So as to guarantee their sustained ideal performance in the market, all business organizations should have exemplary business models. A good business model must describe the rationale of how an organization creates, delivers as well as captures values in cultural, social and economic aspects in the market. In most cases, the construction of a business model is considered to be part of an organizations business strategy. In the past, small companies with reputable business models like the Southwest Airlines (1971), have grown tremendously to become top players in their respective industry (Lauer, 2010). This case study focuses on the Southwest Airlines growth since its inception in 1971 to the current date, by analyzing the corporations core and differentiation strategies (Lauer, 2010). The case study also provides a discussion of the multiple models, theories, concepts, and processes that could have helped the Southwest Airlines to achieve its success in the air transportation industry.
Description of the Organization
The Southwest Airlines Corporation was established in 1967 (Lauer, 2010). However, the operations of the corporation were delayed for approximately four years due to lawsuits placed by other legacy airlines against its operation. The founder of the airline corporation was Herb Kelleher, and he initially founded the company as an intrastate airline courier operating singularly in Texas. After the Southwest Airlines had started operating, it gained a tremendous success in comparison to other legacy airlines in the United States over a short period. Since then, the airline service has grown tremendously, and as per 2016, it had employed over 53,000 personnel and having over 3,900 departures each day on its peak seasons (Sander & Bobo, 2016). Its success was contributed by its ability to make frequent departures and its ideal strategic selection of airports. Moreover, the Southwest Airlines was able to cut-down its face prices since it offered no in-flight services. Additionally, it had no attrition rate due to its good organizational culture.
In addition, the airline service operation was well aligned with the organizations objectives, and it also had a high utilization of their aircraft due to the airlines potential to have a half hour turn-about period. In 2008, one of the legacy airline services in the United States, ATA Airlines Inc. stopped its operations (Plunkett, 2008). As a result, 16 LaGuardia spots for landing became available (Plunkett, 2008). Consequently, this placed Southwest Airlines in a dilemma on whether to bid for the 16, time slots (Plunkett, 2008). Additionally, in its management team, members who supported the acquisitions made their decision on the basis that Southwest Airlines needed to expand. Nevertheless, the operations department managers at Southwest Airlines were concerned that their airplanes will face delays due to the problems that would be caused by the challenges in getting in and out of the LaGuardia airport.
The case portrays the common struggles that numerous corporations with market-disruptive business models in various industries face. This is when such corporations decide to develop from being industry upstarts into becoming dominant players in the market. Particularly, this case is focused on the decision that the Southwest Airlines was facing in 2008, on whether to venture into the New Yorks LaGuardia airport (Stoff, 2008). As a result, the single decision by the Southwest Airlines became the primary point of exploring the seismic shifts that corporation has undergone through since its conception in 1967. The Southwest Airlines was founded as a primarily low-cost air transport service with no significant common challenges that affect the air travelers. Additionally, Southwest Airlines had a radical business model that was a contrast to the models used by other airline carriers at the time. Instead of offering long-haul flights to passengers through the hub and spoke model like most other major air carriers at the time used, Southwest Airlines offered its services in shorter-distance flights. Moreover, it offered a point-to-point service in numerous small regional airports that were not used much by other legacy airlines.
Furthermore, during its conception, the Southwest Airlines did not view itself as a significant competitor to the other legacy airline in the United States. Instead, it visualized itself as a convenient alternative to the tedious long route services that were offered by long-distance bus carriers in the nation. Moreover, the Southwest Airlines charged significantly low fares and only flew through limited routes. Additionally, since it operated in short distances, it did not serve any food to its customers. Moreover, there were no allocated seats for passengers, but instead, seats were assigned on a first come first serve basis. The Southwest Airlines also short turn around periods since it operated only through smaller airports that had minimal delays. Nevertheless, even though Southwest Airlines had experienced great success in its operations, it required further expansion. As a result, the airline services started conducting longer flights and also secured spots in major popular airports. In the 1990s, Southwest Airlines had managed to offer low fare prices due to low fuel costs (Hacker, 2006). However, in the 2000s, there was a substantial increase in the fuel prices that forced the airline carrier to hike its fare charges (Hacker, 2006).
By 2008, Southwest Airlines had started facing stiff competition from other smaller low-fare airlines (Hecker, 2009). It also experienced a significant competition from legacy airlines that had already declared bankruptcy and then negotiated labor contracts to maintain their costs in check. As such, Southwest Airlines decision to invest in the LaGuardia was one of the many decisions it faced to make, to maintain its legacy of being a low-fare air service to becoming one of the most valuable airline service corporation in the nation. A few members of the Southwest Airlines management team were concerned that the airline service was changing its core model of the low-cost service provider and instead transforming to become like the other legacy cost airlines that operated in the nation. Other management members felt that LaGuardia spots, at the time, were valuable investment options. As such, they were willing to change the Southwest Airlines business model in search of more profitable airline routes. This case outlines the questions that most companies face in regards to operations as well as efficiency and issues associated with changes in business models and market expansion.
Core Strategy and Differentiation Strategy
The core strategy that has been employed by the Southwest Airlines since its conception is the usage of low-cost model. To date, the organization has still managed to offer high-quality services at a price that is lower than almost all other air courier services in the United States. Today, Southwest Airlines is ranked among the four largest air transport carriers operating in the United States. The corporation also has the least operating-cost structure, in reference to the United States domestic airline industry. It has also continued to offer the lowest as well as the simplest air transport fares in the nation. Additionally, it offers the highest cumulative customer satisfaction rates for the past 18 years (Daft, Kendrick, & Vershinina, 2010). The Southwest Airlines low-cost model has also significantly elevated its revenue share in the United States airline industry. For example, in 2008, Southwest Airlines attained a total revenue of $11 billion through its 35, 499 staff members (Business Consulting, 2009). This was a significant increase in revenue, in comparison to the revenue attained in 2007 of $9.8 billion and $5.3 billion in 2001.
Moreover, its low-cost strategy has also enabled the corporation to expand, and today, it has a passenger load factor of 71.2% through its fleet of over 500 Boeing 737s (Bell & Howell Co, 1996). Also, Southwest Airlines corporation offers low flight charges to 64 airports that are situated in 34 states across the United States (Sander & Bobo, 2016). On the other hand, the Southwest Airlines employs its simple business purpose as its primary differentiation strategy from other competitors in the market. The corporation outlines its purpose as an entity that offers low fare, has short haul, possess a high frequency of carrier services in the United States. This simple but highly effective business purpose of the Southwest Airlines acts as the primary guiding principle for the corporations strategic goals, organizational infrastructure as well as business strategy. Consequently, this has remarkably differentiated the performance of the Southwest Airlines from its competitors and also heightened its brand as an internationally preferred and acclaimed airline service.
The transformational change of the Southwest Airlines, since its conception as a small intrastate airline courier service in Texas to one of the leading airline service in the United States, is substantial. The change can be analyzed using a variety of models such as the SWOT analysis, PESTEL analysis, porters forces and internal analysis among others.
The SWOT model can be used to portray the Southwest Airlines strengths, weaknesses, opportunities as well as threats that helped the organization to perform exemplary well since its conception. In respect to its strengths, Southwest Airlines provided low-cost flights, 30-minute turn about flights, good safety records, high capacity usage in terms of passenger seats among others (Lamb, Hair, & McDaniel, 2011). On the other hand, the Southwest Airlines weaknesses include no seat booking option for passengers, fewer long distance flights, no cabin service such as meals, and over dependence on a single form of aircraft the Boeing 737 (Lamb, Hair, & McDaniel, 2011). In addition, Southwest Airlines has an opportunity to start offering longer flights due to the increased market demand, and it can also benefit from an improved usage of internet marketing services. Moreover, the Southwest Airlines can benefit from new plane technologies like the Dreamliner, which can elevate an increase in air travel. Ultimately, Southwest Airlines faces a threat of an increase in fuel prices, decline in leisure travel by tourists due to terrorism threats and new government regulations that might make air transportation expensive.
PESTEL and PEST Frameworks
The PESTEL framework can also be employed in the analysis of the Southwest Airlines performance since its performance through the analysis of the organizations political, economic, social, technologic, environment and legal factors. In reference to the political and legal factors of the Southwest Airlines, its domestic operations have been highly influenced to Federal Aviation Administration (FAA). In 1979, the flight also faced the Wright Amendment Act, which prohibited the Southwest Airlines from flying non-stop (Wilkinson & Kannan, 2013). The policy also restricted the Southwest Airlines from providing through plane services from the Dallas Love Field. Ultimately, the Southwest Airlines has faced numerous other political and le...
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