Caseanalysis: Southwest Airlines
Caseanalysis: Southwest Airlines
Assessmentof Southwest’s strategy execution
Strategyexecution of an organization can be assessed on the basis of thecapacity of the firm to develop and amalgamate control systems,organizational structure, and culture to enhance its performance andcompetitive advantage. In the case of the Southwest Airlines, thestrategy implementation can be considered to be excellent. TheSouthwest has been implementing the low-cost strategy since itsfoundation, since its management is convinced that offering low costair travel services is the only ways that can help the companywithstand the industry-wide problems, increase performance of thecompany, and the competitive advantage.
Thereare four factors that indicate Southwest’s competencies inimplementing its strategy. First, Southwest has managed to develop anorganization that has the capacity to implement the strategysuccessfully. This has been accomplished by recruiting and retainingtalents through the human resource policies that encourage people tocontinue working in the firm. For example, the no-lay-off policy, acompensation package that is above the industry average and aneffective staff promotion has helped Southwest Airlines retain itsemployees for many years. Having employees who understand the historyof the company and its values and objectives has made it easier forthe company to implement its low-cost strategy. In addition, theability of the Southwest to train employees at the SouthwestUniversity has allowed the company to develop skills-basedcompetencies. These tactics have prepared Southwest Airlines forefficient implementation of its strategy.
Secondly,Southwest has managed to create strategy-encouraging policies. Forexample, the pricing policy adopted by Southwest aims at maximizingvolume while charging travelers low prices. This policy helps thecompany offset its operating cost by collecting fares from a largepool of customers, which its competitors have failed to do. Inaddition, the conservative fiscal policy adopted by SouthwestAirlines has helped it maintain a strong balance sheet, minimizedebts, and guide all activities that are aimed at controlling thecost of operation. This has helped Southwest Airlines continueoperating at low cost in a market where competitors are raising farecharges and introducing new charges to offset the high cost of fuel.This has made a significant contribution towards making SouthwestAirlines a low-cost provider in the airline industry. The use of asingle one type of aircrafts has also helped Southwest Airlinesreduce costs by minimizing its inventory and the cost of training thecraft repair personnel. Additionally, the adoption of thepoint-to-point scheduling has proven to be more cost effectivecompared to hub-and spoke scheduling. A combination of thesestrategy-encouraging policies and programs have helped Southwestimplements its low cost provider strategy.
Third,Southwest has embarked on the development of programs and policiesthat facilitate continuous improvement in the management of the costof operation and other functions. For example, the decision to startselling tickets online increased the visibility as well as theaccessibility of the company and reduces the cost of selling ticketsoff-line. The shift from off-line selling of tickets to onlinetransactions indicates the desire of the company to continue improveits strategies for delivering services to clients at a low cost andin a more effective way. In addition, the introduction of ticketlessflights helped the company avoid the cost of printing tickets.
Forth,Southwest has successfully utilized strategic leadership to pursueits long-term strategy of lowering the cost of operation. The companyhas managed to use the concept of strategic leadership by hiringcompetent CEOs and other executives, who are able to initiatecorrective actions to enhance the process of executing the strategyand realize the targeted results. In addition, the recruitment ofexecutive officers with an experience in the airline operations hasincreased the capacity of Southwest to stay on top of all that ishappening in the industry and monitor progress. For example, thefirst CEO is described as an airline veteran, who had entrepreneurskills and knew the airline business well. This helped the companystart on the right footing since Lamar Muse knew that controllingcosts would be the only way to get the new company started and secureits going concern.
Inoverall, Southwest Airlines have developed excellent policies andprograms that have allowed it to execute its strategy moreeffectively. The combination of different tactics (such as buildingof a capable organization, strategy encouraging policies, programsfor continuous improvement, and the use of strategic leadership) hashelped Southwest Airline contain the cost of operation, which has inturn enabled the company to offer the lowest ticket prices in theairline industry. This is a source of competitive advantage thatother players in the industry have not managed to achieve given thatthe price of fuel has been increasing over time.
Policies,procedures, and operations that are working well
Thereare four major policies, procedures, and operations that are workingwell for Southwest Airlines. First, the no-lay-off policy and theentire human resource management policy have helped the companyacquire the loyalty of employees. Human resource is the most criticaltype of capital that the organization needs to implement itsstrategies. Therefore, the successful execution of the low-costprovider can be partly attributed to the capacity of Southwest torecruit and retain experienced and well trained members of staff.
Secondly,the point-to-point scheduling has allowed Southwest Airlines to meetthe needs of its target clients by giving them an opportunity to flynon-stop to their desired destinations. This is becausepoint-to-point flights save on time by delays incurred whenconnecting flights. The success point-to-point operation is confirmedby the fact that approximately 72 % of the Southwest’s airpassengers flies non-stop.
Third,hedging and derivatives are important tools used by companies tosafeguard against losses in a market where prices are highlyvolatile. Hedging jet fuel and using derivatives have helpedSouthwest Airlines shield itself from losses that it would haveincurred as a result of fluctuations in jet fuels. This type ofoperation has worked well because it has helped the company save over$ 4 billion in a period of about 10 years.
Fourth,the marketing operations adopted by Southwest Airlines over the yearshave worked well. The promotional and advertising strategies used bythe company managed to inform the target clients about thedifferentiated experience and low fares that Southwest offers. Thishas been achieved through attention-getting and unconventionalmarketing strategies. Therefore, the continuous increase in theSouthwest’s market share can be attributed to effective marketingoperations.
Problemsidentified in Southwest Airlines
Thereare two major problems that are likely to affect Southwest’sperformance. The first problem is the lack of adequate safetypolicies to address safety concerns that might damage the reputationthat the company has built for many decades. The news of theSouthwest’s plane crashing into a vehicle at the airport, which wasattributed to human error (failure of the pilot to use the reversethrusts), can scare away many passengers. The second problem isdelayed inspection of faults in the fuselage. Customers may not beconcerned about the efficiency of Southwest in reporting delayedinspections, but safety is their major concern. Therefore, delayedinspections can subject Southwest Airlines to the risk of losingcustomers.
Changesneeded to improve the Southwest’s performance in 2014
Themanagement of Southwest Airlines needs to implement two major changesin order to enhance the 2014 performance. First, there is a need tolink employee’s compensation with performance. In the past, thecompany has been increasing employees’ to the current level wheremembers of staff are paid between 12 % and 38 % more than employeesin other companies. Linking compensation with performance will helpthe Southwest use its compensation package to motivate employees towork harder. This will also help the company avoid the risk of adisproportionate increase in the salary expenditure as compared tothe company’s overall performance. The second type of change is anincreased focus on customer satisfaction. Southwest has not beentransferring customer’s baggage to other carriers. This canincrease the risk of losing customers who wish to travel withSouthwest to one point and connect another carrier to reachdestinations that are not served by Southwest Airlines. Therefore,changing the current style of operation in order to allow the membersof staff extend their baggage transfer services to clients who wishto connect with other carriers can attract more customers, thusincreases financial performance.
Recommendationsto Gray Kelly and the executive management team
Developa suitable safety policy: this will help the Southwest take proactivemeasures in enhancing the safety of clients, instead of acting whenincidents have already occurred. The policy will also protect theimage of the company, which is currently at risk because of safetyconcerns.
Introducefirst classes and fancy clubs in the long-haul planes: Introducingthe two additional services will help southwest attract more clientsfrom the business segment, who may need the opportunity to relax orsocialize while traveling.
Fasttrack the process of merger: The Southwest acquired Air Tran in 2010and their services are yet to be merged fully. This prevents theSouthwest from getting the competitive capabilities that wereanticipated at the time of acquisition.
Thompson,A. & Gamble, E. (2014). SouthwestAirlines in 2014: Culture, values, and operating practices.Tuscaloosa, AL: University of Alabama.