Southwest Airlines SWOT analysis - Situation Anaylsis.doc

Situation AnalysisIndustry Analysis TrendsSouthwest Airlines shines above its competitors as the industry leader in low fare flights. They strive to give their customers that (positively outrageous service) POS that they are known so well for. Southwest Airlines discovered a niche market for air travelers who wanted an easy and affordable way to travel, Southwest flies making it easy for customers to travel within the states conveniently without all the hassles of a major airport or many transfer flights. Southwest was established in the time when economy flights were steadily increasing, more and more families wanted to travel in state but could not afford the high priced seats that Southwests competitors, Continental, Alaska or United offered. This was a great opportunity for Southwest because they now had a chance to increase their market segmentation and create loyalty from these customers and new ones from the value they offer. By providing open seating coupled with a corporate culture of happy employees and spontaneous attitudes Southwest has truly taken the trend of economy flying to the next level. Southwest Airlines has come up with a plan to offer its customers no in flight meals, which cuts costs for everyone, a first come first serve seating, and outstanding customer service to make the low cost experience feel like your flying first class to your destination. In 2002 Southwest introduced 250 new ticket dispensing kiosks throughout the airports, the goal with these kiosks was to reduce the time spent in line and improve airport experience since September 11 2001. Throughout Southwests history the only roadblock that they have encountered was in 1978 with The Airline Deregulation Act, which redefined the industry by eliminating the ability of the Civil Aeronautics Board (CAB) to set fares, allocate routes, and control entry and exit into markets. Companies had no ability to change fares, even if their costs were increasing. The only attempt to raise prices was through a petition to the CAB for a fare raise. A request commonly took up to 6 weeks to be processed. This effected Southwest since their business tends to be very cyclical in nature. In certain months people are likely to pay more than in other months. To fight this new law Southwest averaged their prices and went for a slow and steady growth business model, understanding that this will eventually land them in first place among their competitors. CompetitorsSouthwests competitors include another low cost airline called Jet Blue. This airline is mimicking what Southwest is trying to do with its no frills flights. They could take customers from Southwest by creating new ways to innovate this industry. This could be concerning to Southwest customer base because they must always be aware of what they are doing in order to hedge against their new offers. Other Airlines that contribute to taking Southwests customer base are Continental, United, and American airlines. Of course these airlines offer a variation on the services to their customers, and are targeting different target segments. Customer ProfileSouthwest Airlines have long since prided itself on a no frill low fare flights. This kind of service, in addition with their outstanding customer service, attracts mainly families and the traveler looking to save a few dollars. This demographic segmentation allows southwest to offer their target market the best possible service, and prices, by rewarding being early with a choice seat, and still offering that POS service. Since young families are their main customers Southwest offers promotional coupon with their flights in order to attract customers going on vacations. Such as they created an alliance with a Ski resort based in Utah, Southwest then offered a weekend of skiing on them, if you chose to fly on their airline. Also southwest targets travel agents, corporate travel managers along with their individual travelers. SWOT AnalysisStrengthsSouthwest Airlines is the leader in providing low cost in state flights for its customers. It consistently offers frequent flights, inviting cabins, realiable service, and amazing customer service. Since every Southwest airplane is operated by only 71 people, the lowest ever in their history, labor costs have decreased and those who are left are highly trained and specifically chosen out of thousands of applicants to reflect Southwests customer oriented culture. Since Southwest airlines has been the leader in low cost flights for the last 36 years, and have been profitable for 33 years, they use the strategy of purchasing the same airplane for their entire fleet. The Boeing 737 is their airplane of choice; they have chosen to have a single airplane because you only need to have your employees trained on one type of airplane and because of that their efficiency increases. All of these, low cost flights, smaller hubs, excellent customer service, and cost cutting techniques, have led to Southwest being the leader of its industry. WeaknessesSouthwest Airlines have managed to be consistently profitable in all of their years in business. However, there are things that Southwest needs to improve upon in order to continue their plan of slow yet steady growth over the long term. The first thing they need to improve upon is their dependence on passenger revenues. Since about 95% of their revenues come from their passengers an empty seat on a plane is revenue lost that can never be retrieved. Another thing that Southwest can improve upon is their load factor. Their load factor is the amount of people they can get onto their plane to exceed their break even point in revenues. They have been consistently behind all of their competitors. This of course could be due to the much higher frequency of flights on each route. Since they need to fill a certain number of seats to meet their quota, any decrease in their load could negatively affect their bottom line. Along with this are their limited growth capabilities. Since they only travel within the United States and not internationally they could potentially be missing out on a whole new market for air travel. OpportunitiesTo compliment their new strategy of steady long term growth, Southwest Airlines could consider expanding into new smaller airports. This would increase the number of flight they could offer their customers, thus appealing to a broader range of clientele, especially the business minded people, who could be a potential market they have yet to tap in to. They could offer flight transfers, which they currently do not, and also offer more frequent flyer rewards to passengers and businesses who want to save money but still be involved in all aspects of their company state wide. In addition to the expansion into new hubs across the nation, Southwest should invest in new Boeing 737s to expand their fleet to accommodate the increase in flights. This would positively impact the companys bottom line by improving their range and their flight offerings. Since their business operates on a entirely cyclical system, they could hedge against the possibility of a decrease in flights by expanding into a air freight business. They could do this by purchasing cheaper, smaller airplanes that would haul cargo across the states. This would allow for another stream of revenue year long, and it would also allow them to decrease their complete dependence on passenger revenues. ThreatsDue to recent political activities the price of oil has incre