BUSN 470 Regent University Southwest Airlines Power Point Presentation I will need what is hi-lighted (only what is hi-lighted) in the document below to be

BUSN 470 Regent University Southwest Airlines Power Point Presentation I will need what is hi-lighted (only what is hi-lighted) in the document below to be turned into 1-2 pages in Power Point with notes. Running head: SOUTHWEST AIRLINES
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Southwest Airlines
BUSN 470
Ben McLean, Kristen Mccormick, Kyla Lounsbury, Cassandra Hansen, Willie Gott,
Dominik Hattani
May 1, 2020
Abstract
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Southwest Airlines is an airline that flies both nationally and internationally to Mexico,
Costa Rica, and the Caribbean. In this paper we will not only discuss background information,
but also provide a SWOT analysis, PEST analysis, and financial information. From this we can
determine the best strategies that the airline can take in order to build their company and provide
a better customer experience.
Southwest Airlines
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Southwest Airlines is one of America’s largest airlines. Southwest strives to not only be
as friendly as possible but also as effective as possible. They do this from the beginning of their
supply chain to helping their customers exit the aircraft. Although they have succeeded thus far
in their industry, there are a few changes and weaknesses that the organization may want to look
into promote a better customer experience for their customers.
Dominik: Parts 1-4
Southwest Airlines is an American domestic airline, founded by Herb Kelleher and
Rollin King, is considered the largest low-cost airline enabling consumers to travel to 101
different destinations around the world. According to IBIS World, there has been a 0.3% annual
growth within the domestic airline industry from 2015 to 2020 (IBISWorld, n.d.). We can place
the company within the “maturity” cycle as expectations from consumers have already been met
and are consistent within the industry. Regarding the profitability of the industry, we can see
how there is a giant market for it. The United States had 822.9 million passengers boarded on
airplanes just in the US alone in 2018 (Mazareanu, 2019). This translates to billions of dollars in
potential revenue, with many competitors, some of which were successful and some that were
not.
Regarding who has succeeded within the airline industry, we can see how domestic
airliners can be successful in distinguishing themselves from competitors in how they operate.
Southwest, being one of those successful examples, shows how different they are in regards to
how they approach passenger fees like carry-ons, luggage, and reservation changes (Gilbertson,
2015). One successful competitor is Delta airlines. Delta airlines focuses on creating a great
work environment and gaining trust (Davis, n.d.). Regarding who has failed within the industry,
we can see many airlines such as Air Berlin, Malev, and Mexicana (Slotnick, 2020). We can see
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how those airlines have failed due to financial issues and discontinuation of funding (due to lack
of profitability).
Analyzing those who have failed and excelled within the industry, we can identify critical
success factors within this industry. A company needs to be able to manage people well as well
as attract customers. They do this by operating in favored ways while also being able to support
the business model as a whole in having proper fleet management and properly managing their
finances. The last two are critical to master, as with poor finances it can significantly discourage
investment into a domestic airline company including Southwest, which is essential as this
industry focuses very heavily on being able to operate and profit based on investment into its
staffing and infrastructure, as well as the enormous costs of owning an aviation fleet.
Kyla: Parts 5-8
Southwest Airlines has many political and economic factors that play significant roles in
determining profitability in a particular country or market. Political factors include pricing
regulations, political interference and control, and safety regulations. Economic elements include
high or volatile fuel prices, challenges in growth that result in limiting strategic plans, and
maintaining cost structure with the competition. “The increase in the price of jet fuel has been
paired with an increase in the price volatility, meaning that not only have the price swings
become larger as a percentage, but fuel costs have also become larger in both nominal and real
terms.” (Turner & Lim, 2015, p. 56) Fuel prices also determine ticket costs within turn may
affect customer satisfaction.
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To continue our PEST analysis, we will also look at social and technological forces that
affect Southwest Airlines. Social effects would include the seasonality of demand. “Seasonal
demand occurs when the pattern of demand over time is characterized by regular fluctuations
that are relatively consistent with the pattern of supply, although the excess capacity to supply
the product will exist at certain times of the year.” (Saeporsdottir, Hall, & Stefansson, 2019, p.
3059) People tend to travel more or less depending on specific times of the year. To still make
profits on the off-seasons, Southwest Airlines offer discounts and extra points to Rapid Rewards
customers. Technological forces pertain to increasing dependence on technology to operate a
business and integrating digitization to offer holistic experiential packages. The growth of
technology has helped cut costs, provides the advantages of providing in-flight Wi-fi, and adds
convenience and speed.
Cassandra: Parts 9-12
Southwest is currently employing a corporate-level strategy of internal growth. This is
seen through their continued expansion of services and destinations for customers (MarketLine,
2020). They have 99 destinations in 40 states and nations surrounding the United States
(MarketLine, 2020). They recently introduced their new aircraft, the Boeing 737-700, and
ordered more Boeing 737 MAX jets in addition to expanding multiple other services in many
locations, including Hawaii, Mexico, and Texas (MarketLine, 2020).
Their generic strategy is to capitalize on their position as the number one domestic flight
provider in the United States through continued emphasis on timely and reliable flights at
competitive prices (Southwest Airlines Co, 2020). They are currently focused on strengthening
their presence in California, Hawaii, and other strategic markets that will give them a
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competitive advantage over their competitors (Southwest Airlines Co, 2020). Through expansion
of services in “cornerstone” areas such as Baltimore, Houston, and Denver, they plan to bolster
their “international connectivity” and improve their “recoverability during irregular operations”
(Southwest Airlines Co, 2020, p. 3). This will give them a very competitive standing and foster a
strong foundation for growth.
Their main marketing strategy is currently centered around their “Transfarency” initiative
and their “Bags Fly Free” offer (Southwest Airlines Co, 2020). They differentiate themselves by
emphasizing that they do not charge hidden fees and that two pieces of baggage can be checked
free of charge (Southwest Airlines Co, 2020).
Their major competitors include Delta Air Lines and United Airlines Holdings. Delta is
applying a strategy of internal growth through investments in technology, airports, products,
services, and operations (Delta Air Lines Inc., 2019). They are the number one United States
airline that services globally, and they have recently put focus on improving the quality of their
services (Delta Air Lines Inc., 2019). Furthermore, they state that their employees, extensive
network of operations, and customer loyalty are key aspects of their competitive advantage
(Delta Air Lines Inc., 2019). United employs a sustained strategy and has much of its focus on
major hubs throughout the many countries in which it operates (United Airlines, 2020). Unlike
Southwest, United operates using the hub and spoke system, which they believe contributes to
their ability to transport people and cargo more frequently (United Airlines, 2020). United has
increased its strength through alliances such as their Star Alliance, and they continue to
emphasize customer loyalty through initiatives such as their rewards program (United Airlines,
2020).
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Kristen: 13-15
Southwest co. is in an excellent financial position, as reflected by its financial statements.
An evaluation of the fiscal year ending 2018 shows an actual sale of $21, 965 million, a 3.87%
sales growth, and a net income of $2,465m (Hoover’s Company Records, 2020). Other aspects
such as assets stood at $ 26,463 million, shareholders’ equity at $ 9,853m, and total liabilities at $
16,390m at the close of the fiscal year (Hoover’s Company Records, 2020). Its financial strategy
leverages a deep focus on customer experience, extremely efficient operations, logistics
resolutions, and low-cost pricing. The company is committed to various practices that bring in
resources, shed in revenues, and profits within the institution. The primary source of income for
the company is flight services on both the international and local scope. The company also has a
maintenance hangar where they offer flight maintenance services for other American companies.
Being a reputable company within America and globally, these flight and flight-related services
generate good income and revenues. The income generated is used in various activities such as
payment of employees, maintenance services, and their upgrade of different facilities within the
organization (ICD Research, 2016). These revenues are also used to cater for various expenses
such as jet fuel and others that may accrue from its operations.
The company production strategy is edged along, offering the best services at preferably
meager prices. It is embedded within a cost structure that focuses on cost discipline and
profitability. Its flight services are provided at lower unit costs than other international and
domestic operators (Asahi & Murakami, 2017). The company also works towards poaching the
best employees from the market. This allows SouthWest airlines to work with only the best in
the market and provide high-quality services. With most of the employees on permanent
employment and with an enabling working environment, they are at positions to offer the best
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services. On a purchasing aspect, it works towards obtaining most of the required services
internally. Take, for instance, the maintenance hangers within the institution. These offer
maintenance services to its flight, thereby cutting some of the purchasing expenses (Airlines,
2016). For various services and products that they source externally, they use the bid option
where tenders are floated, and potential suppliers make bids. From this approach, the supplier
who offers the lowest price at the stated specifications usually gets the offer.
In different operational parameters, the organization has adopted different operational
strategies. For instance, various work areas, employability, and employment are revisited on a
preplanned criterion. This revisiting allows room for negotiations on factors such as an increased
number of employees, compensation services, and benefits. There are other strategies, such as
environmental regulation and protection. This requires Southwest airlines to stick to different
federal regulations and laws regarding the protection of the environment. The airline has,
therefore, adopted strategies towards less air pollution and less damage to the environment
surrounding its strategic operating points. The company also engages with other agencies in a
voluntary offering of remediation to groundwater and soil contamination (Southwest Airlines,
2020). To its esteemed customers, the provision of data privacy and security remains a top
priority. For the data of clients, it must be treated with the highest privacy measures and should
not be accessible to third party persons. It has also embedded within its operations other flexible
flight-related services. For instance, it has adopted the cancellation policy that allows clients
room to cancel reservations up to 30 minutes before a flight departure. The funds for
cancellation of flight are further available for future flight cancelations. It also has a flexible
business model that allows forward-thinking and supports rapid changes. These allow room for
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growth through activities such as the acquisition of other small flight services, an increase of
flight routes, and acquisition of more carriers.
Willie: Parts 16-20
Strengths
One of the biggest strengths is the company’s excessive fleet network. Data from the US
Department of Transportation shows that the company is the US’s largest airline conserning
originating domestic passengers boarded. According to Southwest Airlines Co. (2019), “The
company operated a total of 750 Boeing 737s aircraft as on December 31, 2018, of which 51 and
72 were under operating and capital leases, respectively” (p. 4).
Another commanding strength is Southwest’s low-cost fare structure. Records show that
the company has the cheapest unit costs when compared to other major airline carriers operating
in the US. To achieve these low fare rates, the company focused on enhancing its fuel efficiency
via fleet modernization and other fuel initiatives. This reduction in fuel consumption enabled
Southwest to improve its average seat miles (ASM) per fuel gallon consumed.
Weaknesses
The company’s dependence on Boeing as its lone supplier is a weakness. While
Southwest can purchase from other parties, most of their purchases are directly sourced from
Boeing. Therefore, the company could stand to be devastated by a mechanical or regulatory issue
associated with the Boeing aircraft company.
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Another weakness is the utilization of the air cargo market. In 2018, air cargo only
accounted for less than 1% of the company’s revenue. This low amount of cargo operations
exposes the company’s reliance on domestic passengers, which raises the risk of operating in an
environment plagued constantly by uncertainties, such as the recent pandemic.
Opportunities
A tremendous opportunity for them is the increase in travel and tourism. Market research
has shown that the T&T industry will grow the country’s GDP by upwards of 3.4% in 2018. This
dependence on air travel is something that Southwest could take full advantage of. This pairs
into the company’s healthy growth initiative. Expanding their travel destinations to places such
as Hawaii has proven an excellent opportunity for them to utilize tourism growth to increase
revenue.
Threats
There is a shortage of pilots threatening the industry. Boeing claims airlines will require
nearly 800,000 new pilots by 2037 to keep up with demand. Naturally, the supply and demand
gap will increase pilot wages, which hurts company revenue.
Along with pilot shortages, intense competition poses a threat. The increased market
presence of budget airlines has diminished the ability of the larger carriers to maintain sufficient
pricing structures. The expansion of the aviation market and the increase in demand has
impacted airlines and passengers. Which, according to Jung, Han, & Oh (2017), “The impact is
especially significant for airline companies because it directly affects revenues” (p. 140).
Strategic Alternatives
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To help continued success, Southwest Co. could utilize several strategies. They could
create a shared service pilot program to share pilots with other airlines, improve turnaround
times, and adapt specific specials to critical demographics. The company could also utilize the
growing social media trend and aggressively pursue online advertisements to bring in new
passengers. Also considered a strategic alternative is staying on the current path of hedging fuel
costs to lower the airfares.
Ben: Parts 21-25
Pros and Cons of Alternatives
A shared pilot program could help boost the supply of pilots for Southwest, allowing
them to service more customers and have more active flights. This type of program is not
without challenges, however, as it would require partnership and participation from potential
competitors. It could potentially cost Southwest more money to share a pilot in this manner than
if that pilot worked for Southwest. Pursuing a more substantial social media presence could end
up being useful, however many times, social media is a double-edged sword, and can bring
negative attention as well.
Pursuing Alternatives
I believe that the main alternative that should be explored would be the pilot sharing
system. This would allow Southwest to address their issue of a lack of pilots. The next three
steps that would need to be taken are as follows: find at least one other company to partner with,
determine the number of pilots they want to contribute to the program, and determine the most
beneficial airports in which to implement this strategy.
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Measuring this alternative would be a challenge. I believe the best way to do so would be
to limit the scope of the project as much as possible. If Southwest were to partner with another
company at high volume airports, and each contributed 25% of their pilots to this joint account, it
could increase flexibility and responsiveness for both companies. A relatively objective manager
would need to be in charge of the project so that the pilots could be appropriately divided and
managed. The level of effectiveness would be the number of flights run in a day, as well as the
average waiting or delay time for passengers.
Crisis Events
One crisis event that Southwest should be concerned about has already happened, with the global
pandemic of COVID-19. Very few people are flying during such a time, and it is quite
detrimental to business. However, once the crisis passes, travel should continue to increase. The
world is becoming more and more connected, and the flight is the easiest way to travel
frequently. Due to this, there will be a high demand for flights, and we are confident the industry
will bounce back, with Southwest playing a significant role.
Southwest Airlines has come a long way in the past couple years. Although the world is
going through a great struggle at the moment, we believe that Southwest will build itself back up
and possibly even be better than before. They will do this by using different strategies discussed
such as pilot sharing, pursuing online advertisements, and researching how to lower fuel costs.
With the incorporation of these strategies, we believe that Southwest Airlines can grow and be
stronger than ever over the next few years.
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References
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https://www.ibisworld.com/united-states/market-research-reports/domestic-airlines-industry/
Gilbertson, D. (2015, ). Southwest zings competitors’ fees. Arizona Republic
Slotnick. (2020, March 13). 26 famous airlines that have gone out of business. Retrieved April
24, 2020, from https://www.businessinsider.com/airlines-that-go-out-of-business-2019-3#malevdefunct-2012-15
Mazareanu. (2019, August 9). Most profitable airlines in the world 2018. Retrieved April 24,
2020, from https://www.statista.com/statistics/269285/most-profitable-airlines/
Sæþórsdóttir, A. D., Hall, C. M., Stefánsson, Þ., Linnéuniversitetet, Ekonomihögskolan (FEH),
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from:< http://investors. southwest. com/~/media/Files/S/Southwest-IR/documents/comp... Purchase answer to see full attachment