southwest

SOUTHWESTSOUTHWEST

Vishwas Muthyala (MBA Dec 2008)Vishwas Muthyala (MBA Dec 2008)

Just Plane Smart THE Low Fare Airline

A SYMBOL OF FREEDOM

THE FREEDOM TO FLY

SOUTHWESTSOUTHWEST


WHO ARE WE?

• Founded in 1971

• Largest airline in the world by number of passengers carried

• 6th Largest US airline by revenues

• 4th Largest commercial airline in the world by fleet size

• 64 destinations in 32 states with 3,300 flights a day

• More than 33,000 employees; 87% unionized

• Founded in 1971

• Largest airline in the world by number of passengers carried

• 6th Largest US airline by revenues

• 4th Largest commercial airline in the world by fleet size

• 64 destinations in 32 states with 3,300 flights a day

• More than 33,000 employees; 87% unionized

SOUTHWESTSOUTHWEST


WHO ARE WE?

The Mission of Southwest Airlines

To provide safe and comfortable air transportation in commuter and short-haul markets, from close-in airports, at prices competitive with automobiles and buses and to involve customers and employees in the product and the process, making the airline a fun, profitable and quality experience.

The Mission of Southwest Airlines

To provide safe and comfortable air transportation in commuter and short-haul markets, from close-in airports, at prices competitive with automobiles and buses and to involve customers and employees in the product and the process, making the airline a fun, profitable and quality experience.

The Vision of Southwest Airlines

Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

The Vision of Southwest Airlines

Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

SOUTHWESTSOUTHWEST


Internal Rivalry: High- Price is primary differentiator- Exit Barriers are high

- Difficult to dispose of planes- Loss making companies take longer to close down

Threat of New Entrants : Medium- Large Capital Requirement- High Political leverage requirement

Threat of Substitutes: Low- No other alternatives to very long distances- Low threat of other means of transportation because air fares are relatively inexpensive

Supplier Power: Medium- High competition- High switching costs for customer- No threat of forward integration by supplier- Gov’t / Airports have limited facilities – gates, hangars, etc

Buyer Power: Medium- Price Sensitive- Destination Dependent- Not concentrated- No threat of backward integration

Porter’s Five Forces

The US Low Cost Carrier industry is seen as moderately attractive. This is because the opportunity exists to enter the industry with used or leased planes.

SOUTHWESTSOUTHWEST


Target Market

• First-time Fliers

• Business Travelers (Point – to – Point)

• Dissatisfied customers from full-service airlines

• People who travel by Road, Rail

• Leisure family travelers

• First-time Fliers

• Business Travelers (Point – to – Point)

• Dissatisfied customers from full-service airlines

• People who travel by Road, Rail

• Leisure family travelers

SOUTHWESTSOUTHWEST


Key Success Factors (Low Cost Carrier Industry)

• Low Fares• More destinations• Operational Efficiency

• Turn Around Time• Hub / Secondary Locations• Aircraft Utilization• Single Model Usage• On time Performance

• Service Standards (Basic)• Safety (Threshold)

• Low Fares• More destinations• Operational Efficiency


• Service Standards (Basic)• Safety (Threshold)

SOUTHWESTSOUTHWEST


Market Share (US Airline Industry)

SOUTHWESTSOUTHWEST


Market Share – US Low Cost Career (LCC) Industry

Southwest Airlines is, by far, the largest Low Cost Carrier in the US market

SOUTHWESTSOUTHWEST


FRILLS

FARES

Fares and the level of Frills offered are the key differentiators between the Low Cost Carriers and the Full Service Airlines

SOUTHWESTSOUTHWEST


FARES

ONTIME

On-time performance and fares are a key differentiator within the LCC industry

SOUTHWESTSOUTHWEST


FARES

DESTINATIONS

Destinations covered do not come out as a major differentiator as can be seen from US Airways and Southwest.

SOUTHWESTSOUTHWEST


FARES

SERVICE

Service = No. of Customer Complaints per 100,000 passengers

0.00

3.50

The level of service / passenger care, shown here in the form of number of customer complaints / 100,000 passengers, is also a key separator.

SOUTHWESTSOUTHWEST


ONTIME

SERVICE


0.00

3.50

Level of service / passenger care and on-time performance together give a much clearer picture.

SOUTHWESTSOUTHWEST


ONTIME

Plane Models

Plane Models = No. of distinct Airplane Models in the fleet

1

10

2

The number of distinct plane models used in the fleet is also a key factor. Southwest is the only airline which uses only the Boeing 737 family of airplanes in it’s fleet.

SOUTHWESTSOUTHWEST


DESTINATIONS

SERVICE


0.00

3.50

This map further reinforces the weightage of Service / Passenger Care over Destinations covered.

SOUTHWESTSOUTHWEST


KSF MATRIX

The weights to the various KSFs and the relative score of the competitors bears out the large lead in Market Share that Southwest Airlines enjoys. SWA scores over the competition in all the critical KSFs.

Key Success Factors Weightage Southwest US Air AirTran JetBlue Alaska Air ExpressJet

Low Fares 30% 9 8 8 9 7 6

More Destinations 15% 5 9 5 5 6 7

Operational Efficiency 30% 9 7 8 7 7 7

Service 20% 9 6 5 5 5 6

Safety 5% 9 8 8 6 6 6

Score 100% 41 38 34 32 31 32

Weighted Score 8.4 7.45 6.95 6.85 6.4 6.4

Market Share 40.9% 14.5% 9.5% 8.2% 6.1% 6.0%

SOUTHWESTSOUTHWEST


COMPETENCY LADDER

Human and Financial Capital

Difficulties in inorganic growth

Brand Image

Cost & Service Culture

INCOMPETENCIES

PERIPHERAL

THRESHOLD

COMPETITIVE ADVANTAGE

COMPETENCIES

STRATEGIC

DISTINCTIVESUSTAINABLE COMPETITIVE ADVANTAGE

• Operating Efficiency• Technology for cost reduction

• Team of talented people• Mgt of human capital• Excellent Union Relations

SOUTHWESTSOUTHWEST


LONG TERM OBJECTIVES

• Expand to near-international locations with coach fares

• Target a growth of 4-5 % per annum

• Generate additional revenues thru Southwest.com

• Introduce and sustain Business Select*

• Deliver more to the customer through Rapid Rewards (frequent flyer program)

*Business Select is an option for customers to pay slightly higher fares in return for first boarding privileges (no assigned seating), a free cocktail, extra credit on Rapid Rewards.

# The Long Term Objectives have been extracted from a webcast of the speech made by Ms. Laura Wright, CFO – Southwest Airlines on the18th of March, 2008 at the JP Morgan Aviation & Transportation Conference

http://www.southwest.com/investor_relations/fs_events_calendar.html

• Expand to near-international locations with coach fares

• Target a growth of 4-5 % per annum

• Generate additional revenues thru Southwest.com

• Introduce and sustain Business Select*

• Deliver more to the customer through Rapid Rewards (frequent flyer program)

*Business Select is an option for customers to pay slightly higher fares in return for first boarding privileges (no assigned seating), a free cocktail, extra credit on Rapid Rewards.

# The Long Term Objectives have been extracted from a webcast of the speech made by Ms. Laura Wright, CFO – Southwest Airlines on the18th of March, 2008 at the JP Morgan Aviation & Transportation Conference

http://www.southwest.com/investor_relations/fs_events_calendar.html

SOUTHWESTSOUTHWEST


VALUE PROPOSITION

KEY SUCCESS FACTORS• Low Fares (30%)• More destinations (10%)• Operational Efficiency (30%)


• Service Standards (Basic) (20%)• Safety (10%)

KEY SUCCESS FACTORS• Low Fares (30%)• More destinations (10%)• Operational Efficiency (30%)


• Service Standards (Basic) (20%)• Safety (10%)

STRATEGIC COMPETENCIES• Cost & Service culture

• Team of talented people

• Operating Efficiency

• Technology for cost reduction

• Mgt of human capital

• Excellent Union Relations

STRATEGIC COMPETENCIES• Cost & Service culture

• Team of talented people

• Operating Efficiency

• Technology for cost reduction

• Mgt of human capital

• Excellent Union Relations

Southwest Airlines provides reliable service and passenger care at the lowest fares to the short haul, frequent-flying, point-to-point, non-interlining traveler.Southwest Airlines provides reliable service and passenger care at the lowest

fares to the short haul, frequent-flying, point-to-point, non-interlining traveler.

SOUTHWESTSOUTHWEST


SWOT

STRENGTH1. Cost & Service culture2. Operational Efficiency3. Brand Image4. Low Fares5. Customer Service

WEAKNESSES1. Inability to grow inorganically

1. Does not serve international routes

OPPORTUNITY1. Increasing tourism to Non-US North American destinations

2. Gain further market share from full-service airlines

1. Introducing flights to non-US North American destinations (S1, S2, S3, S4, S5, O1)

2. Increase the number of destinations served (S2, S3, S4, O2)

1. Tie-up with full-service airlines to serve international routes (W2, O2)

2. Provide last-mile connectivity to other LCCs from outside US (W1, O1, O2)

THREAT1.Full-service airlines emulating low cost model2.Difficulty in securing gates in major airports

1. Increase the number of destinations served (S2, S3, S4, T1)

2. Enter gate-sharing agreements in Major airports (S3, S2, T2)

1. Tie-up with full-service airlines to serve international routes (W2, T2, T1)

SOUTHWESTSOUTHWEST


Strategic Options Filter

Strategic Options KSFs LTO

Strategic Competencies

Vision / Mission

Final Score

35% 25% 20% 20%

S1, S2, S3, S4, S5, O1

Introducing new flights to non-US North American destinations

8 8 8 7 7.8

S2, S3, S4, O2 / S3, S4, T1

Increase number of destinations served

8 7 7 8 7.55

S3, S2, T2Enter gate-sharing agreements

in Major airports6 6 6 7 6.2

W2, O2 / W2, T2, T1

Tie-up with full service airlines to serve international routes

7 5 8 6 6.5

W1, O1, O2Provide last-mile connectivity to other LCCs from outside US

8 7 8 6 7.35

SOUTHWESTSOUTHWEST


Recommendations

• Introduce flights to non-US North American destinations (within range of the Boeing 737)

• Increase the number of destinations served within the US.

• Provide last-mile connectivity* to other Low Cost Carriers from outside the US.

• Introduce flights to non-US North American destinations (within range of the Boeing 737)

• Increase the number of destinations served within the US.

• Provide last-mile connectivity* to other Low Cost Carriers from outside the US.

* By last-mile connectivity, I am looking at travelers going to destinations close to the US like the Caribbean. For example, a flyer from Miami, Florida might have LCC options to take him to Jamaica, but a flyer from New York would be forced to fly full-service airlines. Southwest could tie-up with LCCs from the Caribbean to get these passengers from New York to Miami and hence create a win-win situation for everyone.

SOUTHWESTSOUTHWEST


References

• www.southwest.com

• www.jetblue.com

• www.usairways.com

• www.alaskaair.com

• www.expressjet.com

• www.airtran.com

• www.wikipedia.org

• US Department of Transportation – Bureau of Transport Statistics

• Air Travel Consumer Report (Feb 2008) – Office of Aviation Enforcement & Proceedings (Aviation Consumer Protection Division – US Department of Transport)

• Webcast of the speech made by Ms. Laura Wright, CFO – Southwest Airlines on the18th of March, 2008 at the JP Morgan Aviation & Transportation Conference

SOUTHWESTSOUTHWEST


THANK YOU

southwest

Business

fares service service

destinations service

ontime service service

frills fares fares

air fares

fares ontime

us market

us low cost carrier