Southwest Airlines Company and Industry Analysis free essay sample

The company’s vision was a low-cost, no-frills airline that was safe, affordable, and fun. Out of that vision, and following and arduous inception, the company has become one of the largest U. S, airlines, getting more travelers to their destinations than any other U. S. airline, and making a profit while doing it. Southwest Airlines was founded and based out of Houston at a time when the city was seeing a growth in commercial and industrial business. The founders of Southwest Airlines believed there was a demand for convenient and consistent flights between large cities, particularly amongst businessmen. Their observations led them to eventually opt for a low cost business strategy with the initial goal of keeping their fares comparable to the cost of making the trip by car. To balance this strategy, the founders also recognized the importance of providing outstanding customer service to bolster the airline’s image and gain customer confidence and loyalty. We will write a custom essay sample on Southwest Airlines Company and Industry Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Today Southwest has a fleet of 527 aircrafts serving 64 cities in 32 states. Southwest focuses on affordable travel with a strategy which is not built on hub airports but rather flights between pairs of cities, point-to-point. Routes are established where there are enough passengers travelling and a high number of flights per day, with an opportunity to add more flights over time. The company has short turnaround times to keep the plans in the air more hours than rivals. It also has the lowest customer complaints per passengers and a low lost baggage rate as well as high on time arrivals. Southwest Airlines has stayed true to its founding goals and the company’s present success is a direct result of those two key factors. In executing its primary goal to remain the low cost leader, Southwest Airlines could be described as having â€Å"no-frills†. The company keeps its costs low so it can keep its fares low by flying point-to-point rather than through hubs, by only offering one class of service, by utilizing electric ticketing systems to save on paper, and by selling flights directly through its website to eliminate agent fees. Furthermore, through the company’s rigorous fuel hedging tactic, Southwest has saved billions of dollars in fuel costs while operating one type of airplane, which has simplified and improved the airline. All of the aforementioned factors have consistently contributed to lowering Southwest’s operating costs and increased its profitability. Competitor rivalry is a strong force, as there are a lot of similar sized competitors with little differentiation in products and customers are price sensitive. The threat from new entrants is weak due to the high startup costs and high competition that is already in the industry. The bargaining powers of substitutes are weak, traveling by trains and busses means more time than air travel. The bargaining power of buyers is high since the buyer switching cost is low and customers are price sensitive. Also, since customers can book tickets through websites like Expedia or Orbitz, which searches through all available flights and offers customized low prices. Suppliers have a strong bargaining power in the airline industry. In markets today, there is often a concept that price and value are inversely related. As part of its key success factors, Southwest Airlines sought to overcome this notion by focusing on adding worth in the form of exceptional customer service. From the highest administrators to the lowest attendants, Southwest’s employees are often hired based more on their attitude rather than their aptitude. Southwest believes that skills can be taught, but genuine courtesy and a fun-loving spirit cannot. By providing this exceptional service experience, Southwest Airlines has found a way to offer â€Å"more value for less money. † Since 1973, Southwest Airlines has had positive income statements and this has proved that the airline can remain profitable even in the most turbulent economic conditions. Despite its success however, Southwest faces numerous forces that could potentially erode its profitability. Rising fuel costs, increasing government regulations, and ongoing public fear of terrorist attacks, are some of the key issues the company is forced to face. First, as a discount airline carrier, Southwest was designed to service a small number of high capacity routes rather than a broad spectrum of diverse destinations. Secondly, increasing debt to the company that has prided itself on paying close attention to bottom line profitability. A third issue that Southwest faces is one that is less tangible but very real. The potential drop in general airline traffic due to increasing internet communications in the form of videoconferencing could mean less business travel. If business travel declines, Southwest may want to shift its focus to vacationers and casual travelers. Southwest Airlines was founded on the tenet of fiscal conservatism primarily with maintaining low levels of debt. Southwest has experienced an increase in debt from 2003 to the present. In the short span of 4 years, the debt-to-equity ratio has increased by . 5 percent. Factors that might have contributed to an increase in debt may include expense of employee separation packages, lawsuits against Southwest, and much needed system operations upgrade. While this may not be a significant problem right now, the company could decrease its current debt levels by keeping more thorough maintenance records thus avoiding potential lawsuits. Utilizing new technology and continuing to hedge with futures contracts on oil can cut the company’s rising fuel costs. While Southwest’s flight routes have been the cornerstone to its success, it could stand to become more geographically diverse. That stated, it is recommended that the company continue to stay out of larger U. S. irports and instead diversify itself throughout Canada, Mexico, and the Caribbean. The company should research the international markets and simply duplicate its current business strategy on a more global scale. It is recommended that the company should consider acquiring smaller low-cost domestic airlines and look outside of the U. S. for new potential markets. If Southwest Airlines is able to successfully do this, they will be able to undermine existing larger carrier airlines and will create a new revenue stream.