In 1996, Southwest Airlines was a successful and profitable low-cost airline company, operating in south-eastern US markets. After entering the Florida market, the company had to face certain strategic challenges. It was a big challenge to maintain the profitability while competing with all the north-eastern airlines in a highly competitive area.
In a bid to figure out the major challenges and strategic alternatives for the Southwest airlines, firstly, we studied the external environment of the company, in order to analyze their position and relation with the different players in the industry. Then, we analyzed Southwest Airlines' internal environment, such as its main resources and capabilities, in order to define the core competencies they could rely on to face their strategic challenges. Finally, we figured out what were the strategic alternatives they had, which would help them to maintain their successful position in the US market
[...] Considering the cost of maintenance and storage of the airplanes, we can affirm that SW evolves in a market where cut-throat competition rules Analysis of Southwest Airlines 1. Resources 1. Tangible resources 1. Financial resources With 23 consecutive years of profit, Southwest Airlines has a good financial position. The long-term credit rate of Standard's & Poors is which is exceptional in this field. Moreover, Southwest Airlines has a very low equity-to-debt ratio, which enabled it to invest and to borrow money if needed, and a high return on investment Physical resources First, the many cities serviced enabled the Southwest Airlines politics of short flights. [...]
[...] The bargaining power of suppliers The suppliers in the airline industry are roughly defined as such: the airplane manufacturers and all the services that derive from purchasing a plane (maintenance, repairs, etc.), the catering company and the oil firms. Regarding plane manufacturers, there is a special case to be taken into account; the major competitors in the industry are Boeing and Airbus. The fierce competition between these two leaves a margin for bargaining to the plane buyers. The suppliers are deeply concerned by suggestions and demands of the airlines, since they compete over their own productivity when it comes to closing a deal with an airline. [...]
[...] The product delivered to the airline companies is the basis of all their business, if we add to that the sensitivity of the fuel market and the high influence of fuel suppliers, we can conclude that the suppliers have a high bargaining power and that power, for example, in the case of fuel is totally out of control of the airlines Substitutes The substitutes can be also considered as direct competitors along with other airlines. The substitutes are various, we can count railroads and trains, roads and cars or buses, and switching costs for customers are quite low The bargaining power of buyers The notion of buyers in regards to SW is limited to the end-customers, regular average customers who do not have a big say in the definition of price but have a panel of substitutes that they can choose if the airline ticket reaches a price that they cannot afford. [...]
[...] So employees never hesitate to do something unusual if they think it's good for the company Reputation The Southwest Airlines Company has gained many awards over the time that brought more reputation for the company, for instance, best on-time performance and less customer complaints, and offers a very high level of security. The Southwest Airlines spirit with its ‘Positively Outrageous' service is also a source of good reputation. Architecture The airlines gives more importance for its employees' behavior : they can be rewarded for a good behavior or a great initiative, are subject to a training program, and profit-sharing for employees was decided as to involve more employees in the success of the company Capabilities and Core Competencies The combination of some of the tangible and intangible resources lead to the firm's capabilities: - The fact that the company has a fleet exclusively composed of Boeings 737 combined with highly motivated and trained employees and multi task crews creates the firm's ability to operate rapid turnaround at airports and therefore frequent flights (time management). [...]
[...] Taking over a company already operating in this market can help reduce adaptation measures and eliminate the planning of routes and destination. Pros: - profit from already established facilities - do not risk exposure and preserve image - easy to do since SW is one of the few profit making businesses in the industry Cons: - human resources problematic (formation, transmitting the SW spirit) - finding an already established company ready to sell IV. Another strategic alternative could be to create a partnership with one of the airlines already operating in the north-eastern US market. [...]
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