Southwest Airlines Mingchi

8/10/2019 Southwest Airlines Mingchi

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John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Pract ices

SouthWest Airlines 2002:

An Industry Under Siege

Jason Chou-Hong Chen,Ph.D.

Visiting Professor, Mingchi University of Technology

Professor of MIS

Graduate School of Business, Gonzaga University

Spokane, WA 99258 USA

[email protected]


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Case Information

Discipline: Service management

Description: The company's management is faced with long-term questions regarding the rate and manner of growth in the

wake of the 9/11 attacks and general industry malaise. Learning Objective: To understand ways of achieving and

maintaining both a differentiatedand a low-cost serviceoffering.

Subjects Covered: Competition, Corporate culture, Servicemanagement, Strategy, Information Technology.

Setting: United States; Airline industry; $4 billion revenues;35,000 employees; 2002


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Why Study the Case?

The case provides a vehicle for analyzing one of those rarecompetitive strategies that literally change the rules of thegame for an entire industry. Historic information suggestshow the strategy was shaped. And detailed information inthe case helps the reader to understand both how Southwestmakes money while maintaining its low-cost advantage aswell as its differentiation from its competition, the result of awell-crafted strategic value vision.

The importance of effective leadership and astrong culturecapable of adapting in the face of major competitive threatsas well as external disasters, such as 9/11, is highlighted in

the case. It provides the basis for assessing the conclusion ofone major piece of research described in the next Exhibit,that Southwest Airlines has been able to preserve itscompetitive advantage primarily through its superiorrelationship management practices.


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John Wiley & Sons, Inc. & Dr. Chen, Information Systems Theory and Pract ices4

IS/IT Strategy Triangle

Each group:

Complete the case using Strategy

Triangle model


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Draw and explain how can the Information Systems Strategy

Triangle be employed in this case?

Organizational

Strategy

Business Strategy

IS/IT Strategy

Business Strategy:

Low cost

Differentiation/

Innovation

IS/IT Strategy:

SABRE

Kiosks

Website, online ticketing.

Online boarding passes

Organizational Strategy:

Sustainable growth

Teams

Fun/Friendly Culture

Frequent flightsRapid rewards

Point-to-Point


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Executive Summary Southwest Airlines in 2002 faced a serious of important

management decisions after the 9/11 tragedy in order tocontinue the record breaking company growth thatSouthwest had experienced since the 1970s. SouthwestAirlines revolutionized the airline industry with what is

known as the Southwest Effect: low cost fares,point-to-point service, 10 minute turnaround and an enjoyablefriendly atmosphere (all are with differentiation).

After the Airline Deregulation Act of 1978, Southwestadopted a policy that regardless of the profitability of

expansion opportunities, the company wanted to commit toa manageable annual growth rate of about 10-15%. Thefollowing questions and discussion will address thehistorical challenges of Southwest airlines, the direction thecompany contemplated in 2002, and a brief look at thechallenges of today.


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What other Model can beEmployed?


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What strategy and/or model was used or implemented in this case?

S.W.

Airline

Other Airllines

(USA routes

only)

NEWMARKET

ENTRANTS

SUPPLIERS

SUBSTITUTE

PRODUCTS

& SERVICES

CUSTOMERS

Threats

Bargaining power

N

Switching costAccess todistribution channels

Economies of scale

Redefine productsand servicesImprove

price/performance

Selection of supplerThreat of backward

integration

Buyer selectionSwitching costs

Differentiation

Cost-effectivenessMarket accessDifferentiation of

product or service


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The Southwest airlines case can be analyzed with Portersfive competitive forces model. Southwest airlines

benefited after the airline deregulation in 1971, and wereable to lay the groundwork for a successful airline.

Throughout their growth, Southwest differentiated fromthe competition by taking a friendly, warm and welcomingapproach to flying. Their low cost flights undercut the

competition, which would fit under the threat ofsubstitutes. Also, their reliability (differentiation)was thebest in the industry until September 11th, which helped toprevent the threat of substitutes.


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Suggested Study Questions

1). How does this company make money even when otherairlines do not? What are the most important contributorsto its financial success?

Southwest Airlines has built its reputation on low cost reliableservice. Over their tenure of 30 years in the airline industry,they have demonstrated 30 years of sustainable growth. Thereason Southwest has remained financially viable is theircommitment throughpoint-to-point service with a quick turnaround time. The more planes in the air and the less time on theground is a profitably business model. Also, Southwest hastailored to the business traveler who is looking for reliabilityand less hassles. Also, Southwest has a generous rapid rewardssystem that is easy to comprehend and helps retain customerloyalty. In addition, Southwest hires the best people andrewards them accordingly, in a fun, enjoyable atmosphere.Finally, Southwest negotiates fuel prices for their airlines yearsin advance allowing the company to keep their pricingconsistent.


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2). How should management respond to the fact that Southwest

Airlines has fallen to next-to-last place among major airlines in

on-time performance as of September, 2002?

Management faced many challenges due to the increase in securityregulations post-9/11. Southwest was fortune that it was a strong performer

prior September 11th, but many of the security regulations that soon afterwould be implemented, directly contrast with Southwest primary corecompetencies. For instance, Southwest initially had the colored boardingcards, which were generic without passenger names. Due to highestsecurity risk, passenger names had to be cross checked at the gate, causingdelays.

Also, Southwests motto, You are now free to move about the Countrywas directly targeting travelers who could walk onto the plane a fewminutes before takeoff because Southwest would keep the doors open toallow for passengers to keep filing in. Again, this was against new security

measures. Also, since many of Southwest passengers did not generallyarrive as early as other airlines, more often than not, Southwest passengerswould be subject to security searches. Also, random security searches were

being conducted at the gates as well which Southwest actually stepped up tohelp mitigate delays by hiring more security personnel.


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3). Once operations are fully stabilized, would you

recommend to the management of the airline that it resume its

historic growth rate of from 10? To 15? Per year? Why?

I would recommend that Southwest continue to grow at 10to 15 percent per year but no more. Companies such asWal Mart and McDonalds, if their growth is too large, too

quickly, their presence can be filled with resentment fromcustomers because they have pushed out other competition.

At 10-15 percent growth, airports and cities will still askfor Southwest to expand into their areas, and it will be aslow, calculated and sustainable growth, as opposed to one

that moves the company away from its core competencies.


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5)

N/A since, a 10-15 % increased is

recommended.


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6). What are the implications for Southwest of the actual or

threatened bankruptcies of other major U.S. airlines?

Southwest is in a precarious position because they areprofitable. Through 30 years of diligence, determination andstrategic efforts, Southwest is a very popular and profitableairline. The trouble is that in the event of a government bailoutof other airlines due to bankruptcy, then Southwest is almost

hindered because the other airlines will be handed largegovernment checks.

The benefit here though to Southwest is the ability they have tocontinue to be profitable, continue to build investor relationsand continue to reward their hard working employees. Since

9/11, many airlines have eliminated pensions, terminatedemployees and taken very drastic measures to stay afloat.Southwest has been fortunate, and although a bailout of otherairlines may not seem fair, Southwest still is in the black andhas the ability to continue to push forward to gain more marketshare and continue its excellent track record of profitability.


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7). What is IS/IT role played in the case?

The IS/IT role played in this case was one thatkept Southwest competitive in a challengingindustry. Southwest used a reservation system,website and check in kiosks (was the first airlineused ticketless system), Southwest was able to helpcounter the challenges posed after September11th.

Southwest was revolutionary in the airlineindustry in many of their IT developments andwere quick to move to the online e-commercemodel as far as a reservation system and ticketing.


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8) Why have profits for Southwest Airlines dropped

recently?

Upon further review of Southwest Airlineswebsite and other sites, I have been unable to findevidence that profits have dropped. Looking attheir traffic and revenue numbers throughout2006, it appears that traffic counts and revenue isup for Southwest however, Southwest has alwaysnegotiated their oil hedge prices years ahead.

Perhaps due to drastic increases in oil prices, this

could be hurting Southwests bottom line. Also,Jet Blue has gained popularity as a low costalternative which may be threatening Southwestsmarket share.


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Southwest today

Fleet consists of 547 Boeing 737s

Employees nearly 35,000 people

Serves 72 cities in 37 states

Just experienced its 38thconsecutive year

of profitability


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Further Lessons Learned:

SWA Case and Strategic Resource Model

One of the differentiation from SWA is its

corporate culture

What characteristics in Strategic Resource

Model that are related to the corporate culture

of SWA that improves/creates its competitive

advantage

Non-imitable

Non-transferable

Rare

Exploitable

Documents

Southwest Airlines Mingchi