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1. Vision, Mission and Strategies
Southwest Airlines is one of the most successful carriers in the United States. Even during the period following the 2001 terrorist
attacks the company has remained profitable. The reason to their success can be attributed to a number of different factors, most of
which stem from the vision, mission and strategies the company adopts.
When Southwest Airlines is first started by Rollin King and Herb Kelleher behind a new idea; a vision for an airline that offered the
lowest possible fares and still get people to the destinations they wanted to be. The idea was if they could do this and you shall
customers had a good time on a journey that they would come back and fly again with them (Southwest, 2007).
The vision of the airline and its’ mission have not changed. Southwest distributed as being the first airline to follow the low-cost model;
offering a straightforward no-frills service that facilitated the ability to offer customers the lowest possible airfares.
The company does not have a vision statement, but it is inherent within its’ declared mission which is written in two parts. The first
part of Southwest Airlines mission is stated as being
“Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company
Spirit”.
Therefore, it can be seen that in the vision and mission there may be the emphasis placed on low pricing, but this is not undertaken at
the cost of quality. Low-cost does not mean low quality in terms of customer service. The company also has a mission in relationship to
the work and conditions it provides its employees and the dedication it expects from its employees. This is seen in the second part of
the mission statement which states;
“We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth.
Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided
the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest
Customer”
The vision which is inherent in the way the company is approaching its business, and its mission, which although not communicated in
a traditional mission statement, can be seen as leading to a strategy which has followed.
The strategy of that is that of a low-cost air carrier which keeps its costs down by careful control of operations and the development of
good employee relationships so that as well as offering low costs the company is able to offer very high levels of standards in order to
differentiate itself from the competition.
2. Developing Vision and Mission Statements
Looking at the approach already taken it is possible to develop vision and mission statements for the company. A vision statement
made include aspects such as being a good employer, respecting customers and offering value for money. Therefore, vision statement
will read; Southwest airlines seeks to undertake business in an ethical manner, treating it stakeholders with respect, offering a high
level of customer service and continually seeking innovation in order to differentiate itself from the competition.
The company already has statements concerning its mission, although they are not a traditional mission statement. Looking at the
format of the traditional mission statement because speculators southwest may choose a statement such as; Southwest airlines seeks
to be the best and most profitable low-cost airline in the United States differentiating itself with a high level of customer satisfaction
provided by motivated unsatisfied employees as well as the lowest fares on the route it flies.
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3. External Opportunities and Threats
In order to examine the airline and its current position and potential future strategies it is important to understand the environment in
which it operates. There are a large number of external opportunities and threats.
The industry has changed since 2001, there are now increased fears of a terrorist attack which have had a knock-on effect on the
demand for air travel. The industry has partly recovered from this, but the war on terror is ongoing and airlines have to safeguard
against the use of their airlines in a similar way as well as the potential negative publicity that will result in a decrease in demand.
Following the 2001 attacks a number of airlines have entered into bankruptcy.
It is not the only threat. Competition is always a threat. The airline industry is one which is very competitive and generally have high
overhead costs. Airlines often compete head-to-head on many of the same routes. In order to compete effectively Southwest have
to compete with airlines, some of which may be larger, in order to gain and attract customers competing with the traditional and the
more recent low-cost carriers.. There are an increasing number of low-cost airlines emerging to compete with southwest. Some of
these start-up companies, others are divisions of the larger airlines set up in order to compete in the low-cost airline including airlines
such as; JetBlue, ATA, Skywest and Spirit.
The power of the competition can be seen as a threat not only in the way it is used by the airlines to attract customers who marketing
and routes that are flown, but in the way they seek to use their power in the macro environment (Thompson, 2005).
One example of this has been the way larger airlines use their power to help push through the change of federal ticket tax in
1997. This was a measure that has impacted disproportionately on shorter routes. The move, supported by larger airlines, was for
the introduction of a flat rate tax rather than a percentage tax. The threats here on dual; the potential for increased taxation and
government, as well as the way in which competitors will seek to protect their own interests (Nellis and Parker, 2000). In this case, it
was in the interests of the larger carriers to push for the change in taxation.
Other threats seen may include potential economic decline, less disposable income will result in a lower demand the tickets which
will have an impact on the demand for air transportation. In addition to this there are also increasing costs with the price of oil
approaching hundred dollars a barrel, a price which will have a large impact on the running costs of the airline.
However, it can also be argued that these changes have also presented opportunities. While Southwest airlines have focused on
offering short routes, the low-cost model may also be very effective on the longer distance route across the United States. This
would give them a new market and the ability to attract new customers as there is a high level of demand in many of these routes. In
addition to this with the changes in the way the ticket tax is levied these routes may be deemed a missed opportunity with a relative
decrease in the cost of running these routes.
It may also be argued that there is an increasing opportunity the Southwest to adopt flying international routes to nearby locations
where an increasing number of Americans travelling. This may include Canada, Mexico and the Caribbean. These are routes that are
within the airline’s existing distance constraints and where there are also existing high air fares.
The company also has a rapid reward program to reward loyalty. At a time when there is a potential economic slowdown and
customers want value for money, as well as being able to attract customers away from higher cost carriers, the rapid reward program
presents a further opportunity to increase loyalty to new customers attracted from full cost carriers.
4. Competitive Profile Matrix.
In order to compete against existing companies, both low-cost and traditional carriers, Southwest has to identify an incomplete based
on the critical success factors for the company. By presenting a competitive profile matrix we can compare Southwest and its ability
to perform compared to its competition. Scores are marked out of five and in order to gain a good overview of the competition the
competitors chosen for comparison represent a broad segment of the airline industry in the United States.
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Southwest
Delta
JetBlue
Continental
Spirit
Customer satisfaction
5
3
4
5
4
Low price
5
4
4
2
4
Routes flown
3
5
3
5
3
Corporate culture
4
2
4
4
4
Time aircraft are in the air
5
2
3
3
4
Marketing
4
4
4
4
2
Managment of costs
4
3
4
3
4
Total
30
23
26
26
25
This competitive matrix indicates that Southwest ahead, however they are competing very fiercely and do face competition from both
low-cost and traditional airlines, specifically continental when it comes to offering customer satisfaction. Their competitive weakness
is weaknesses on the routes flown.
5. External Factor Evaluation Matrix
We have looked at the external opportunities and threats. They have been discussed, but it is also important to assess them in a
broader context to look at the way in which the company is able to deal with them. But this we can use an external factor evaluation
matrix. For this each external factor will be weighted relevant their level of importance and the company will be scored for its ability to
deal with that external influence. Scores are given out of 10.
Rating
Weight
Score
Long haul routes
7
0.1
0.7
Expansion of markets
4
0.1
0.4
Attraction of new customers
9
0.1
0.9
Terrorism and security
8
0.2
1.6
Competition
8
0.15
1.2
Taxes
5
0.05
0.25
Economy
7
0.1
0.7
Oil prices
4
0.2
0.8
1
6.55
OPPORTUNITIES
THREATS
Overall the company is well placed. They are able to take advantage of wrongful routes, but this has not been leveraged to its fullest
extent. Expansion into new markets is a very real opportunity, South West have the aircraft required, but have shown no indication
of pursuing this strategy. The ability to attract new customers is only great opportunity, especially as industry as a whole is facing
a threat due to the slowdown in United States economy. As and low-cost carrier Southwest may be seen as suitable alternative to
higher cost carriers.
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Terrorism and security is a serious threat and takes attention and investment in order to minimise the threat. It is also a very real
threat, but Southwest are able to deal with this in an effective manner and have taken all measures that are deemed necessary.
Competition is also a threat, but with a higher profit level and a better financial structure than many of its competitors southwest,
along with its low-cost structure, is very well placed to deal with the competition. Taxes and increased fees are always a threat. It
may be argued that this is only eight small threat compared to others as it will affect the entire industry and Southwest have a higher
profit margin compare to other airlines. The economy is a serious threat, but the low-cost model of Southwest will help to ensure it can
attract new customers, turning a threat into an opportunity. Oil prices are a very real threat and cannot be avoided. This can increase
the overall running costs. Some airlines have chosen to hedge their fuel costs in order to manage their future costs, Southwest to
hedge their fuel costs, but in 2006 and the report they note there has been a 50% increase on hedging costs. Therefore, it is a threat,
but it is also one that Southwest are dealing with as well as many of its competitors.
6. Internal Strengths and Weaknesses
The success of the company is aided by its internal strengths and weaknesses. With services provided by more than 33,000 employees
serving 58 cities with more than 2800 flights a day the company has been able to benefit from efficient operating practices. With a
large number of flights southwest uses a fleet of 375 Boeing 737’s. With a feat made up of only a single type of aircraft this reduces
the overall maintenance costs and the level of parts and skills required to maintain their fleet. In addition to the lower running costs of
the fleet the airline also has one of the shortest turnaround times in the industry meaning that the aircraft remain in the air for a much
greater proportion of the time compared to its competitors. This also helps Southwest airlines retain a position where it has the lowest
running costs per seat which are between 15% and 25% below that of its’ competition.
The low operating costs support the low ticket prices which are offered to customers. However, a major strength is the way that low
costs are able to be combined with high levels of customer service, from the call centres through to baggage handling and aircraft
attendants. The rapid rewards program seeking to create loyalty is also a strength; it is perceived as giving a high level of value,
whereas the actual cost the company remains low.
The internal corporate culture may also be seen as a strength. The level of protection given to employees and the care taken in
managing the employment relationship has led to a very different and positive corporate culture. Employees feel valued and in turn
work hard, committed and loyal. The care given to the employees is reflected in the mission already discussed, where employees are
seen as internal customers. Where employees are happy and motivated the company is more likely to gain a better performance, as
seen with a high level of customer service provided by Southwest employees to Southwest customers. The culture is also seen in the
way that it is not unusual for pilots to help the cabin crew in the aircraft for a fast turnaround will help the ground crew unload the
luggage. This is very unusual in the airline industry.
The use of technology may also be seen as a strength. More than 13% of the customers who visit the website end up booking a flight.
This is a strength as it supports the creation of value in the supply chain and indicates a effective marketing and support of sales
through the Internet. As the cost per booking an Internet cells is only one dollar, compare to the traditional putting cost of $10 when
tickets are sold through travel agents this can also be seen as supporting the profitability and low-cost structure of the company with
about 50% of all tickets booked in this manner.
The financial position of the company may also be seen as a strength. Southwest is one of the few airlines has posted a continual
profit, even following the decline in demand following the terrorist attacks in 2001. 2002 was the 13th consecutive year of profit and
in 2002 Southwest was the only profitable airline in the United States. In addition to this the Southwest balance sheet showed that
Southwest has one of the lowest levels of debt.
In addition to strength the company also vote basis of potential weaknesses. One of the strengths has been its fleet of aircraft which
are all Boeing 737. This may increase the potential cost savings and facilitate effective maintenance management, but it also presents
a potential weakness. If there are any issues with the performance of the 737 aircraft, or any issues concerning the supply of parts
of the aircraft then Southwest may face difficulties in keeping all their aircraft in the air. Its reliance on a single type of aircraft is
therefore a weakness.
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The routes offered by the company may also be seen as a constraint leading to a weakness. As Southwest fly direct routes the cost
structure may have some opportunity costs; many other carriers use a hub and spoke operation. This is a structure which is suitable
for shorter routes, but as the company is expanding into longer distance routes it may be argued that the failure to develop a hub
and spoke system made present the company with increased costs and a relative weakness in getting the customers onto those
long flights.
Company is also one which is unionised. To date this has not created any difficulties and the employment relationship has resulted
in collective agreements that have included flexible workforce. However, in any unionised environment there is always the
possibility of problems in the future if there is a disagreement between management and employees.
The decision to enter the long bull market may also be seen as a weakness. These are flights which will have a lower profit margin
over all and while increasing revenues numerical profit may pace increased pressure to cut costs in other areas to maintain profit
margins. However, it may be argued as a necessary weakness.
7. Internal Factor Evaluation Matrix
The above strengths and weaknesses can be put onto an internal factory valuation matrix. The analysis of these factors has been
included above so will not be repeated.
Rating
Weight
Score
Low maintenance costs
8
0.15
1.2
High level of flight time
10
0.2
2
Profitability
9
0.1
0.9
Financial strength
9
0.1
0.9
Corporate culture
8
0.1
0.8
Loyalty programs
7
0.05
0.35
eCommerce strategy
8
0.05
0.4
Reliance on Boeing 737’s
3
0.05
0.15
No hub and spoke structure
4
0.05
0.2
Union presence
4
0.05
0.2
Long haul
3
0.1
0.3
1
7.4
STRENGTHS
WEAKNESSES
TOTAL
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8. SWOT Matrix and Other Matrices
The strengths, weaknesses, opportunities and threats may all be put together on a single swot matrix
STRENGTHS
WEAKNESSES
Overall low-cost structure
Fast turnaround of aircraft
Profitability
Customer satisfaction levels
Low prices
Corporate culture
Loyalty programme
E-commerce strategy
Reliance on a single type of aircraft
Union presence
Cost structure of long haul flights
Cost of hedging
OPPORTUNITIES
THREATS
New long call routes
New international routes
Attract new customers from full-service airlines
Leverage loyalty programme
Further hedging fuel costs
Innovation and new developments due to employee loyalty and
commitment
Oil price increases
Slowdown in the US economy
High level of competition from existing airlines
Increasing competition from other low-cost carriers
Potential increases in taxes or fees.
Terrorism and security threats
SPACE Matrix
Y
A
X
I
S
X
A
X
I
S
INTERNAL STRATEGIC POSITION
EXTERNAL STRATEGIC POSITION
Financial (FS)
+6 best, +1 worst
(+6) Profitability
(+4) Cost management
(+6) Liquidity
(+4) Ca to 5406sh Flow
(+4) Risk
(+6) Productivity per employee
Avg. = 5.00
Environmental (ES)
-1 Best, -6 Worst
(-1) Technology
(-1) Barriers to entry
(-2) Competitive pressure
(-3) Price elasticity of Demand
(-1) Competitors prices
(-2) Terrorism and security
Avg. = -1.66
Competitive (CA)
-1 best, -6 worst
(-3) Market. Share
(-1) Product quality
(-3) Life cycle
(-2) Customer loyalty
(-2) Turnaround of aircraft
(-1) Corporate culture.
Avg. = -2.00
Industry (IS)
+6 best, +1 worst
(+2) Growth potential
(+2) Profit potential
(+1) Financial Stability
(+1) Ease of entry
(+6) Productivity
(+4) Competition level
Avg. = 2.33
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This places Southwest a very strong position, they are competing well and utilising their position within the industry well, they still
have some weaknesses.
A grand strategy matrix was seen Southwest placed in the top right-hand quadrant of the matrix due to its ability to compete
aggressively and retain its market share.
The use the Boston consulting matrix is not really relevant to this analysis, the routes may be divided into those which are more popular
than not, but it is unlikely that Southwest are releasing sufficient information to be able to assess which routes the question marks, but
these may be the long call routes, which routes are the stars, although these may be routes to the more popular destinations which are
seeing an increase in duty regeneration, cash cows are likely to be the long-term flights between major cities, and the cost structure of
the company in maintaining only profitable flights is likely to mean there will be no dogs present.
The information indicated so far can be used in a quantity of strategic planning matrix. This matrix will look at the different potential
areas for future strategy in order to help identify areas where the company may improve and gain business. This matrix will reveal the
market penetration market expansion of both viable for Southwest, and a leverage of new markets and increased emphasis on long call
flights tying in with short haul flights to expand potential destinations can also be complemented with blood emphasis placed on the
loyalty programme. As this section has asked for the relevant matrices which are appropriate space being given to analysis rather than
a production matrix which will simply confirm the findings of previous matrices.
9. Recommendations
It is recommended that the company expands its operations and offers a range of new long call flights to areas where there is an
increasing demand, but which now, or very few low-cost airlines already fly. Destinations could include the Caribbean, Mexico, some
areas of Central America such as Panama where there is a reputation for high flight to costs, as well as Canada to the north.
With the economic slowdown there is also the potential to attract new customers from many of the existing full cost airlines.
Marketing may be undertaken specifically to attract these customers, pointing out that high levels of customer service and the relatively
low a ticket costs as well as using the loyalty programme to help increase the level of sales made to each customer.
10 Implementation
Implementation should take place over a period of time. The initial expansion into international markets can start with Canada, this is
the simplest market for international expansion as it is overland, shares a common language and culture and is also able to fit in with
the short distance flights which Southwest profess to fly. As international flights becomes a core competency of the company and the
learning curve is traversed the flight should then expand to areas such as Mexico and the Caribbean, and then finally to some Central
America countries.
The marketing to attract customers from other airlines can begin immediately. The use of television and printed advertisements
showing to similar customers one flying on Southwest and one flying on a traditional airline can be used to indicate that Southwest
customer ends their journey happier; they have spent less, had better customer service and a generally better experience.
11. Annual Objectives
The objective is that by the end of year one Southwest would have gained the relevant provisions licences to land in Canada, and can
start marketing the new route to the existing and new customers. By the end of year one the company should also have increased its
brand awareness and the level of customers it is taking from other airlines by at least 10%.
By year two the airline should be flying to Canada on a regular basis and should be in the process of making relevant applications
to gain permission for flights to Mexico. A further 10% increase in the number of customers taken from other airlines should be
documented.
By the end of the third year flights to Mexico should be beginning, the position of Southwest as a maternity to the full cost airline
should be well established and the loyalty programme should have seen an increase of at least 15% in membership from former
passengers of other airlines.
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12. Review and Evaluation Strategy
The process of growth and change will need to be evaluated. The annual objectives can be used as measures to assess the progress
and changes can be made where necessary (Mintzberg et al, 2003). The success of the marketing programme will need to be
evaluated on a more regular basis. This can be achieved by adding a question in on the booking process, which is voluntarily, to ask
customers if they usually use a different airline. Statistics of visitors to the website, and the number of new bookings, can then be
correlated to those who say they usually use a different airline. These can be used to measure the success of different marketing
strategies which are used over the period, where they for the marketing strategy may need to be adapted, where they increase the
same marketing strategy can be further utilised and possibly improved.
References
Mintzberg H, Quinn J, Goshal S (2003) The Strategy Process (Revised European Edition), London, Prentice Hall
Nellis J G, Parker D, (2000), The Essence of the Business Economics, London, Prentice Hall.
Southwest Airlines (2006), Annual Report 2006, retrieved 18 November 2007 from http://www.southwest.com/investor_relations/
swaar06.pdf
Southwest, (2007), homepage, retrieved 18 November 2007 from www.Southwest.com Thompson J L, (2005), Strategic Management;
Awareness and Change, London,
Thompson Business Press.