Case #4 - Southwest - Group 7

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Frederick Community College *

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101

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Economics

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Apr 3, 2024

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docx

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Uploaded by MinisterDinosaurPerson173

1) How did Southwest achieve a cost advantage despite being a much smaller airline? 1. Differentiate the airline from other competitors by offering low-cost. To save costs, Southwest spent as little money on inputs as they could and has used only a ‘point to point structure’ which allows customers to travel directly to their destination without stopping at any locations. 2. Quicker turnaround. Because they were flying PTP, they didn’t have to wait for other flights, no meals meant less cleanup required. Southwest had high - speed boarding which was achieved by not assigning the seats to the passengers, which motivated passengers to come earlier. 3. Flying the same type of plane. Southwest purchased their first Boeing 737 when they were first starting, and they stayed loyal to it. Because they were flying 737, they knew all the ins and outs which created a lot of efficiency and helped reduce costs on staff training. It also gave them an opportunity to be able to negotiate prices with Boeing. 4. Created their own ticketing system. Southwest wanted to cut their expenses on ticketing services and refused to pay the fees for any third party except SABRE system, later they became the first airline to sell their tickets on their own website. 2) What prevents larger airlines from imitating their approach? 1. Southwest airlines maintain low operating costs through better flight schedules and providing quick turnaround times. Southwest prioritizes quick turnaround times at airports, hence reducing idle times in between flights. It could be challenging for larger airlines to replicate this cost structure without adjusting their current operations. 2. Southwest Airlines has a point-to-point network operating style, which enables it to connect numerous city pairs nonstop without the use of a hub-and-spoke network. This model enables faster aircraft turnaround times and shorter flight times. Larger airlines may find it challenging to switch to this point-to-point model without materially disturbing their current operations due to their massive hub-and-spoke networks. 3. Larger airlines frequently have long-term objectives in place and shareholder commitments, which can make it challenging for them to drastically alter their business strategy.

The strategy used by Southwest has changed over many years, thus switching to a comparable technique might necessitate a considerable change in the larger airline's strategic course. 4. Southwest avoids the trap of “growing beyond its means”. They are not wasting money on quick growth but rather focus on their strategy. Their practice of fuel hedging and buying options that guarantee the price of the fuel in the future has helped them optimize cash and stay profitable during hard times. Other airlines would struggle to do that because fuel hedging requires a large cash outlay. 3) How should Southwest grow? 1. Southwest expanding into long-haul domestic routes in America- Southwest has always focused on short flights, however if they wanted to expand then long-haul routes within the United States is a good opportunity since the short-haul flight market in America is already very saturated. They own one of the largest market shares for domestic flights within America while offering predominantly short-haul flights and long-haul flights are the biggest and fastest growing market in America. They would need to invest in different aircrafts that are used for long-haul flights such as Boeing 787 or an Airbus A350 compared to what they typically use now the Boeing 737 which is predominantly used for short-term routes. They would be able to use the same aircrafts if they expanded into the Long-Haul International Markets. 2.Expanding into International markets- Southwest has acquired AirTran which gives them the opportunity to enter the international market by flying to places out of the country such as Mexico and the Caribbean. However, these are still short-term flights, if they are planning to enter the long-haul route market then they will already have the resources to complete routes across America which these resources could also be used to fly from the east-coast of North America to Western Europe. Already having the resources gives them the opportunity to enter the long-haul international market but they would need to complete plenty of market research before expanding to other countries and pick routes that are in high demand and have favorable market conditions. If Southwest was to expand internationally it would be a good idea to gradually expand by only opening a limited number of destinations and assessing their performance rather than going all in right away. 3. Investing in technology- With most of the population's time being allocated so heavily on technology it’s important for Southwest to invest in it. To make sure everything the customer

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