Southwest Airlines’ Strategic (SWOT) Analysis

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Introduction

Every business venture has potential for further growth and expansion. However, to ensure the company’s continuous development, it is critical to understand its present strengths, weaknesses, and threats to the business field and the firm in particular. This essay will conduct the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of Southwest Airlines’ low-cost carriers and discuss company value and strategic alternative opportunities for growth.

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Company Profile

Southwest Airlines is a low-cost passenger airline with headquarters in Dallas, Texas. Today, it is one of the largest airlines in the United States, offering service to 48 contiguous states, the Hawaiian Islands, and several international destinations (Southwest Airlines, 2020a). As of 2019, the company employs more than 60,000 staff, operating over 4,000 flights daily (Southwest Airlines, 2020a). In 2019, the net income of Southwest Airlines reached $2.3 billion, having provided air travel services to 134.1 million passengers (Southwest Airlines, 2020a). Thus, Southwest Airlines is among the leading airline companies in the United States.

SWOT Analysis

Strengths

Southwest Airlines has several strengths and advantages over its competitors. The company remains a highly profitable venture in a highly competitive environment of passenger air transportation. In 2019, the company reported the 47th consecutive year of profitability, reaching $514 million in net profit in the last quarter (Southwest Airlines, 2020b). Furthermore, Southwest Airlines follows the cost-leadership strategy, having the lowest cost of operation in the aviation industry in the United States (Chishty-Mujahid, 2017). Another strength is the company’s use of single-type aircraft. According to Southwest Airlines (2020a), the carrier employs Boeing aircraft exclusively, with Boeing 737 planes in its fleet. Thus, the airline staff only requires training in operating and maintaining different types of Boeing 737 aircraft, reducing coaching costs and increasing efficiency. In addition, extensive training on single-type aircraft translates into enhanced safety due to all staff’s comprehensive understanding of the aircraft. In 2021, the company was included in the list of the world’s 20 safest airlines, ranking at number 13 (Pallini, 2021). Several factors contribute to Southwest Airlines’ success and advantage over its competition.

Weaknesses

Nevertheless, there are weak areas that Southwest Airlines can improve to compete with its strongest competitors. The company is overly dependent on the US market and offers few flights to international destinations. Southwest Airlines’ primary destinations are the 48 continental states, with Alaska being excluded. In addition, Southwest Airlines is a primarily single-revenue company, lacking diversity in its revenue profile. For instance, in 2019, approximately 93% of the operating income came from passenger fares, under 7% allocated to other revenue sources and nearly 0,7% to freight and mail revenue (Southwest Airlines, 2020b).

Moreover, although being a single-type aircraft company can be viewed as a strength, it also weakens Southwest Airlines’ position in the industry. Problems with Boeing aircraft can lead to the majority of the airline’s fleet being grounded, resulting in revenue loss and a fractured customer relationship. Thus, Southwest Airlines should address the dependency on the US market, single revenue stream, and single-type aircraft policy.

Opportunities

The opportunities for further development of Southwest Airlines in the industry lie in tackling the defined weaknesses. As a company with a limited number of international destinations, Southwest Airlines can benefit from expanding its operation globally. For example, the carrier can offer new routes to destinations in unsaturated markets. It can focus on offering low-cost flights to popular tourist destinations, positioning Southwest Airlines as a desired carrier within the tourism industry. The airline can offer charter flights to specific tourist destinations, forming partnerships with low-cost travel agencies. Southwest Airlines can also expand its operation and attract new potential customers by offering low-cost long-distance flights. Furthermore, the company’s operating revenue should be expanded to include other revenue streams. Specifically, the Southwest Airlines freight business can be expanded as the logistics needs of the e-commerce market continue to grow. In addition, the company can expand its fleet by including other types of aircraft. Overall, there are several opportunities for Southwest Airlines to grow company and increase revenue by addressing the company’s weaknesses and responding to the needs of the market.

Threats

The main threats to Southwest Airlines are its competitors, rising fuel prices, and issues with Boeing 737. According to Pratap (2021), American, Jetblue, Delta, United, Alaska, Frontier, Spirit, and Republic airlines are the primary competitors of Southwest Airlines. The company recognizes that the actions of other airlines, including pricing, scheduling, and capacity, affect its operation and revenue (Southwest Airlines, 2020b). Finally, issues with Boeing 737 aircraft can substantially impact the company if Boeing orders to ground this aircraft. Thus, the airline revenue and reputation depend on a single-type aircraft. Overall, there are both internal and external threats to Southwest Airlines.

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Strategic Alternatives

Several strategic alternatives can be distinguished to create additional value for Southwest Airlines. An internal growth strategy requires diversification and expansion of the company’s fleet of aircraft. This strategy will allow Southwest Airlines to rely less on Boeing, offer more flights per day, and extend cabin classes provided to passengers. Fleet expansion and diversification can translate into increased revenue due to new passenger rates being offered. However, operating and training costs are likely to rise significantly with the introduction of new aircraft. An external growth strategy will require the airline to form a partnership with other companies. In particular, Southwest Airlines is recommended to partner with travel agencies to provide customers with charter flights to popular tourist destinations. Alternatively, a new tourist route can be developed in an unsaturated market to suit both companies and offer clients a new experience. Nevertheless, the drawback of the strategy is intense competition within both industries and a few markets remaining unexplored.

A decision matrix can be utilized to identify which of the proposed alternative strategies holds more value. The values used to differentiate between each option are selected from relevant factors affecting the choice of the strategies (Peek, 2019). Such factors include operating costs and performance, fleet and capacity, liquidity, revenue results, and net profit. However, the matrix provides a limited view of the proposed strategies as it does not account for external forces in the industry and long-term outcomes.

Fleet expansion is the optimal strategic alternative for Southwest Airlines’ growth as it will result in the company being less dependent on Boeing and being able to provide different cabin classes to passengers. The primary factor that may inhibit the success of new aircraft being introduced is the increased training, maintenance, and operating costs. Nevertheless, the cost of new aircraft being added to the fleet can be addressed by the introduction of new routes, new cabin classes, and the expansion of the company’s freight business. Thus, Southwest Airlines can grow substantially with the fleet being more diverse.

Conclusion

In summary, Southwest Airlines is one of the largest low-cost airline companies in the United States. Nevertheless, the intense competition in the aviation industry requires the company to improve its services and address internal and external threats to the business and its weaknesses, for example, single-type aircraft utilization. Thus, Southwest Airlines can facilitate growth by expanding and diversifying its fleet to counter the dependency on Boeing and grow its operation.

References

Chishty-Mujahid, N. (2017). Southwest Airlines’ successful economistic, cost-leadership strategy examined in light of Paul Lawrence’s renewed Darwinian theory: An analysis. Journal of Global Business Insights, 2(2), 115–123. Web.

Pallini, T. (2021). The 20 safest airlines to fly in 2021, according to experts. Business Insider. Web.

Peek, S. (2019). How to use a decision matrix for your business. Business News Daily. Web.

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Pratap, A. (2021). Who are the leading competitors of Southwest Airlines. Notesmatic. Web.

Southwest Airlines. (2020a). Southwest corporate fact sheet. Southwest Airlines Newsroom. Web.

Southwest Airlines. (2020b). Southwest Airlines reports 47th consecutive year of profitability. Web.

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BusinessEssay. (2022) 'Southwest Airlines' Strategic (SWOT) Analysis'. 17 September.

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BusinessEssay. 2022. "Southwest Airlines' Strategic (SWOT) Analysis." September 17, 2022. https://business-essay.com/southwest-airlines-strategic-swot-analysis/.

1. BusinessEssay. "Southwest Airlines' Strategic (SWOT) Analysis." September 17, 2022. https://business-essay.com/southwest-airlines-strategic-swot-analysis/.


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BusinessEssay. "Southwest Airlines' Strategic (SWOT) Analysis." September 17, 2022. https://business-essay.com/southwest-airlines-strategic-swot-analysis/.