Southwest Airlines Southwest Airlines made its first voyage back in 1971 with service based in the cities of Dallas, Houston and San Antonio (Brief History, 2009). 38 years later, Southwest Airlines has more than 3300 flights a day and serves 66 cities in 33 states (Factsheet, 2009). Southwest Airlines has demonstrated a variety of strengths in its 38 year presence. Recent economic events have also caused a renewed focus on the company’s weaknesses.
Aside from its weaknesses, Southwest Airlines has also been keeping track of opportunities that currently exist in the market. Like all other companies, however, they still have some ground to make up when analyzing possible threats to its business. A major strength of Southwest Airlines is the brand recognition that its name carries. Most Americans have heard of Southwest Airlines and have possibly even seen the TV commercials associated with the airline. A look at Southwest Airlines’ website reveals an expansive look at a company dedicated to customer service. From the booking opportunities to the ability of being able to access the customer service commitment Southwest has made itself into a customer friendly company. Even the company’s stock ticker is listed as LUV as in customers “luv” Southwest Airlines. This is not just clever marketing but it also holds true in its business practices. For example, how many airlines make it easy to travel with your pet companion?
Southwest is also the only airline that does not charge you for changing your tickets when other airlines are charging up to $150 a ticket. Southwest is not only flexible when it comes to ticket changes it also offers some of the lowest fares in the industry with some as low as $30. Southwest not only worries about the factors of getting the customer onto the planes but the comfort of the passengers once they are in flight. One of the current test programs that Southwest is offering is the ability to surf the internet during flight.
All of this has resulted in Southwest achieving milestones regarding its service. In New York’s La Guardia Airport, Southwest has constantly maintained a better punctuality rate than its competitors who are usually less than 60% on time (Friedman, August 3, 2009). In July of last year, one of Southwest’s main competitors, Jet Blue, scored poorly on punctuality while Southwest’s punctuality rate was at a whopping 83. 33%. All of this has resulted in Southwest Airlines being on Fortune 500’s list of most admired companies 13 years straight.
This honor is more than just the customer service that the airline provides; it encompasses the business of the airline as a whole. Southwest Airline’s CEO Gary Kelly states, “we tend to do very well comparatively in a recession-era environment, and we’ll probably pick up a lot of business. ” Even during a slow economy Southwest manages to maintain its business strategy and keep up employee morale by making it a priority not to implement the current industry trend of layoffs. This is bolstered by its simple business practice of using only Boeing 737s in its fleet.
All of these factors provide a boost to financials; currently the Southwest Airline stock is trending upward (Market Watch, 2009) and the airline is positioning itself to try to acquire Frontier Airlines in Denver. This would give Southwest Airlines a tremendous boost in the Denver market as Frontier currently has 21% of the Denver fares with Southwest holding 14%. Southwest is also getting ready to test the waters over at Boston’s Logan International Airport on August 16th.
Along with Southwest’s expansion agenda it has also settled major complaints concerning the unsafe jet conditions of some of its fleet to the tune of $7. 5 million. With this obstacle out of the way Southwest can continue to grow and improve on their already impressive business strategy. The lack of international flights for Southwest presents a tremendous opportunity for the company. Currently Southwest continues to offer cheap flights which could serve as a base for expanding its business into possibly cheap international flights.
In July of 2008, Southwest made a smart decision to partner with WestJet in Canada and offer international flights mainly to Canada and the Caribbean. While this is a good start the opportunity would benefit Southwest more by trying to expand into international flights through either a merger or acquisition such as the domestic acquisition of Frontier Airlines. The opportunity is further magnified due to the economic situations that have hurt Southwest’s competitors and thus are unable to make a move such as the one for Frontier.
Analysts are already praising the move to acquire Frontier due to the amount of slots gained by Southwest in Denver . The international airline market has tons of potential for Southwest as outlined by Jet Blue’s recent introduction to Brazil. Along with international opportunity the domestic scenery has also provided some opportunities such as the recent mention of Atlanta by Southwest’s executive vice president of strategy and planning Bob Jordan. Ultimately Southwest should try to acquire more routes to vary and expand its business.
Another consideration should be in upgrading the now 29 year old Boeing 737-300. Although an upgrade would be a tremendous boost for the airline, research must be conducted as to which plane would benefit Southwest Airlines the most. Southwest has some external threats that can possibly hurt the airline’s performance in the near future. The current economic recession has affected millions of Americans and countless businesses nationwide. Like a domino effect there are now less people traveling and in turn airlines including Southwest are suffering.
In response to the slowdown of passengers, airlines are cutting back on flights to try to offset the impact of the recession. The other part of the economic downturn is that now more than ever it is important to try and best your competition. Currently Jet Blue is the airline that can directly compete with Southwest as noted by Market Watch’s recent July stock watch. Southwest can take a page out of the business strategy book of Jet Blue by taking a look at that company’s new Azul Airline in Brazil.
Jet Blue made a tremendous investment that could pay off quite well in the growing economy of Brazil. Southwest’s hedging of gas can deal the company a crucial blow if the price of crude goes down even further that the current price tag of $60 a barrel. The instability of gas prices could theoretically double the damage by dropping to a historic low and then spiking sharply by the time holiday travel season comes around. Southwest Airlines has established itself as a dominant airline who knows how to tend to its customer base while at the same time attracting new clientele.
The slow growth and careful business planning has paid off for the Texas based company. Southwest must tread carefully during this slow economic period as any brash planning could have disastrous results. However, with some modifications to its business strategy of fuel investing and the addition of a powerful international presence coupled with its current domestic growth, Southwest can be poised to become one of, if not the leading airline in the world.
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Airline stocks edge lower; JetBlue, Southwest advance. Retrieved August 4, 2009, from Market Watch Web site: http://www. marketwatch. com/story/airline-stocks-edge-higher-jetblue-up-3 Benn, Kerry Grace (2009, July 21). 2nd UPDATE: US Airlines Stung By Biz Travel Drop; More Cuts Coming. Retrieved August 4, 2009, from The Wall Street Journal Web site: http://online. wsj. com/article/BT-CO-20090721-710390. html Benn, Kerry Grace (2009, July 29). US Domestic Air Fares Post Biggest Drop On Record In 1Q. Retrieved August 4, 2009, from CNN Money site: http://money. cnn. com/news/newsfeeds/articles/djf500/200907291215DOWJONESDJONL
