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Transcript of Southwest
Business “Fit” Model
737 Standard Plane
Fuel Cost Containment
Bags fly free “Added Value”
Oil prices generate the biggest cost
40% of ticket goes towards fuel
Pressure washing the engine turbine blades ($12.5M Saved in 2009)
Fuel hedging strategies
High risk move
$3.5B less than industry average
Paid off mostly in 2004 and 2005
Reduces maintenance and operative Costs
Modified bigger wing increases fuel capacity.
Increased the 737's range by 900 NM
International Markets Available
Easier to fill capacity
Best-Selling jet airliner in history.
This model involves flying multiple short, quick trips into the secondary airports of major markets.
This strategy has helped southwest gain a majority of the US low fare market
Unit costs are lower in this model as aircraft are utilized more often because they do not have to wait for connecting flights, thus reducing fixed costs, which accounts for a large percentage of operating costs.
Costs are spread out over many hours of flying, thereby driving down the unit cost.
Should Southwest expand internationally?
Reposition domestically to fight AirTran, JetBlue, Frontier Airlines, Virgin America, Spirit Airlines etc.
Premium Economy class
Moving closer to major airlines without increasing price
Expansion is viable after securing domestic market.
Now a day, Southwest Airlines flies over 100 million passengers a year to 66 great cities all across the country, and they do more than 3,200 flights a day.
Southwest opened the door to Canadian airlines WestJet.
They have not reach an agreement with WestJet
They also recently begun a partnership with Mexican air carrier Volaris.
This events show how Southwest is looking forward to growing and succeeding abroad
Challenges and Competition
Be careful with competitors internationally.
Example: Viva Aerobus
They have 26 destinies and 11 airplanes covering a big share of the market.
Volaris is not as cheap but it has more quality.
MTY-MEX $100 vs. $150 plus Volaris is not direct.
Challenges and Competition
South America’s GOL
37% Market share in Brazil
Europe’s Ryan Air, Easy Jet, Vueling Due to this reason, partnership is a better option instead of entering directly.
It might be expensive at first but can scare competitors away
Barriers to Entry
Another reason why partnering is better.
Restrictions and regulations by foreign governments.
Different markets/ higher income per capita in the US.
Knowledge of geographical regions is costly.
They could potentially buy the company they partnered with if they deemed it viable.
Introduce a lower class
For example, Quanta’s premium economy
This strategy could help Southwest to broaden their market up and down
Taking over the Americas
Not charging for their bags.
In addition, Southwest has aimed their business strategy towards customer satisfaction and is trying to improve the customers’ experiences on the flight with warm hospitality.
Free Drink Tickets
Southwest Airlines has proven that they are a profitable company that can offer a low price to customers that just want transportation from point to point. Their expansion to Mexico through Volaris is the start to their future expansion of their business in order to capture more of the available market.
In addition, they would have to increase their amount of planes using some newer models that would be able to travel greater distances to make the trip from one America to the other.
Using a hybrid system that uses elements from both the hub and spoke system and the point-to-point system.
The future of airline travel is ever expanding with technology and it would be wise of them to corner the market share of the low-income customers in the two continents.
Southwest Airlines has developed a well-networked business model that has a strong fit in order to make it more difficult for other companies to imitate.
Their ability to use various methods that integrate activities that affect one another helps Southwest to enhance their strategic uniqueness and strengthen the tradeoffs that other companies would face from attempting to mimic the structure.
Southwest has used an optimization of effort to have a great coordination between the labor side and the business side of the business model.
All in all, the greater the fit reduces cost and increases differentiation, helps the business strategy have sustainability because rival businesses face a barrier to imitation.
Southwest tried to enter the Canadian market with the deal with WestJet
Deal got terminated because Southwest couldn’t agree on the terms
Code shares are when ticket sales are managed by another airline.
Since WestJet and Delta had this deal, Southwest decided to back out
Southwest is still trying to find a way to enter international markets
Hiring based on personality
example someone cool enough to rap
Gaining customer loyalty
Wifi on plane
THANK YOU FOR FLYING SOUTHWEST
HOPE YOU ENJOYED YOUR FLIGHT