Monday, April 30, 2012

Southwest's Competitive Advantage

To reach its highly competitive position, Southwest Airlines has focused on four main strategies: being low-cost, employee-driven, future-minded, and differentiated.

As mentioned previously, Southwest is a low-cost airline that focuses on fast, no-frills service. It has never served meals, does not have advanced seat reservations, and flies only Boeing airplanes. These decisions have helped Southwest be flexible in the face of the recent decreases in airplane passengers caused by the 9/11 terrorist attacks and the world economic crisis. The company did not have to make the drastic changes seen in its competitors’ services because it was already operating as a low-cost carrier. While other airlines cut back costs by reducing their services and firing large portions of their employees, Southwest was able to get by with nothing more than pay-cuts - no employee was fired because of economic issues. Although a company-wide pay-cut is nothing to sneeze at, Southwest employees agreed they would rather have their jobs for less pay than try to find work elsewhere. Through this loyalty, Southwest was able to recover much faster than its competitors and maintain its strong customer base.


In the last entry, we discussed Southwest employees in detail, so I will mention them only briefly here. Southwest’s employees are incredibly loyal, and they are a key part of the company’s overall strategy. Having happy employees means a company is more likely to have happy customers. Southwest knows this and uses it to its advantage. The company knows how to use motivation tactics that work for their employees. In line with Douglas McGregor’s Theory Y employees, workers at Southwest enjoy their jobs and see them as a natural part of their lives. They don’t need to be coerced with threats or promises. Southwest’s employees genuinely enjoy their jobs and want to pass that enjoyment on to their customers. This attitude is reflected in Southwest’s employee retention rate of 92.3% (a key indicator that employees love Southwest and want to work there). And an employee who loves their company will make customers love that company, too.

Customers can easily see Southwest’s low-cost, employee-driven strategies, but what they can’t always see is Southwest’s internal strategy. One of the company’s main focuses is on differentiation. This is an interesting strategy choice because differentiation is usually seen in high-price and/or unique product companies (such as BMW or Starbucks). Still, this is one of Southwest’s key choices, and they are making it work.

One of their key differentiation strategies is their Rapid Rewards frequent flyer program. According to their financial statements, Southwest has revamped their system so “...members are able to redeem their points for every available seat, every day, on every flight, with no blackout dates; and...points do not expire so long as the Rapid Rewards Member has points-earning activity during a 24-month time period.” Many airlines have similar, but much more complicated rewards systems, so Southwest’s emphasis on flexibility separates them from the rest of the pack. They also make use of their Chase® Visa credit card to help their customers earn and redeem points. This system brings in new customers, increases business from existing customers, and strengthens Rapid Rewards partnerships within its various divisions. Southwest has already seen this new rewards plan pay off by meeting and passing all of their expected growth goals. They’ve increased their overall business and given customers what they want. This company excels at being attuned to customer needs - they know that if you give people what they want, they will give you what you want.

Southwest’s other key differentiation strategy is what they call “aggressive promotion.” They take their key messages, put them into easy-to-understand commercials, and let the strategies themselves do the talking.
Here is a commercial from their Bags Fly Free® marketing campaign: 


Southwest sets up all of its strategies in that commercial. It shows its low costs (bags fly free!), emphasis on employees, and its differentiation (even going so far as to call out other airlines for charging baggage fees). This sort of campaign sets the company apart from competitors and makes potential customers aware of Southwest’s unique policies.
The fourth key strategy is Southwest’s focus on its future. Everything it does progresses the company, and every decision is made with long-term benefits in mind. Their recent acquisition of AirTran shows how Southwest is thinking of ways to expand its services and grow its market share. In their Annual Report, Southwest listed the strengths of this integration. “It allows...more low-fare destinations by extending...network and diversifying into new markets....” It also “...increases Company’s share of current domestic market share capacity (as measured by available seat miles or passengers.” And “it provides access to near-international leisure markets in the Caribbean and Mexico...and provides firsthand and meaningful insight into...new expansion opportunities.” Essentially, Southwest is working to expand its services, steadily increase its market share, absorb prior competition, and prepare for future growth. These steps will help the company be successful both now and in the future. In the current economy, companies must be more flexible and prepared than ever before, so plans like Southwest’s are essential.
In line with their future-minded goals, Southwest is updating its aircraft fleet to lower costs and increase customer capacities. The company purchased new Boeing 737-800s in the first quarter of 2012. These planes have increased their customer capacity - and more customers of course means access to more profits. Although adding customers means more money, it can also mean more costs. Southwest has prepared for this; 737-800s have better fuel efficiencies than previous models and can reduce unit costs. The planes are also larger, so Southwest can add seats without adding flights. This increased efficiency will help cover fuel costs and contribute to the company’s operating margins. In the 2011 Annual Report, Southwest said these new planes “...will enable Southwest to profitably expand to new destinations and potentially fly to more distant markets such as Hawaii, Alaska, Canada, Mexico, and the Caribbean.”
In addition to these new planes, Southwest has made a deal with Boeing to purchase 150 of their newly designed 737 MAX planes. These new models are more fuel efficient and environmentally friendly. These benefits factor into both Southwest’s low-cost and customer-minded strategies. Fuel efficiencies cut costs, and environmental considerations are essential to stay on the public’s good side. A green company is much more respected than its less environmental competitors.
According to the company, these new planes will allow for replacing “...certain Boeing 737 and/or Boeing 717 aircraft.” Southwest is planning for the inevitable time when their current fleet becmes outdated. By being the first customers for this new aircraft, the company is taking a risk, but it is necessary to stay innovative. They claim that the “...717 aircraft does not fit within [Southwest’s] long-term overall fleet plans,” so they must replace these models with ones that better serve the company’s needs. In spite of these changes, Southwest is maintaining its strategy of having one type of airplane. They keep strictly to their promise of flying only Boeing models. This both serves the company by lowering costs and by showing a consistent face to their customers. Those who fly with Southwest could become disillusioned if the company suddenly changed its aircraft fleet. Customer loyalty is essential in volatile markets, and Southwest won’t risk alienating anyone.
Southwest is a people-oriented company and uses that orientation to leverage its advantages. It cuts costs by having employees who work for a company they love, instead of for a simple paycheck at the end of the week. The company also plans for the future and is not afraid to take the risks necessary to stay ahead of the competition. As seen with their integration of AirTran and the new Boeing planes, Southwest is focused on expanding its services and increasing its market share. They plan far ahead and make sure their plans are sustainable for current and future competitive advantages.


For more information about the 737 MAX purchase, check out this Financial News Network clip: 



And watch this video for a look at the new plane:















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  65. A 24-hour facility is provided by the airlines in view of cancellation or change of plans in case of unforeseen events. Allegiant Air Cancellation Policy If you have to cancel your reservation 24 hours after booking a ticket on Allegiant Air, you will have to pay a $ 75 per passenger, segment fee.

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  70. Aer Lingus Airlines also provides world-class facilities and does not compromise with its services, despite being a low-cost airline. Also, if you have booked a flight ticket with Aer Lingus and are ready to make changes to your booked ticket, you must have a thorough understanding of the Aer Lingus Airlines Manage Booking process, you should read this post.

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  73. According to Korean Air cancellation policy 24 hrs, if you cancel your ticket within 24 hours of booking, you do not have to pay a cancellation fee. However, for Korean Air flights, there must be a gap of 7 days between the reservation date and the departure date. You can also get a full refund for refundable and non-refundable tickets if you cancel within 24 hours of booking.

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  74. A Cathay Pacific cancellation fee of $100 to $500 applies if ticket cancellation requests are made after 24 hours as a risk-free cancellation. Cathay Pacific Cancellation Policy says if you cancel your Cathay Pacific flight within 24 hours of your flight's scheduled departure, Cathay Pacific will charge a cancellation fee of $100 to $400. You can also make a cancellation request after canceling your flight ticket.

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  76. In accordance with Iberia Airlines cancellation policy, you can cancel your flight within 24 hours of booking. There are many advantages to canceling your flight within 24 hours of booking. You can easily cancel your Iberia flight within 24 hours online and via our customer service phone number. The terms of the policy are very flexible. However, after 24 hours, a cancellation fee must be paid.

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  77. Iberia offers its passengers the possibility of canceling a flight without any problem. You can cancel your ticket online and submit the refund request form found on the airline's official website. No refund will be provided if you cancel after the active period or risk-free period. Also, if the airline cancels your tickets for any reason, then you can ask Iberia for compensation for the canceled flight or simply request that they book your tickets on the next subsequent flight. Contact us to find out more about Iberia Airlines Cancellation Policy

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  78. If the flight is delayed for 3 to 4 hours, then their flight can be canceled easily. Singapore Airlines Cancellation Policy says passengers can also request a refund if they have a return ticket and are eligible for a refund.

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  79. Many travelers are not completely happy with their reservation services in basic economy. Upgrade Seats on Thai Airways They now want to modify or upgrade their flight to business class so that they can experience luxury travel. Hence, it would be beneficial for you to follow Thai Airways policies for better knowledge.

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  81. If you have a non-refundable Singapore Airlines ticket, you'll pay a few bucks for domestic tickets and international ticket fees ranging from $200 to $500 (depending on the length of the flight. Then according to Singapore Airlines Cancellation Policyyou'll receive the rest of your fare, in the form of an e-credit to use on future Singapore Airlines flights. Deduct the fee.

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  82. Cathay Pacific cancellation policy state that you can cancel your flight before 24 hours of departure. However, if there is cancellation from the side of Cathay Pacific without any prior notice, you can ask for a complete refund. The airline provides compensation for the passengers that include-
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  83. British's 24-hour cancellation policy allows travelers to avoid paying cancellation charges if they cancel their flight within the first 24 hours of booking. And the date of travel must be at least seven days from the date of purchase to get a full refund.
    Refund will be given to passenger only with refundable ticket. A non-refundable ticket will only be refunded as travel points towards your future journey. They are valid for one year from the date of cancellation.
    Refunds for canceled flights will be made only in the same form of payment that you used at the time of booking your flight ticket.
    And, if you cancel british airways flight ticket within 24 hours, but the original scheduled departure date is seven days from the flight booking date, you will have to pay the cancellation charges, which are USD 200. And, whatever the value is after deducting the cancellation charges. Processed as refund.

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  84. If you cancel within 24 hours of booking, there is no flight cancellation fee; you will receive the full fare as a refund. Jetstar airlines cancallation policysays If you fill out a cancellation request after the 24 hour free window, you will be charged a flight cancellation fee. If you have any medical issues after booking your flight, you can cancel your flight free of charge, but you will need to present authentic documents to an official JetBlue representative.

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  85. If you book the flight directly from a Singapore airline and submit the refund request, the airline sends you a notification via email as soon as the refund processing starts. Singapore AIrlines Cancellation Policy says the airline takes around six weeks for the amount to reflect in your original payment mode. The refund time is also subjected to your bank's processing time. Although you get a refund on time, speak to the Singapore Airlines representative directly in case it is delayed.

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  86. Envoyair sets cancellation costs for foreign and domestic flights. If a passenger wants to cancel a flight after 24 hours of booking then Envoy air cancellation policy says she or he will be charged a envoyair cancellation fee ranging from $100 to $500. However, if you cancel the day before your scheduled departure, you will be charged a rough penalty of $100 to $400 by Envoyair.

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  91. According to the China Airlines Cancellation Policy, if you have crossed 24 hours and still want to cancel a flight, then you can do it. And You will ask to pay for the cancellation fees also.

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  92. Depending on the air mauritius cancellation policy, if Air Mauritius cancels a flight, you have two options: You can take the airline's next available flight or request a refund.

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  94. It's a Wonderful Blog! If you are going to travel with an infant on Southwest Airlines, then It is important to be aware of the Southwest Airlines Infant Policy. so, Read our blog to get updated with Southwest Airlines Infant Policy and make your Flight journey easy to travel. Visit Now

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