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Southwest Strategy Essay

2663 words - 11 pages

I. Company background

Southwest Airlines is one of the US based major air carrier based out of Dallas Texas where it commenced operations on June 18, 1971. It was founded by Rollin King and Herb Kelleher got together and decided to start a "different kind of airline”. " They began with one simple notion: If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline" (1). Southwest started with three Boeing 737 aircrafts with focus of serving mainly three cities in the state of Texas; Houston, San Antonio and Dallas. By summer of 1993 Southwest already ...view middle of the document...

The company operates from 80 terminals in the US with each terminal office equipped with booking and ticketing facilities that are computer based and easy to use. Southwest also have some other physical resources such as hangers and other servicing equipment used for daily operations.

Another vital resource available to southwest is the financial strength of the company. In 2014, total operating revenue was about $18.6 billion with operating income of $2.2 billion. As of January 2015, the company also had approximately $3.1 billion in cash and short term investments and a fully available unsecured revolving credit line of $1 billion at its disposal. All these financial instruments and resources coupled with good industry financial performances make it easy for the company raise capitals. Another tangible resource worth mentioning is the company's human capital. The workforce strength is over 46,000 with most of the employee working on a long term work engagement. Most of these long term workers work in highly specialized positions therefore most of the employee base is highly skillful.

The recently implemented e-ticketing system validates Southwest Airlines commitments to technological resources. The e- ticketing system that was rolled out six years ago is not responsible for generating about 50% of its revenues.

III. Capabilities and Core Competencies
 
It is very important to note that Southwest have demonstrated some distinctive capabilities that is derived from the company's core competencies which in turn seems to have given them some competitive advantage over some of their rivals. Southwest primarily provides a point-to-point service which allows them to minimize connections delays and total trip times.

The fuel hedging program has been aggressively pursued. This allowed them to be profitable when other airlines were losing money. Southwest have been able to maintain a cost per seat mile of $0.12 which translates to about 25% cheaper than its competitors.

The company also treats their employees well and puts them well ahead of their customers. Employees have perks such as profit-sharing and decision making empowerment on the job. The work environment is fun and very casual hence, it is not unusual to see pilots assisting the flight attendants since there is no formal hierarchy.

A major distinctive capability is operational efficiency (Strategy by Design, 2012). South West has been able to channel most of its effort in making it operation more efficient and convenient for the customers. Various strategies which includes but not limited to investment in technology and economy of scale, in order to make its operations more efficient has been employed by Southwest. Consequently, the company has been able to reduce it cost below those of competitors and thus, enabling the airline to offer cheaper fares. Southwest is today the largest low cost airline and the only carrier that doesn’t charge any fee for...

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