Southwest Airlines is a national airline company that has grown to become the fourth largest airline in America.  Southwest Airlines got its start in 1971, servicing flights between Dallas, Houston and San Antonio.
 

Rollin King and Herb Kelleher began this national airline with notion: If you get your passengers to their destination 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 want to fly. (Southwest.com)

Southwest strives to accomplish this criteria, and has proven to be successful as a result.  In 1989, Southwest proved to be a major competitor as it exceeded the billion dollar revenue mark.  Today Southwest remains the only United States short haul, low fare, high frequency point-to-center carrier and has received much recognition for its success in the airline industry. 
Some of Southwest's achievements include: 

•  According to the March 4, 2002 issue of FORTUNE , Southwest ranked second among companies across all industry groups, and first in the airline industry in the magazine's 2002 America's Most Admired Companies list. 


•  Southwest Airlines has been named a charter member of the International Airline Passengers Association's Honor Roll of Airlines among the World's Safest Airlines. Southwest also has been recognized as one of the world's safest airlines by Conde Nast Traveller . 


•  On May 21, 2001 The Wall Street Journal reported Southwest Airlines ranked first among airlines for the highest customer service satisfaction according to a survey by the American Customer Satisfaction Index for the first quarter of 2001 


•   FORTUNE has consistently recognized Southwest Airlines in its annual survey of corporate reputations. Among airlines, Southwest came out on top as the most admired airline in the world for 1997, 1998, 1999, and 2000 (Fortune.com). 


•  Since 1997, FORTUNE has ranked Southwest Airlines in the top five of the Best Companies to Work For in America . 


• Southwest Airlines' Rapid Rewards program placed first in Inside Flyer Magazine's 2001 annual Freddie Awards in the Best Bonus Promotion, and Best Award Redemption categories. 


• In April 2002, the National Airline Quality Rating (AQR) ranked Southwest Airlines number four among the top eleven airlines for performance in 2001. 


•  Business Ethics lists Southwest Airlines in it's " 100 Best Corporate Citizens ", a list that ranks public companies based on their corporate service to various stake holder groups. (Southwest.com)


• In December 2001, Satmetrix Systems named Southwest Airlines the winner of the Satmetrix Best Customer Satisfaction Award for the Transportation Industry. (Southwest.com)

1. How has Southwest managed to achieve such success? 
2. How will they maintain their competitive advantage over competitors? 
3. How will they overcome future obstacles? 

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

Fortune magazine has consistently recognized Southwest as one of the most admired companies and airlines in America and the world. Why is it that Southwest Airlines was the only airline to post a profit after September 11, and they are time and again among the highest rated airlines? The answer is, their strategy. Southwest Airline's strategy is beyond that of their competitors. Southwest's business model is one of the industry's strongest because of its discount fares, low operating costs, and the lowest debt-to-capital ratio among the major airlines. Their continued success despite the difficult economy can be credited to the company's streamlined operations ( Sloughton).

Colleen Barrett , the president and chief operating officer of SWA, has been a major factor in their success. She worked her way up from a secretary and is now the president. She was recently presented the Texas Business Woman of the Year award and is the highest ranking woman in the airline industry. She is quite team oriented and emphasizes having fun. For example, the flight attendants dress up in costumes on Halloween. She started a culture committee a decade ago, which is a group of employees and customers who travel the country, spreading Southwest's fun-loving attitude everywhere. In her own words, "its not a program, it's a way of life at Southwest." (Gee)

Southwest Airlines proposes that their mission statement highlights their desire to serve customers. It is important to them to have a high level of customer service in their industry. In fact they tell their employees, "We are in the Customer Service business-we just happen to provide airline transportation" (Southwest.com) . Their mission statement for high customer service has guided Southwest to have the number one cumulative consumer satisfaction record in the airline industry. 

Southwest has taken many actions to improve their Customer Service. One particular  action that Southwest airlines has taken is putting a maximum cap of $30 on its commissions for one-way ticket sales. This allows the customers and ticket buyers to get a lower price on air fair than most other airlines. Another way Southwest has tried to improve their customer service is providing special deals and discout rates. The purpose of these deals is to get customer's in the door and then charm them with their good customer service.

An example of SWA's extraordinary customer service is what happened to some nervous passengers on Southwest flight 247 from St. Louis to Salt Lake City right after the September attacks. The flight crews helped calm nerves and help stranded passengers. One letter to Southwest described a flight attendant who softly sang the national anthem over the intercom before takeoff. The customer wrote: "It was a moment I will remember always"(Sloughton). It is incidences like this one that sets Southwest apart from the others.

Web Site

Southwest has a web site that is clean and simple to its customers. In about four minutes you can purchase a ticket and clearly indicate which flights are non-stop, stops without aircraft changes, and stops with aircraft changes. They offer an option that allows you to plug in some alternative dates to find the lowest rates on airfare for the customers concerned with cost. The site also allows customers to save their information on purchases to make future purchases faster. (Strom)

The second half of Southwest's mission statement is Company Spirit. The company prides itself on hiring loyal staff members, with a flair for customer service, and pilots who will stoop to picking up trash after flights. Fortune Magazine has consistently recognized Southwest as one of the top ten places to work in America. Barrett says "We celebrate or recognize every significant event in an employees life, be it personal or work." (Gee)

Southwest has never laid off a worker in its 30 years of operating. Even after September 11, Southwest refused to lay off workers. Workers praise the company for trimming expenses without layoffs or flight reductions. "We are always made to feel comfortable that we are going to keep our jobs. I can't say I was ever worried about that," says Ron Jackson , an employee. Southwest's ability to avoid layoffs last fall has probably raised employee loyalty and improved its productivity, which is already considered among the strongest. (Staff)

Southwest Airline's strategy can be analyzed using the Strategic Management Framework . In the Strategic Management Model a series of five steps are illustrated to show the progression towards above average performance. These steps include, resources, capabilities, distinctive competencies, competitive advantage, and above-average industry performance. Each previous step must be acquired before moving up the hierarchy.

First of all Southwest has a strong base of resources . The Boeing 737 jets that Southwest flies, the fuel, the employees, the terminal that Southwest uses, and the experience of the airline are all key resources for the company. Southwest displays both tangible and intangible assets, which complete the resource step in the framework. The strong base of resources leads to the next step in the framework.

Southwest has capabilities, which thrive off of their resources. The capabilities of Southwest are what gives them the ability to have a business. These capabilities are formed from one or more resources. Southwest is able to fly because they have fuel, a plane, and a pilot to fly the plane. Furthermore, Southwest is capable of making a profit for their services to customers.

Southwest has capabilities that are rare. These capabilities are combined to form distinctive competencies. They include flying into secondary cities, which have lower cost gate fees and are less likely to cause flight delays. They also limit in-flight service and sell tickets directly to passengers. They don't assign seats so they can fill the plane faster and they do not offer meals or transfer baggage to another airlines connecting flight with reduces change-over times.

Southwest's strategy is to provide low-cost, on time service to the short haul traveler. A short haul traveler is one that is more worried about timeliness than additional services. A short haul traveler has unique, unmet needs and Southwest can serve them differently than other carriers, which target long haul travelers. For this reason it is not easy for other airlines to copy Southwest's strategy. This is Southwest's competitive advantage , which leads to the final step of the model, above average industry performance.

"Southwest is the only airline that has made money since 1973 with stock value up more than 500% since 1990" (1). Also, Southwest was the only airline to post a profit after the attacks on the World Trade Center. Southwest is able to compete with their market even though they are smaller because of their competitive advantage. This advantage leads to above average industry performance .

 Oil

Demand for oil in the first quarter was relatively low for the airline industry, due to the decreased air traffic, post September 11th. A rapid recovery is bound to take place in the second quarter with the key travel season of summer approaching. However the increases of oil prices is a complication for many airlines because of the high variable cost for the fuel expense (Markey). 

The recent Middle East crisis is raising oil prices, crude oil rose on the world market thirty two cents to $25.75 per barrel and the US market's oil has risen thirty eight cents to $26.73 per barrel on Friday May 3rd. Crude oil prices have already risen a quarter in the last two months alone (Foxnews.com).  Then, rising tensions in the Middle East pushed the April price for West Texas Intermediate past $27. 

Economist Gerald Cohen at Merrill Lynch & Co , states if the oil increase would have happened in the fall or winter, it would call for a big concern. He says, "Now, though, the U.S. economy is starting to stand on its own two feet, so higher oil prices are going to have less of an overall impact." This is good news for the airline industry (Stundza).

Security

Jeff Haag of Southwest Airlines describes the airline industry after the September 11th hijacking attacks, "I think the minute we found out that was a commercial airlines that actually hit the tower and it wasn't actually an accident,  which is what I think we all hoped at least had happened initially, we knew that our industry as we knew it was going to be changed forever." (Allen) Higher security in the airline industry means more time in the airports for many passengers. 
For Southwest airlines they have posted a list of arrival times for major national and international cities (Soutwest.com) Southwest is still working on improving time passengers spend in the airport, to continue having the competitive advantage over other airlines. 

Currently there are thirty new projects involved in reducing time since November. For other airlines, they expect to have equipment for detecting explosives in all checked baggage and smaller airports will even have bomb-sniffing dogs. Eventually, all aspects of airport security will be federalized. 

Airfares

"Our belief is that we will be able to stimulate new business travel because of our low fares in this long haul market. In fact, we are introducing this new nonstop service with a fare of only $99 each way" (Newswire.com), says senior vice president of marketing for Southwest Joyce Rogge . The airline industry will be competing for business in the key travel season of summer and fall. Beginning October 6, Southwest will add new daily nonstop flights along the East Coast in cities, such as Providence and Tampa Bay, Manchester and Tampa Bay, and Manchester and Orlando.   

Other airlines, such as U.S. Airways , are planning on offering low airfares for the summer by lowering fares to attract leisure traveler(Newswire.com).  Three airlines Continental, US Airways, and Southwest have a difference of airfares for a round trip ticket from Columbus International airport to Orlando's International airport for July 15th thru July 25th. US Airways, the most expensive airfare was $483.00.6 Southwest was $254.00, while Continental was only $191.50. Southwest faces competition with rival airline Continental for the summer travel season, because of their low airfare prices.  

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1. Markey, Patrick.  "US airlines face quarterly losses over $ billion",March 12, 2002 from Forbes.com .
2. http://www.foxnews.com/story10,2933,51130,00.html, May 3, 2002.
3. Stundza, Tom.  "Higher energy prices won't stop U.S. economic recovery", May 2, 2002 from Lexis-Nexis.com .
4. Allen, John.  "Travelers see changed airline industry", March 11, 2002 from MSNBC.com .
5. US Airways
6. Southwest Airlines
7. Continental Airlines
8. "Southwest Airlines Initiates Its First Nonstop Transcontinental Flights", May 7, 2002 from PR Newswire .
9. "Summer Airfare Sale", May 1, 2002 from PR Newswire.
10. Staff and Wire Reports. "Southwest to Add 4,000 Jobs", February 19, 2002. Scottsdale Tribune.
11. Gee, Robert W . "Southwest AIrlines Chief is Flying High", February 23, 2002. Austin American-Statesman.
12. Heller, Jean. "Southwest Rules SKy at TIA", January 18, 2002. St. Petersburg Times.
13. Strom, David. "Learning From Southwest Airlines", August 8, 2001. Ecommerce in Action.
14. Sloughton, Stephanie. "Southwest AIrlines Finds a Patch of Blue in Troubled Skies," Decembet 23, 2001. The Boston Glob
15. Fortune Magazine