Mba 8820 – Southwest Airlines 2002: In Industry Under SiegeEssay Preview: Mba 8820 – Southwest Airlines 2002: In Industry Under SiegeReport this essayMBA 8820For Class ThreeSouthwest Airlines 2002: In Industry Under SiegeThis case gives you a good overview of how Southwest Airlines has succeeded in a tough environment. Specifically, the case talks about how the firm has been able to develop its own basis for competitive advantage and to prosper where larger and richer rivals have trouble. After reading through Chapter 5 you should have a good idea of the role that resources and capabilities play in building and sustaining competitive advantage. Note how it is that some resources become “valuable” in competition (rather than just “necessary”) and why other firms are not able to match the resource base of firms such as Southwest. In doing your analysis, stick with the situation in 2002. We will bring it up to date at the end of the discussion.
The Southwest case
The case can be written to illustrate the major problems facing Southwest in 2002. Southwest’s economy has been largely under siege, and it has received little support from its business partners in Washington.
Southeast Airlines’ success has put it on the back foot over several years. During the last decade, the airport has been trying to change its business model and build its own supply chain — by reducing fees to the airline and selling more seats and fees. While paying fees, airlines also have offered to buy more seats at Southwest, even during peak hours with a discount. These discounts have not been very popular and some airlines even decided to pull their offer while Southwest tried to keep its profits up.
So far, the airline has not faced a significant loss or an additional price increase, but the airlines are facing significant problems with the ability to expand and maintain revenues. They currently have more capacity with a more large base of customers (mainly the Southeast States), but the company faces growing and larger customers in Canada (the Gulf Coast) and the rest of the country. At many airports, it has faced problems with reliability because of problems with the “price structure” of the service and the lack of adequate security for all customers. Southwest Airlines also gets credit for its operations, both in Canada and the Gulf Coast.
In addition, Southwest has a number of problems in the United States. This is because the Air India flight that landed early on the morning departure from Frankfurt, with a departure cost of $2 million was only offered in the U.S.A., and the airline was forced to raise the cost of its fuel for the airline in order to compete with U.S. carriers like United and Continental Airtel. The airline’s inability to meet customers on time was a major problem in that it was unable to offer unlimited flights in one country, without going through a payment mechanism with the U.S. Government. There are also regulatory issues with Southwest; the U.S. Postal Service has also had problems with its airport services. At the airport, and perhaps even outside airports, Southwest fares are far too high. If Southwest are to become an asset in the U.S., it would be vital that the airline are able to make better rates of return. The airline also faces a significant challenge with its international business of servicing and distribution markets. If their ability to serve the world is challenged, the airline may face the need to reroute flights to and from its European bases, which is currently struggling with its own airlines.
The Southeast Airlines case illustrates a number of important factors. Southwest has not received the funding or capital it needs to continue functioning as an airline and it has not acquired the commercial airline it needs to retain or grow the airline into what is termed an industry dominated by large and large national brands. Southwest has an established business model where its products include large aircraft at very affordable prices and very large flights, which would make it very attractive to most of the international media for flights from Europe and Asia. A key benefit for Southwest’s operating division is the fact that its airlines are able to cater for the needs of new customers and to continue to use their larger, more well-established subsidiaries, which provide more domestic flights for U.S. buyers. One challenge for Southwest is a reliance on global markets rather than regional ones due to the large size of this airline.
Another critical element in Southwest’s case is the ability to compete with U.S. carriers that rely on foreign customers to service and distribute their products in the most efficient and accessible way possible. While this should not be considered an insurmountable obstacle, airlines faced numerous hurdles. For example, they could not afford international fares that U.S. airlines could offer, and
For class discussion:1) Look back on the material that we have discussed in the prior class and apply it here. What are the Key Success Factors in this industry? How do the five forces drive industry competition and profitability?
Differentiated and a low-cost service offering.– High rivalry between airlines companies-Airlines power over suppliers-Bargaining power of customers lead to price undercuts-Low barriers with deregulationsThe airline industry has always been competitive. In an analysis of the most profitably investments as per our class discussion, surprisingly, airlines come in at the lowest return on each dollar invested at around 2.5%.
Southwest Airlines experienced 30 consecutive years of profit a mere two years after its founding in 1971. Many airports began requesting Southwest service for their passengers, but throughout Southwests expansion, the company aimed to maintain a manageable growth rate and focus on their core competencies of low price fares that would compete with the cost of driving to the destination.
In the mid 1990s, the major carriers entered into price wars to undercut competition. Although, these dealings did affect Southwests bottom line, Southwest still manage to continue to turn a profit and expand due to their expansion into a reservation system and their commitment to a culture and experience that passengers were drawn to.
2) Using concepts such as Porters “arrow” from Chapter 5, identify the key activities within the firm that Southwest emphasizes in order to make their strategy successful. How are they able to build sustainable competitive advantage with these elements?
Southwest Airlines competitive advantages are their point-to-point services which are generally targeting the frequent business traveler. With several regular flights per day, if a passenger happens to miss their flight, they will be automatically booked onto another flight. Secondly, Southwest strategically secured routes through secondary airports which generally had lower fixed costs for the airlines and less congestions for passengers ease. Finally, Southwest focused on quick, reliable turnaround time using only one version of aircraft, allowing for familiarity among staff and greater efficiency in turnaround. Passengers were not assigned seats, simply boarding sections, which allowed for passenger loading to be conducted more efficiently.
