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Transcript of SOUTHWEST AIRLINES
What is Cost Leadership?
The process of producing ACCEPTABLE goods or services at the lowest cost to the customer relative to competing firms
Each step of the value chain is examined….warehousing, handling, and distribution
"If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they will have a good time doing it, people will fly your airline."
Low Cost Strategies
1. Flight Turnaround & Efficiency
2. Employee Training/Human Capital
3. Point to Point
4. Costs to Customers
5. High Entrance Barriers
Boeing 737 ONLY!!!
Average flight time of 112 minutes
Average of 7 flights/13 hours per day
25 min gate turnaround
Availability creates high volume
Efficient through simplicity
The hardest part of the implementation of the low cost strategy is: Personnel
Costs to Customers
Bags fly free
Limited passenger service
HIGH ENTRANCE BARRIERS
Competitors - LOWER than average profit margin returns
Economies of scale - Most profit per unit
Economies of product differences - Standardized machinery
Brand equity and customer loyalty
Downfalls: Airlines providing better value
than Southwest at a similar cost
Porter's Five Forces
Threat of New Entrants
• Threat of new entrants is extremely low
• Industry start up costs are expensive
• Complicated and technical industry
• Regulations and federal policy requirements
• Capital requirements and investment costs
• Cost disadvantage relative to size
• Brand Recognition
Threat of Substitute Products or Services
Immense Competition: The airline industry is incredibly competitive, and the race to get the consumer’s business often leads to margin contraction
Jet Blue Airways and US Airways
Advances in other forms of transportation
High concentration among GDS and aggregator websites
Websites increase price transparency
Low switching costs
Increased fuel costs
Hedge on Fuel prices pays off
Was Southwest affected by the 9/11 attack?
Intensity of competitive rivalry
Employees are encouraged to think outside the box and interact with customers
How Southwest Airlines does it?
learning and development
Multimillion dollar training center
AirTran & 45,000 employees
Low employee turnover & good
relationship with labor union
Employee turnover rates of 4% to 5%
11 September 2001 - how Southwest
Airlines and its employees handled
Cost and Benefits
Southwest now has the best-paid pilots,
mechanics and flight attendants in the industry.
Unit labor cost rose 22% from 2002 to 2009.
Free flight on Southwest
Profit sharing plan
Human Sources &
HR has a key role in recruiting, hiring, selecting, promoting, and training personnel
"Our culture is our biggest competitive strength” -COO Mr. Van de Ven
CEO: Herb Kelleher attributes high employee morale and efficiency to the implementation of a family friendly atmosphere as the company’s corporate culture.
1) More formidable rivals:
2) Newer rivals
often modeled after Southwest, are
thriving at the other end of the spectrum.
Point to Point
Hub and Spoke
Are You Awake???