Southwest Airlines Case Study

The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.

Southwest Airlines is a company that is known for its low ticket prices and profitability despite the highly risky industry in which it operates. This essay examines the cost behavior, cost volume profit (CVP), activity based costing (ABC), budgeting process, costing and decision making policies of the firm. The essay will discuss how the airline integrates these concepts in its daily operations.

This paper will give a historical overview of the company, discuss the ingredients to the company success, offer some financial strengths and present a final conclusion. Section I: Southwest's History Twenty-seven years ago, Rollin King, a San Antonio entrepreneur who owned a small commuter air service, and Kelleher, who was a lawyer at the time, 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 certain they have a good time doing it, people will fly your airline. And you know what? They were right. Within those 27 years, Southwest Airlines became the fifth largest major airline in America. Today, they have flown over 50 million passengers a year to 54 cities all over the southwest and beyond. They do it over 2,300 times a day with over 267 of the newest jets in the nation and fly only one type aircraft; the B-737. The average age of their fleet is only 8.4 years and they own over sixty percent of them. In May 1988, they were the first airline to win the coveted U.S. Department of Transportation Triple Crown for a month - Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints. Since then, they've won it

If Southwest decided that they needed to increase their revenue they would have to start by raising the prices of their tickets. The need for increased revenue would need to be passed on to the consumers’. When a ticket price is higher with one airline than the other, the customer

Southwest’s primary competitors are JetBlue and Spirit Airlines. These two airlines, like Southwest, focus on innovation and low airfare costs. Among the largest airlines are American, Delta, and United. However, these mainline carriers are far from posing any major threat to Southwest. (Coulter, pg 253)

Southwest Airlines possesses a very flexible and dynamic organizational structure that allows it to react rapidly, adapt swiftly and view environmental changes as opportunities rather than threats. After September 11, many companies went bankrupt due to this there was an unmet demand of flights. Southwest has taken the need of people to fly faster from one place to another and used it to their advantage by offering safest, fastest and cheapest way. The improved website can help attract more customers. As, it uses only one kind of aircraft its engineers can model an alternative fuel to lower fuel cost and conserve the environment. As proven

Southwest Airlines embodies the best that a large company can be. The structure is designed to allow quick action and support of its large body of employees rather than complete control and bureaucratic red tape. It is widely recognized as one of the most desirable places to work and is constantly emulated by its competitors, not to mention other business not in competition. It is an entity that holds its employees in the highest regard, even above its external customers. Its culture is unique and strong and based on love and respect. Even after its current leaders are gone, the

1) Focus on point-to-point service. This service provides more direct nonstop flights that can minimize delays and total trip time.

In many respects, by its very character the air transport industry has always been a global business. The progress of larger more efficient aircraft has contemplated that air travel is increasingly commonplace. More people have the chance to travel to more places than ever before. As an outcome of this, the traveling public's anticipation has been lifted. Thus the industry is becoming increasingly globalized and phrases such as seamless service and frequent flyer program have turn weapons in the fight to win passengers. American carriers, immediately shattered by the attacks on the World Trade Center and the Pentagon, are not the only ones affected. The dust was only just starting to settle on the wreckage when the knock-on effects were intimidating intolerable stress for other carriers already suffering from declining passenger numbers and rising fuel and other costs. Setting up direct marketing program helps Southwest airlines to take a more connected, and focused outlook. The customer feels in demand and this helps in building goodwill. There are numerous issues one has to deal with while founding something new and this was kept in mind Southwest airline’s investment decisions, the selling structure, policies, automation of the system, etc. To be ready to deal with them, a few new programs must be set up. For instance, customer-ranking action must be grown. The steps mentioned earlier must be carefully thought about and

The Airline industry has experienced continual problems with rising costs with both fuel and maintenance which has caused them to increase their fees to the consumers to pay for those rising costs. This paper will help explain what an airline such as Delta does to help alleviate such costs without forcing its consumers to flip the bill through high fees that consist of tickets, baggage fees and food. The costs of doing business in aviation today have spiraled out of control making it very expensive for both airlines and the

This proposal addresses the needed steps to be taken in order for Southwest Airlines to see continued growth in the airline industry. Southwest Airlines has been able to remain one of the most profitable airlines in the industry for an extended period of time. Even with the hindrance of the 2001 terrorist attacks involving airplanes and the U.S recession of 2008, Southwest has continued to see strong revenue growth. Meanwhile, other companies were experiencing major losses and in some cases folding. Southwest Airlines has capitalized on the company’s strength of being the top low cost

There have been few inventions to change how people live and experience the world considerably as the creation of the airplane. Today, traveling by air has become the norm and it would be difficult to imagine life without it. Air travel has improved the way people are able to conduct business by shortening travel time and changing their thought of distance. The companies within the airline industry exist in a very competitive market. One of those companies, Southwest Airlines, features low-fare, no-frills air service with frequent flights of mostly short routes. Costs are kept down by the exclusive use of Boeing 737 aircraft, which allows for low maintenance costs and quicker turnaround times for flights, and by an emphasis on ticketless travel (Encyclopedia Britannica). This paper will address two segments of the general environment and how they affect Southwest and the airline industry; evaluate how Southwest has addressed two forces of competition; predict what Southwest might do to improve its ability to addresses these forces; assess the external threats affecting Southwest; discuss Southwest’s greatest strengths and most significant weaknesses; determine Southwest’s resources, capabilities, and core competencies; and analyze their value chain.

Since the late of last century, the business model of low cost airline represented by Southwest Airlines has been spreading all over the world, has influence and changed the framework and development of the world airline industry.

Southwest Airlines provides short haul, high frequency, point-to-point, low-fare services to and from 58 cities across the United States. The company is known for its low-cost fares and superior customer service in the airline industry. The company was started in 1971 with a motto still lived by today, "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." This motto has been effective for the company because they recently reported their 58th straight quarterly profit.

a. Increase the productivity of yield-management specialists and the reduction in work load can allow them to spend more time reviewing only critical flights thus making better revenue decisions.