History and development of the airline
Southwest Airlines, initially known as Air Southwest, is an American headquartered airline that was instituted by Rollin king and Herb Kelleher on the 15th day of March 1967. Initially, the pioneers and the entrepreneurs of the airline had meant its flights to serve three cities, which reliable sources revealed was represented in the draft that Rollin king had presented to his airline founding partner, Kelleher Herbs, over a certain dinner prior to the airlines intuition and which indicated the three routes that the airline was meant to ply (Stodder, 1997). According to the latter, these routes were Dallas, Houston, and San Antonio.
Following the start of the Southwest Airlines in 1957, the major American airlines of the time including the Brannif, aloha airlines, Trans-Texas, continental airlines as well as the American airline instituted, with dire determination to block the progress of the company, a three year court case. However, Southwest Airlines triumphed in the case upon which they were given the right and the go ahead to extend their operations or rather flights to Texas in 1970. Consequently, Air Southwest was re-branded to Southwest Airlines in the former months of 1971. In the same year, the first airline was commissioned on the 18th of June 1971. According to Stodder (1997), the airlines debut flights involved moving from love fields located in Dallas via Houston and then to San Antonio, as it was initially indicated in the plan prior to the incorporation of the airline. At the start of the operations in June 1971, the airline had three 737-200 aircrafts and continued to add a fourth one by September 1971 to effectively meet the increasing number of passenger’s short trips, simple in booking, and with absolutely no unnecessary extras a point that has been an intricacy of the airlines growth in popularity over the years. For decades, Southwest Airlines has improved both in size and services as well as expanded in the number of routes that it serves (Anonymous, 2008).
SWOT analysis
SWOT analysis is an acronym that stands for strengths, weaknesses, opportunities and threats (Heinz, 2007). As a result, it plays a vital role in the analysis of the overall strategic value of the business relative to both the internal and the external environment of the business. For the purpose of this analysis therefore SWOT analysis was performed using the TOWS matrix to identify the strengths and weakness at Southwest Airlines presented by the company microenvironment as well as the opportunities and threats as posed by the macro or rather the external environment to the company. Through a clear understanding of its position in regard to the results of the SWOT analysis, the company can use its strengths to safeguard itself against the threat presented by the dynamisms of the external environment as well as develop its weakness to strengths and take advantage of the ensuing opportunity that it presents.
Strengths
From the analysis, it is evident that the company’s strengths includes a well established and highly effective research and development division characterized by its heavy and consistent investment in research and development over the years and have excellent R&D facilities. In addition, the R&D team at Southwest Airlines is viewed in the industry as being highly innovative and proactive in the innovativeness to make the airline’s customers better while maintaining uniqueness for absolute competitiveness (Southwest Airlines Fact Sheet, 2008). This investment has given them a competitive advantage in the US airline service industry. Perhaps the underlying factor behind the unmatched high quality and reliability of airline services that the company boasts of in the US industry. Other area of strength regarding Southwest Airlines includes the financial strengths in terms of liquidity and capital, economies of scale, low cost of flight services, and upper market customer loyalty, simplicity in bookings as well as reliability of services.
Weaknesses
Most of the weaknesses that Southwest Airlines have are greatly rooted in its strategy differentials. Such includes, narrow market targeting (targeting of the upper market only), inability to get patents, and lack of a coordinated promotion strategy for increased awareness (Scott, 2002). In fact, evidence from the case reveals that despite the fact that most of Southwest Airlines services and operations have been recognized as innovative and of good quality they have not been successful as expected with this failure greatly attributed to a lack of promotion or commercial awareness. Another major weakness of this company is in its organizational structure. By the virtue that leadership in the organization is highly centralized. Collaborative design making is discouraged, resources especially human capital is underutilized and the process and quality of decision making is greatly slowed. In addition, management at Southwest Airlines has tended to exhibit points of inflexibility, with many labor grades and delineation of job responsibilities. As a result, the airline has tended to cling to the old strategy despite the rapidly changing nature of the American airline service industry in terms of competition. Also, the company lacks a clear mission and vision statement; a factor that to a great extent hinders organizational planning and development of clear goals and objective for sustainable business and growth.
Opportunities
These represent the opportunities and better performance on the part of the organization. Both nature of the industry in which Southwest Airlines operates in as well as the internal strengths presents the company with a host of opportunities and a factor that makes the future of the business something worth looking forward to for instance evidence that the company is on the verge of a significant technological discovery and advancement thus raising a possibility of the company diversifying and increasing its efficiency in terms of customers services delivery (particularly the booking) and customers communication procedures. Southwest Airlines therefore has an opportunity to root itself in the market by taking advantage of the first mover advantage and competitive advantage as presented by the strengths of its current business units. The market for airline service is growing as well as the possibilities of expanding to the many uncovered routes such as Texas, Ohio, as well as other parts of the world such as Europe Asia and Africa. The existence of vast market therefore presents opportunity for diversification of operations and company growth.
Threats
These are negative points of uncertainty to the business presented by the weaknesses in the business and the dynamisms of the environment external to the organization. In Southwest Airlines, threats are present by factions such as lack of patent rights, increasing rivalry as many airline corporations come into the industry among others. Also, the US airline industry has seen a rapid decline recently particularly in the verge of the global economic crisis of 2006, and the long-term prospects for airline service demand increase is not promising. In addition, the industry as a whole is faced with strict Health and Safety laws and employment policies which have had an adverse effect on its operations in the US.
The evaluation of the SWOT Analysis
From the SWOT analysis, it is evident that Southwest Airlines strengths and opportunity greatly surpasses the threats and weakness. The outright implication in this case therefore is that the airline can adequately use its much strength particularly relative to competition not only to take advantage of the opportunities emerging from the dynamisms of the external environment but also to guard the organization against the threats. Furthermore, the airlines position enables it to develop and support business level strategies that adequately enable it to get rid of its weaknesses.
Present strategy at Southwest Airlines
The business level strategies
By any standard and going by the results of the airline’s performance analysis, the company is not badly off. Irrespective of the fact that the company position could be attributed to the first mover advantage, both the services level and pricing strategy to a great extent makes the Southwest Airlines that there is today. First, the company has maintained a high quality service oriented strategy the latter of which has ensured creation of an unmatched identity in terms of the highest services quality and value delivery to consumers, and customer loyalty geared by unprecedented popularity of the airline among customers. To match this strategy, the company has adopted and continues to cling to its typical low pricing strategy for its services a factor that makes pricing of their services a success. Irrespective of the company targeting a slim upper and middle upper market (those who are quality sensitive rather than exhibiting prices sensitivity), the airline holds that by pricing their services highly, it depicts the quality of its services; a fact that is supported by the high degree of consumer loyalty and high sales level especially in the United States airline services market.
Corporate level strategy
Planning for any business is crucial. In fact, it does not only aid in the optimal allocation of the organizational resources but also sets paths for the attainment of the business purpose (Southwest Airlines Fact Sheet, 2008). Ideally, business plans support formulation of strategy for absolute effectiveness and overall success, that is to know where the business has come from (historical analysis), where it is (situational analysis) and where it wants to go (objectives) and how to reach there (strategies). Southwest Airlines is no exception particularly when it is operating in the highly dynamic business environment. Furthermore, the organizational structure forms the basis for organizational planning and decision making. It also forms the framework in which strategies and organizational policies are designed and implemented hence it should be as appropriate as possible.
Recommendations
- Pricing strategy – Adopt a lower pricing strategy as the market is becoming more price sensitive as well as to suit the company’s diversification objective. Use of low pricing will serve as both the market penetration strategy in new markets and services and competitive strategy in the currents markets where rivalry is intense.
- Promotion strategy – the company is to launch and enhance strategic market awareness campaigns for maximum market reach. This will act both as a competitive strategy as well as market extension
- Customer loyalty and need for maintenance strategy – better quality, promotions, and customer reward strategy and relationship marketing, services both as a competitive strategy and for the purpose of future business sustainability
- In addition, there is need for the company to alter its organizational structure to favor fast, effective and efficient planning, and implementation of policies. According to Scott (2002), the organizational structure is a lattice via which roles and responsibilities are divided among the organizational members. It also represents intuition of power and channels of exception of the latter. For the purpose of planning in Southwest Airlines therefore we suggest the introduction of a rather decentralized structure at least to favor collaborative decision making and employee’s motivation.
Reference List
Anon. (2008). Southwest Airlines growing rapidly in Denver-Dallas Morning News – Dallas Business News. Web.
Heinz, W. (2007). The SWOT Matrix —A Tool for Situational Analysis, Professor of Management. San Francisco, University of San Francisco.
Scott, A. (2002). The Value of Formal Planning for Strategic Decisions, Strategic Management Journal 3: 197–211
Southwest Airlines Fact Sheet, (2008). Southwest Airlines. Web.
Stodder, G. S. (1997). Making people count: Southwest Airlines – Company Profile. Web.