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SOUTHWEST AIRLINES

Strategic Management
by

Sonia D'ettorre

on 26 November 2012

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Transcript of SOUTHWEST AIRLINES


LIMITED COST REDUCTION OPPORTUNITIES (lowest profit among all industries)

TICKET PRICE YIELD MANAGEMENT (many different fares for the same flight)

HUB AND SPOKE NETWORK 2008 1978 Entrance of new many firms
Bankruptcy (Delta, United, American Airlines = 80% of the domestic air traffic)
Higher competition
Greater demand
Lower fares
Low employees wages EFFECTS OF AIRLINE DEREGULATION ACT 1979 1981 2001 AIRLINE
DEREGULATION ACT FUEL CRISIS
AIRLINES
CONTROLLERS STRIKE TERRORIST ATTACKS Civil Aeronautic Board regulated airline routes, entry and exit, passenger fares
Presence of TWO or THREE careers in a given market
Increasing operating costs
No price competition



TWO MARKET SEGMENTS:
a. who could afford to fly
b. who could NOT afford to fly Phoenix Boston Detroit A B SPOKE HUB FINAL
DESTINATION - good management of
travels in a huge network

- local market control - very expensive to implement

- inconvenient for travelers
(waist of time) SOUTHWEST AIRLINE
1970 - Birth (Herb Kelleher & Rollin King)
Assets: 3 boeings 737
Human resources: 25 employees
Spirit: Flight assistants in hot pants and "LUV" theme
Knowledge TWO TYPES OF CUSTOMER BUSINESS TRAVELERS - 26$ (weekdays) LEISURE TRAVELERS - 13$ (different purchasing time) STRATEGIC ISSUES VALUE CHAIN Resource Based View Key Success
Factors SWOT analysis TO SUM IT UP... INDUSTRY OVERVIEW (before 1978) FROM A RED OCEAN TO A BLUE OCEAN - POSITIVELY OUTRAGEOUS SERVICE both on board
and on the ground
- "Fun culture"
- Customer service actually caring!
- Being professional is also not taking
yourself seriously LUV SPIRIT INTANGIBLE VRIN RESOURCE Not just a flight: EXPERIENCE HUMAN RESOURCE MANAGEMENT - Training periods and Team Building

- Enthusiasm and extroverted personalities

- Lowest turnover of the industry (7%)
- Employees' participation to company's
life and performances ("A big family",
"We all feel owners") INTANGIBLE VRIN RESOURCE INDUSTRY ECONOMY 2003 SARS epidemic VRIN resources building a SCA
Competitors failed in imitating: VRIN once again!
Both Primary and
Support activities
were crucial MANY AWARDS --> winning strategy Profits generated for 36 consecutive years THE COMPANY ESTABLISHED NEW INDUSTRY STANDARDS Lowest DEBT-TO-EQUITY ratio PRESSURE WITHIN
AIRLINE INDUSTRY 1. Customer Dissatisfaction with Airline Service
2. Aircraft Safety Maintenance --> costs
3. Debt Servicing
4. Air-traffic Delays
5. Mergers
6. Open Skies Agreement --> competition
(european airlines) SOUTHWEST'S OPERATIONS
1. Short-haul (less than 500 miles)
2. Point - to - Point flights (new point of view)
3. High frequency flights
4. Low fares
5. 'No frills' approach to services (extra fees imposed)
6. Computerized reservation systems & ticketless travel (1995)
7. No international flights - 1st mover in many fields ALSO... - Diversification: Chivas HERB KELLEHER - Humorous, fresh, charismatic
management style "Business of business is people" - Loyal, respectful of his employees INTANGIBLE VRIN RESOURCE (resources needed to succeed in the industry) As a winning blue ocean example, Southwest redesigned the industry competitive advantage requirements CAUSAL AMBIGUITY + SOCIAL COMPLEXITY PHYSICAL UNIQUENESS (IT'S A HUMAN BEING!) PATH DEPENDENCY + CAUSAL AMBIGUITY + SOCIAL COMPLEXITY How could Southwest Airlines gain competitive advantage? - Low Fares
- Internet Booking
- HRM
- Leadership
- Speed turnaround - International Market (long-distance flights) - New Entrants
- Imitation
- External Environment - Not Customized
- No long-distance
flights (weekends) AIRLINE INDUSTRY OVERVIEW TIMELINE background LUV Spirit Sonia D'ettorre Hee Jin Suh Amicie de Legge Eun Seon Heo
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