Southwest Airlines’ Strategic Evaluation

Executive Summary

This report evaluated the performance of Southwest Airlines using the approach based on PEST and SWOT analyses. The results of the report showed that the organization invests excellent efforts to achieve its goals, namely, to stay competitive in the market, reduce operating costs, and increase profit. The PEST analysis demonstrated that the company takes into account many factors in its working process, namely, demographic, economic, environmental, political, legal, informational, social, and technological. The SWOT analysis revealed strengths, weaknesses, opportunities, and threats of Southwest Airlines. Assessment of the competitive strategies indicated that their utilisation is effective and should be further performed.

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Introduction

Nowadays, due to the rapid development of economic relationships, many organisations follow specific strategies to occupy a strong position in the market. As a result, some tools are utilised to assess the effects of the implemented strategies, such as PEST or SWOT analyses. PEST analysis (Political, Economic, Social, and Technological) is a technique that helps to “understand strategic risks and identify the effects of the external macro-environment on a firm’s competitive position” (Sammut-Bonnici and Galea, 2015, p. 1). SWOT analysis is a tool that identifies weaknesses and strengths, as well as opportunities and threats of an organisation that may affect its projects, employees, or products (Dergisi, 2017). In this report, the strategic analysis of Southwest Airlines with the help of PEST and SWOT tools is conducted. Southwest Airlines is a major American airline, which was founded in 1962 and since then “has grown from a regional carrier with four airplanes to one with over 500 airplanes” (Jackson and Jackson, 2009, p. 67). The analysis includes an assessment of the components of utilised techniques, evaluation of key strategies, future prospects of the organisation, and the conclusion.

Strategic Analysis

The first technique that is going to be used in this report is PEST analysis, which is based on DEEPLIST approach. DEEPLIST analysis aims to explore demographic, economic, environmental/ecological, political, legal, informational, social, and technological factors, which represent primary components of any business environment. There are two main demographic factors that influence air transport demand. These factors include “the growing population and their behavioral attitude to travel by air” (Addepalli et al., 2018, p. 6). Thus, according to the social research conducted by John Heimlich, Vice President of the Airlines for America organisation, the number of Americans who travel by air is multiplying. For the period from 1971 until 2015, the percentage of the US adult population who travel by airplanes grew from 49 to 81 (Heimlich, 2016). As for the people in the USA, their number has grown for more than 150 million for a period of 64 years (USA Demographics, 2019). Therefore, the demographic situation in the country promotes both the evolution of the civil aviation industry in the USA in general and the development of Southwest Airlines in particular.

One more factor that affects the performance of Southwest Airlines is the economic situation in the country. If the economy of the state is not stable, it may result in adverse consequences for the airlines. Thus, the financial crisis that occurred in 2008 impacted the aviation industry negatively as the number of those who traveled for leisurely activities was significantly decreased (Jackson and Jackson, 2009). Moreover, the economic crises may also lead to the fluctuation in the value of the dollar, which results in an increase in prices for fuel and additional expenses of the company. Unfortunately, it is difficult to prevent economic difficulties for the airline companies, and the only way to deal with them is to attract more customers by introducing promotions and discounts.

Following an environmentally friendly policy is another factor that helps Southwest Airlines get new customers and earn their trust. This policy is actively implemented as the company contributes financially to environmental protection. Thus, the organisation committed $175 million for the implementation of the Required Navigation Performance system, which allows aircraft to fly more direct paths (Jackson and Jackson, 2009). It helps to reduce the emissions to air and fuel consumption.

The political environment plays a significant role in the aviation industry, as an unfavorable political situation in countries may apply some restrictions on the operation of flights. For example, in a politically unstable region with the presence of a war component, flights may be canceled for security reasons. It leads to the loss of customers and, as a result, a reduction in profits. The same situation may occur because of international confrontations between various states. For Southwest Airlines, the possibility to face the issues related to politics is minimal, as the majority of flights operated by the company are domestic. The international flights are performed in a joint venture with other airlines and primarily capture travel to neighboring countries only, such as Canada or Mexico (Jackson and Jackson, 2009). Therefore, even if the political situation between the USA and its neighboring countries deteriorates, the loss of the company will be minimal.

There are some limitations and constraints that are applied to the aviation industry by law. Thus, the USA law regulates all aspects of airline operation, including commercial space transportation, civil aviation accidents, provision of safety at the airports, carriage of baggage, and more (USA: Aviation law, 2019). Southwest Airlines follows the law in all aspects of work, and the history of the company does not have any major legal proceedings caused by the violation of the law.

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As for the informational factors, the company leads the policy of openness. There is plenty of information about the history, economic situation, management strategies, and participation of the company in social initiatives on the internet, research articles, magazines, journals, and other sources. Moreover, the carrier is actively utilising modern informational technologies, such as social media and its official website as another online networking platform. Thus, using the website of the company, passengers have an opportunity to ask any questions about their travels or book flights and share their experience of flying with Southwest Airlines. Plus, the company has accounts on social media, such as Facebook or Twitter, which aim to provide prompt replies to people’s concerns and complaints and update flight information.

The informational factor is closely connected with the social aspects of the company’s work. Thus, the observation of the most frequently asked questions, concerns, and feedback of passengers assists the company in the assessment of the needs of its customers. It also helps to understand their reaction and attitude to the innovations and changes that are introduced in Southwest Airlines. Another social direction is represented by the organisation’s attitude to its employees. Thus, Southwest Airlines focuses on the happiness of their workers, which is proved by the fact that “their compensations are the highest in the industry” (Jackson and Jackson, 2009, p.75). Therefore, the company puts a lot of efforts to satisfy both their employees and customers.

Nowadays, in the conditions of the development of modern technologies, it is crucial for aviation companies to renew their fleet in accordance with technological innovations. As for Southwest Airlines, it prefers to never change the model of aircraft that are used by the company, which is the Boeing 737. However, the carrier tries to improve its fleet by adding significant details to the aircraft, such as Blended Winglets, which increases the efficiency of the airplanes (Jackson and Jackson, 2009). In addition, the fact that the company uses only one type of equipment brings some positive results. Thus, it facilitates “various operations like the stock of spares or mechanical and operational training and enhances knowledge about the equipment” (Zapata, 2012, p. 210). Therefore, the company takes reasonable measures to improve the quality of its service and increase the efficiency of the utilised airplanes.

The SWOT analysis includes the discussion of strengths, weaknesses, opportunities, and threats of the company. The main strengths of Southwest Airlines are its stable financial position, brand awareness, and the provision of low-cost transportation services. Indeed, being one of the major players in the aviation industry, Southwest Airlines managed to build a large customer base, which ensured the financial stability of the company. The fact that there is no meal and entertainment on the boards of the planes is compensated by the low-cost travel. Numerous measures taken by the carrier to improve its services and provide passengers with comfortable and inexpensive trips ensured its popularity and strengthened brand awareness.

The weaknesses of the company encompass its underrepresentation in the international aviation industry and dependence on the one model of aircraft. The absence of flights to various international destinations limits the opportunities of the carrier to gain more profit. Despite the mentioned benefits of the utilisation of one type of aircraft, it also has some drawbacks. Thus, it makes Southwest Airlines be dependent on its manufacturer. For instance, if the prices for parts of Boeing 737 are increased, the company will still have to buy it as there are no other ways to continue flight operation.

Judging by the weaknesses of the company, it is logical to suggest some opportunities that should be used by Southwest Airlines. Thus, one of the opportunities is to expand the services of the organisation and occupy a position in the international market. Partnership with foreign airlines and joining aviation alliances can serve as excellent tools for the implementation of this task. Another opportunity is to consider collaboration with other manufacturers of aircraft in order to be independent and have a chance to choose between different transportation equipment.

The primary threats that are faced by Southwest Airlines are the rising of fuel prices and the emergence of many other low-cost carriers that compete with the company. Unfortunately, the prices for fuel are increasing rapidly, which makes it difficult for the company to maintain low costs for flights. In fact, there are not many ways to cut costs as the company does not have any additional services, such as serving the meal or providing movies on board. The situation is further deteriorated as there are some new carriers, which also position themselves as low-cost, such as Spirit Airlines, JetBlue, Frontier Airlines, and more.

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In general, the company is successfully utilising its strengths as it tries to maintain its low-cost reputation and facilitate brand awareness. However, Southwest Airlines does not address the weaknesses as it is missing the opportunities to enter the international market and collaborate with different manufacturers. It is fair to note that the carrier tries to find any ways to struggle with its main threats and reduce costs and maintain its dominant position in the market.

Evaluation of Key Competitive Strategies

There are two primary competitive strategies that the company has pursued. The first strategy that is used by Southwest Airlines relies on Porter’s Model. This model implies the creation of competitive advantage based on low costs. Thus, to stay competitive, the company “minimizes operating costs, optimizes profit margins, keeps low prices, and offers its airline services to the mass market” (Evans, 2019, para.3). This strategy is effectively implemented by the carrier even though it faces some emerging concerns, such as the appearance of new low-cost carriers and the increase in fuel prices. Thus, to minimize operating expenses and keep low costs, Southwest Airlines signs long-term contracts with fuel suppliers (Jackson and Jackson, 2009). To attract more customers and stay competitive, the organisation provides commercials, highlighting the fact that they offer the lowest prices, maintaining the highest quality.

Another strategy that allows the company to stay competitive is the employee-orientation policy. Thus, the carrier provides its workers with high compensation and social benefits. While it might seem unreasonable to pay high salaries at the company that tries to minimize its expenses, in fact, it helps to avoid some emergence concerns. The employee-orientation strategy allows Southwest Airlines reducing the costs spent on training new staff. It is because the turnover rate in the company is “the lowest in the industry, approximately 4.5 % a year” (Jackson and Jackson, 2009, p.75). Therefore, the results of the evaluation show that the implementation of strategies is effective, as it helps to minimise expenses and provide satisfaction with the work for employees.

Future Prospects

Taking into account the information mentioned above, it is logical to suggest that the future prospects of the company are quite positive. Thus, the carrier has been the most profitable airline for the last years and “the only major airline that has not filed for bankruptcy” (Ballard, 2019, para. 9). It proves that the strategies used by the company are effective and should be further pursued to maintain competitive advantage of the organisation. Therefore, the main recommendation that can be suggested to address emerging concerns is to stick to the existing strategies and follow the current principles of work in the future. However, it is also necessary to pay keen attention to the new tendencies and transformations in the aviation industry to adjust the strategies of the company to the changes. Also, it can be recommended to consider the expansion of Southwest Airlines in order to occupy the international market and increase the profit of the organisation.

Conclusion

It can be concluded that Southwest Airlines is a powerful company, which occupies a significant position in the aviation industry. The PEST and SWOT analyses showed that the successful performance of the carrier is ensured by its effective policy based on many factors, including demography, economy, politics, and more. Moreover, the analysis revealed that the company should use an opportunity to expand its services and launch international flights, as well as consider purchasing various types of equipment. At the end of the paper, three recommendations were suggested, namely, sticking to the existing strategies, paying strong attention to the new tendencies in aviation, and entering the international market.

Reference List

Addepalli, S. et al. (2018) ‘Socio-economic and demographic factors that contribute to the growth of development of the civil aviation industry’, Procedia Manufacturing, 19, pp. 2–9.

Ballard, J. (2019) Where will Southwest Airlines be in 10 years? Web.

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Dergisi, U. (2017) ‘SWOT analysis: A theoretical review’, The Journal of International Social Research, 10(51), pp. 994–1006.

Evans, L. (2019) Southwest Airlines generic strategy, intensive growth strategies & competitive advantage. Web.

Heimlich, J. (2016) Status of air travel in the USA [PowerPoint presentation], IPSOS Public Affairs: The Social Research and Corporate Reputation Specialists. Web.

Jackson, W. and Jackson, M. (2009) ‘Southwest Airlines: The next fight begins’, Journal of the International Academy for Case Studies, 15(7), pp. 65–81.

Sammut-Bonnici, T. and Galea, D. (2014) ‘PEST analysis’, in Cooper, S.C. (ed.) Wiley encyclopedia of management. New York: John Wiley & Sons.

United States Demographics (2019). Web.

USA: Aviation law 2019 (2019). Web.

Zapata, C. (2012) ‘Engineering and strategy: Returning to the case of Southwest Airlines, an analysis in production and technology management’, Gerencia y Gestión, pp. 198–217.

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