Case Study: Southwest Airlines Corporation
1. Southwest Airlines Corporation is an extremely popular and profitable company due to their strategy of being the nations’ low-fare, high customer satisfaction airline. Southwest is able to offer the nation’s lowest fares due in part to their low operating-cost structure, the lowest in the domestic airline industry. This low operating-cost structure (refer to Exhibit 1 for 5 year financial highlights and 2004 data) is the basis on which Southwest builds its competitive advantage, as it allows Southwest to sell low fare tickets while still enjoying a gross margin percentage of sales (29.2% of sales in 2004) much higher than United ...view middle of the document...
Furthermore, Southwest pilots do not belong to a national union, allowing them to fly far more hour than pilots at other airlines and saving Southwest money from hiring additional pilots to cover those hours.
However, Southwest’s strategy is to be more than a low cost provider. Southwest also strives to provide outstanding customer service. This strategy has paid off big time for Southwest, as in 2005, for the 9th year in a row, Fortune magazine recognized Southwest as the most admired airline, and among all industries, listed Southwest as number five among America’s Top Ten most admired corporations. In 2005, The American Customer Satisfaction Index recognized Southwest Airlines as leading the industry in customer satisfaction, and InsideFlyer magazine awarded Southwest airlines for best customer service, best bonus promotion, and best awards redemption in 2004.
The last part of Southwest’s strategy is to take care of their employees. CEO Herb Kelleher, who founded Southwest, was deeply committed to a philosophy of putting employees first, and Southwest still follows that philosophy. Kelleher believed that “if [employees are] happy, satisfied, dedicated, and energetic, they’ll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy.” Southwest’s employees are among the highest paid in the industry, and consequently, they enjoy relatively low employee turnover. As a way to show appreciation, Southwest even decorates the walls at their facilities with photographs of their employees.