Where does Southwest’s cost advantage really come from?” “How much is a fifteen minute gate turn worth?” 1 hr ¼ hr = 1 ¼ hours 1 hr 1 hr = 2 hours = 40% productivity advantage

Average Southwest Flight Turnaround

Average Major Flight Turnaround



“How many of you would like to recommend a 40%...
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