Established in 1967 as Air Southwest Company by Herb Kelleher and Rollin King, Southwest Airlines Company is an American airline and the world’s largest low-cost carrier. The company adopted its current name in 1971 after commencing operations as an intrastate flight organization within Texas (Dinler & Rankin, 2018). It flies to 109 scheduled destinations in 40 states in the United States. The company also flies to Puerto Rico, Central America, Mexico, and the Caribbean.
The airline operates the point-to-point transportation model, flying directly to the scheduled destinations instead of going through a central hub. This system provides various benefits to the organization, including reduced operational durations since there are no connections or traffic to be managed, enhanced timeliness, minimized value-added services, and relatively low labor costs (Marti et al., 2015). Consequently, Southwest Airlines can afford to provide massively discounted airfares.
As a large-scale low-cost carrier, Southwest Airlines has a robust commercial aviation brand name, which attracts passengers and supports the firm’s ability to venture and penetrate new markets. The organizational culture emphasizes friendliness, which creates employee buy-in and motivation, translating into excellent customer service (Roberts & Griffith, 2019). The scalability of the point-to-point operating model can allow the firm to enter new routes with minimal strain on the current activities. However, the organization has thin profit margins due to the adopted cost leadership strategy, which allows the provision of low airfares (Chishty-Mujahid, 2017). The concentration of its operations in the United States also limits the firm’s profitability by failing to venture into the considerably lucrative global commercial airline industry.
Southwest Airlines has the opportunity of expanding into other routes outside the United States to grow its revenues and base. Partnerships with organizations that provide complementary services, such as ticketing, can also support the firm’s expansion into new markets such as China. The airline faces the threat of aggressive competition from emerging and existing firms, which adopted similar cost leadership. Additionally, the commercial aviation industry, in which the organization operates, has limited opportunities for cost-cutting. This implies that the firm’s ability to reduce its costs is significantly restrained.
Analysis of the Chinese Airline Industry
China is the world’s largest aviation market, with passenger traffic registering year-on-year progression (Wu & Man, 2018). Southwest Airlines is guaranteed a ready market if it successfully ventures into the country. Over the years, the recorded growth in passenger traffic implies that the demand for flight services in China has outstripped the offer. The consistent economic growth in the country illustrates that businesses should not be engaging in price wars but should be actively seeking markets with unmet consumer demands.
The airline can also partner with other organizations which provide complementary services, such as online ticketing, to enhance their competitive advantage in the country. China is a technology powerhouse and the airline would not need to import providers of such services.
Rationale for Presentation
China is the leading carrier of airline passengers in Asia, a trend that has consistently grown as a result of the economic boom. The country also has a positive outlook, especially in tourism and business travel. These two components immensely promote and nurture the entry of new airline operators in the market to enhance the mobility of people in and out of the country. The increasing passenger volumes also necessitate the entry of new operators or the expansion of the capacities of the operating airlines to enhance the movement and convenience of people. Southwest Airlines can capitalize on this trend and exploit the opportunity by entering the Chinese airline market.
Challenges and Limitations
China already has established low-cost airlines such as Spring Airlines, which poses a major entry challenge for Southwest Airlines into the Chinese aviation market. Competing with the local firms is a demanding venture, which would require innovative strategies to enable the firm to compete effectively. For instance, the firm can introduce value-addition services as an initiative to promote and popularize the airline.
The U.S. and China are distinctly different countries, each espousing a wide array of varying lifestyles, beliefs, languages, customs, and norms. This is a major challenge as the company would be compelled to rely on the local people before the transferred employees can learn the basics. Additionally, this venture would expose the firm to completely new compliance issues, including taxation and environmental subjects. In recent years, the U.S. and China have had strained bilateral relations, which have impeded the ability of the two countries to engage in business with one another.
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