strategic management southwest airlines case study

A unique take on Southwest Airlines Strategy

Anyone who has studied business management either as a degree or as an elective would have definitely studied Michael Porter’s 5 Forces framework. This framework was first published in  Harvard Business Review  in 1979. The model is very much relevant in 21st-century business as well due to its deep 360-degree view of a business.

One of the 5 forces is called “Barriers to Entry” and more often than not either Oil & Gas or Airline industry would serve as an apt example of an industry with very high barriers to entry due to its high Capex and Opex requirements.

But wait, then with so many barriers to entry, why do airlines still bleed red? There are many reasons for this, but one of them is stiff competition with low-cost carriers, the 5th, and the framework’s central force (competition among the players).

Before we move on, the below is an interesting tweet response from Anand Mahindra, on being asked to buy the ailing “ Jet Airways ”.

Remember the quote: “If you want to be a millionaire, start with a Billion dollars and then start (buy) an airline!” https://t.co/dYRdwup3kK — anand mahindra (@anandmahindra) June 29, 2019

The US Airline Industry

Following the 9/11 attacks, the US airline industry has been through rough weather. 20+ airlines have filed for bankruptcy protection under Chapter 7. 60+ airlines have filed for bankruptcy protection under Chapter 11.  This list also includes the top 3 out of 4 airlines namely, American Airlines, United & Delta Air Lines, however they were able to exit the bankruptcy within a few years.

The landscape has been constantly changing with a high volume of mergers and acquisitions, resulting in changing market share statistics.

The graph above covering the period January to December 2020 showcases that the top 4 airlines constitute approx. 65% of the market share.

In this story, we are focusing on Southwest Airlines that was founded on the notions of the low-cost carrier but with its unique strategy has been profitable for the last 45 years in a row. 

The takeoff strategy of Southwest Airlines

Southwest Airlines Co. , typically referred to as Southwest, is one of the United States’ major airlines and the world’s largest low-cost carrier airline. The airline was established on March 15, 1967, by  Herb Kelleher  as Air Southwest Co. and adopted its current name, Southwest Airlines Co., in 1971, when it began operating as an intrastate airline wholly within the state of Texas first flying between Dallas, Houston and San Antonio. 

Most airlines back in the 1960s followed the most popular “Hub and Spoke” model for their operations.

Hub and Spoke model – As the name suggests, there is a defined hub from where the flights originate, and the destinations are the spokes.

The benefit of a hub and spoke model is that it has fewer routes, but the major drawback of this model is its rigidity, and if there is a slight change in the airline routing due to weather, etc., it can have cascading consequences to the other planned flights.

Point to Point model – Southwest, being a low-cost carrier, focused more on the point to point model and bought significant process improvements, in a way mastered it to achieve very high operational efficiency.

In the point-to-point model, each flight is a single journey. The origin and destination are connected via a single non-stop flight. The point-to-point model offers more travel options and flexibility as compared to the hub and spoke model.

For passengers undertaking further journeys, they will have to collect the baggage and recheck them for leg 2 of their journey. This model has considerably led to saved travel hours and done away with the necessity for connecting flights.

Key Differentiating Factors in Southwest Airlines Strategy

Southwest airlines is the third largest airline in the United States of America and arguably the biggest in the low-cost carrier segment across the globe.

So, was the operational efficiency gained due to the change in the flight operations model the only reason why Southwest airlines is the #1 low-cost carrier in the world?

NO, let’s understand what differentiated Southwest airlines strategy from its counterparts.

Customer Eccentricity

For Southwest, they keep the customers at the center of their business operations. They offer certain benefits to flyers which are not offered by other airlines, like

• Southwest allows two checked-in bags, free of cost, unlike many of its competitors.
• Flight change thirty minutes prior to the departure is allowed by Southwest.
• Southwest offers free in-flight entertainment like Live TV, Movies, use of whatsapp and imessage. It offers Wi-Fi services at very nominal rates.

All these have resulted in Southwest being the airline with the least number of complaints, according to the Department of Transportation of the United States of America.

Only one type of aircraft

Many airlines have different types of aircraft in their fleet, but not Southwest. Southwest operates by using only Boeing 737 aircraft. It saves a lot of money by:

• Training cabin crews and support staff on only one type of aircraft.
• Maintenance of inventory of spare parts for one aircraft type.
• In case of breakdown, alternate aircraft can be arranged immediately.
• Its policy of not assigning seats helps tremendously as customers can take any available seat when boarding the aircraft, thereby reducing the boarding time. In the case of alternate aircraft also, this policy hugely benefits the airline reducing the turnaround time.

Right recruitment policies

Southwest stresses a lot on the customer experience and hence it is very imperative for the airline to hire the right kind of people. Southwest focusses on hiring people who have an attitude for serving customers.

Employees undergo various pieces of training which also includes cross-training. Training is heavily centered around team building and collaboration.

The Southwest Airlines case study is a lesson in cultural strategy. An organization built on the fundamentals of customer eccentricity, effective processes, and a dedicated team is meant to achieve success and overcome challenges. This model of exceptional customer service can help a business earn an impeccable reputation in the industry. That’s what makes the Southwest model uniquely priced, yet one profitable in this cruel airline industry.

Southwest’s ability to be different and not follow the herd—not to mention becoming America’s largest airline—can be traced in large part to the Airline Deregulation Act. Thanks to this act, Herb and Rollin realized their Vision and the traveling public benefits on every flight, every day. Gary Kelly, Chairman & CEO, Southwest Airlines

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Business Model Pioneers pp 171–184 Cite as

Pioneer in the Skies: The Case of Southwest Airlines

• Kai-Ingo Voigt 4 ,
• Oana Buliga 4 &
• Kathrin Michl 4  
• First Online: 29 July 2016

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Part of the book series: Management for Professionals ((MANAGPROF))

Southwest Airlines is a somewhat different example of a business model pioneer—and indeed, one may ask if the company is a pioneer at all: neither was Southwest the first to offer intrastate flights on its home market, Texas, nor was it the first to experiment with low-cost flights. But while the other companies were merely experimenting, Southwest developed a business model, which proved its sustainability over the course of more than four decades. By starting operations in 1971, Southwest faced from the very beginning harsh competition from incumbent airlines. This inspired the young company to create its very own business model—and unlike its main competitors at the time, the airline remains profitable until today. Winning this race made Southwest a prime example of a pioneer in the low-cost airline industry.

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Voigt, KI., Buliga, O., Michl, K. (2017). Pioneer in the Skies: The Case of Southwest Airlines. In: Business Model Pioneers. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-319-38845-8_14

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Case Study: Profitability Takes Flight, Southwest Airlines Unique Business Model Unveiled

Southwest Airlines is a renowned American low-cost airline established in 1967 and has since become one of the industry’s most successful and profitable carriers.

With its headquarters in Dallas, Texas, Southwest operates an extensive domestic network, serving more than 100 destinations across the United States.

Significance of Profitability in The Airline Industry

Profitability is a critical aspect of any business, and the airline industry is no exception. Achieving consistent profitability is a significant challenge in an industry characterized by intense competition, volatile fuel prices, and economic uncertainties.

However, Southwest Airlines has managed to stand out from its competitors with its unique and highly successful business model.

Southwest Airlines’ Unique Business Model

Southwest Airlines was founded on providing customers with low-cost, efficient, and reliable air travel.

From the outset, its founders aimed to differentiate Southwest from traditional carriers by implementing a business model that focused on simplicity, operational efficiency, and a strong emphasis on customer satisfaction.

Critical Elements of the Business Model

Here are the key elements of Southwest Airlines’ prestigious business model:

Low-cost operations

Southwest Airlines has distinguished itself as a low-cost carrier by implementing various cost-saving strategies.

These include utilizing a single aircraft type (Boeing 737) to simplify maintenance and training, operating from secondary airports to reduce fees, and minimizing unnecessary frills such as assigned seating and in-flight meals.

High Aircraft Utilization

Southwest maximizes the utilization of its aircraft by keeping them in the air for a significant portion of the day.

Quick turnarounds, efficient boarding processes, and high aircraft utilization rates contribute to cost savings and increased revenue potential.

Point-to-Point Routes

Unlike traditional hub-and-spoke models that many airlines employ, Southwest’s point-to-point route system allows direct flights between smaller airports, reducing transfer times and increasing operational efficiency.

This approach also enables Southwest to serve niche markets and respond quickly to changing demand.

Customer-Centric Approach

Southwest Airlines places a strong emphasis on customer service and satisfaction. Southwest has built a loyal customer base with its “Bags Fly Free” policy, no change fees, and friendly customer service.

The airline strives to provide a hassle-free and enjoyable flying experience, differentiating itself from competitors.

Efficient Workforce Management

Southwest focuses on building a stable and motivated workforce. The company’s employee-friendly policies and positive company culture have resulted in high employee satisfaction and productivity.

The airline’s efficient workforce management contributes to operational efficiency and cost control.

Case Study: Southwest Airlines’ Profitability

Southwest Airlines has consistently reported profits for several consecutive years, even during industry downturns and economic challenges.

This remarkable achievement sets Southwest apart from many other airlines struggling to maintain profitability.

Factors Contributing to Profitability:

Many different elements are responsible for the continuous progress of the airline. Some of the critical factors that played a crucial role in Southwest Airlines’ profitability include the following:

Strategic Route Planning

Southwest strategically selects routes that align with its business model, focusing on high-demand and high-frequency routes.

This approach allows the airline to optimize revenue potential while minimizing operational complexities.

Cost Leadership and Operational Efficiency

Southwest’s relentless focus on cost reduction and operational efficiency has significantly driven its profitability.

The airline maintains a competitive advantage in the industry by keeping costs low and implementing efficient operational practices.

Revenue Management Strategies

Southwest employs effective revenue management strategies, including dynamic pricing and capacity management.

These strategies ensure optimal seat utilization and maximize revenue per available seat mile (RASM).

Strong Customer Loyalty and Brand Reputation

Southwest’s commitment to customer satisfaction has resulted in a strong brand reputation and customer loyalty.

Repeat business and positive word-of-mouth recommendations contribute to sustained revenue and profitability.

Challenges and Limitations of Southwest’s Model

Here are some challenges and limitations faced by one of the most successful Airlines in the United States. 

Vulnerability to Fuel Price Fluctuations

Like any airline, Southwest is exposed to the volatility of fuel prices. Increases in fuel costs can significantly impact the airline’s profitability, as fuel represents a substantial portion of its operating expenses.

Fluctuations in fuel prices require Southwest to employ effective fuel hedging strategies and closely monitor its fuel efficiency to mitigate risks.

Limited International Presence

While Southwest has been highly successful in the domestic market, its international operations could be more extensive.

The airline primarily focuses on serving domestic destinations, which may pose challenges in expanding its market reach and tapping into lucrative international markets where competition may be fierce.

Potential Risks of Focusing On the Domestic Market

Relying heavily on the domestic market exposes Southwest to potential risks associated with economic fluctuations, regulatory changes, and geopolitical events that could impact domestic air travel demand.

Diversifying its operations to include more international destinations could mitigate these risks.

Southwest Airlines’ Response to Challenges

Fuel Hedging Strategies

Southwest employs fuel hedging strategies to mitigate the risks associated with fuel price fluctuations.

These strategies involve entering into contracts to secure future fuel purchases at predetermined prices, reducing the impact of sudden price increases.

Expansion of International Routes

Recognizing the growth potential in international markets, Southwest has gradually expanded its global operations.

By adding more international destinations to its network, the airline aims to diversify its revenue streams and reduce reliance on the domestic market.

Mitigation Plans for Market Risks

Southwest monitors market trends, economic indicators, and regulatory changes to adjust its operations and strategies proactively.

The airline maintains an elegant approach, quickly adapting to changing market conditions and mitigating potential risks.

If you want to know further, an inclusive case study solution can help you the right way.

Southwest Airlines case study solution , written by experts, lets you take a comprehensive look into the airline’s history, profitability model, challenges, how they tackled them, and many other aspects.

Conclusion:

Southwest Airlines has established a unique and highly successful business model that centers around low-cost operations, efficient utilization of resources, and a customer-centric approach.

Its focus on simplicity, operational efficiency, and customer satisfaction has contributed to its profitability and competitive advantage in the airline industry.

Southwest Airlines’ profitability stands out in an industry often plagued by financial challenges.

The airline’s ability to consistently generate profits can be attributed to its distinctive business model, which enables cost leadership, operational efficiency, and strong customer loyalty.

Southwest’s success serves as a valuable case study for the airline industry. It highlights the importance of innovation, adaptability, and a customer-centric approach in achieving profitability and sustainable growth.

Other airlines can learn from Southwest’s strategies and consider adopting elements of its business model to enhance their own competitiveness and financial performance.

Read more case studies here .

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This is a popular strategy case, based upon a survey of strategy instructors. Click on the Publisher link below to go to the distributor's case page.

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Case description by publisher

This case describe human capital management at Southwest Airlines and its role in creating a high-performing organization.

Page West comments

Students have strong opinions about airlines in general and we have found that they really like Southwest Airlines. We use this case in two ways. The first is as a resource-based analysis (Chapter 6) examination where the students are asked to determine what Southwest’s competitive advantages are and how they are sustainable. Despite many attempts over the years, other carriers have had a very difficult time achieving the Southwest magic. As the case points out, much of that is founded in their approach to employees, level of responsibility and authority as well as a leadership that is committed to the system. The second approach is to use the case for a value chain analysis (Chapter 5) where the students develop the Southwest value chain model and then compare that model to one or more of the legacy airlines. The differences are glaring and the students really marvel at the usefulness of value chain as a technique.

The following questions may be asked as prep for the class discussion:

• How does Southwest consistently make money when other legacy carriers don’t?
• Should Southwest consider modifying their business model to fly longer flights between busier airports?
• How should Southwest respond to competitors which are also beginning to go down the discount airline path?

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Home » Management Case Studies » Case Study: Southwest Airlines Competitive Advantages

Case Study: Southwest Airlines Competitive Advantages

For most of the last fifteen years, the U.S. airline industry has been one of the least attractive to be in. Following the 1978 deregulation of the industry, twenty-nine new airlines entered the industry between 1978 and 1993- This rapid increase in air ­line carrying capacity led to a situation of overcapacity. As more and more airlines chased passengers, fares were driven down to levels barely sufficient to maintain the prof ­itability of U.S. airlines. Indeed, twice since 1978 the indus ­try has been engulfed in an intense price war–first in the1981-1983 period and then again in the 1990-1993 period. So intense did the com ­petition become during these two periods that in 1982 the whole industry lost $700 million, while in the 1990-1992 period the industry lost a staggering $7.1 billion, more than had been made during the previous fifty-year history of the industry.

Despite the obviously hostile nature of this industry, one company, Southwest Airlines, has not only been consistently profitable but also has been its performance improve during years when its competitors were wallow ­ing in red ink. Southwest is a regional airline with a major presence in Texas. In 1992, when every major U.S. airline except Southwest lost money, Southwest actually reported a sharp jump in its net profit to $105.5 million on rev ­enues of $1.68 billion, up from $26.9 million on revenues of $1.31 billion in 1991.

Southwest is profitable because of two factors: its low costs and the loyalty of its customers. Its low costs come from a number of sources. Southwest offers a no-frills approach to customer service. No meals are served on board, and there are no first-class seats. Southwest does not subscribe to the big reservation computers used by travel agents because it deems the booking fees too costly. The airline flies only one type of aircraft, the fuel-efficient Boeing 737, which keeps training and maintenance costs down. Southwest’s customer loyalty also comes from a number of sources. Due to its low cost structure, Southwest can offer its customers low prices, which builds loyalty. Southwest also has a reputation for being the most reliable carrier in the industry. It has the quickest turn ­around time in the industry (it takes a Southwest ground crew just fifteen minutes to turn around an incoming a craft and prepare it for departure), which   helps keep flights on time. The company also has a well-earned reputation for listening to its customers. For example, when five Texas medical students who commuted weekly to out-of-state medical school complained that the flight them to class fifteen minutes late, Southwest moved the departure time up fifteen minutes. In addition, South west’s focused route structure (it serves just fifteen states, mostly in the South) has helped it build a substantial regional presence and avoid some of the cutthroat competition that the nationwide airlines have to grapple with.

Last but not least, the airline has a very productive work force. Southwest Airlines’ People Department, is touted as the crux on their groundbreaking route to success in the airline industry, and there is no question that both the ingrained and manufactured personality traits along with the both the innate and encouraged behavior patterns of Southwest employees have been an important factor in their recent success, however their true competitive advantage lies in the simplicity and streamlined nature of their product and operation.  Southwest’s original business plan to dominate in the interstate air traffic in both Texas and California was forced upon them by the actions of their competitors, and it was at this time in the company’s history that the underdog/scrapper nature of their employees, especially Herb Kelleher, the CEO, really made a huge impact. Kelleher even compared himself at the time to a medieval crusader, which shows the depth of his passion and commitment to his company. When Southwest was faced with such a daunting uphill climb to be competitive in the industry, that unique spirit that is still highly-valued was crucial to their success in the introduction and growth phase of the company. That spirit provided the inspiration for extremely high levels of organizational commitment Southwest needed for employees to struggle for years to achieve even the beginnings of a successful airline. Employees felt, and still feel, like they had true ownership in the company and that their behaviors and attitude on a daily basis led to the company’s success. Though these feelings have proven to be helpful it is Southwest’s very targeted business plan and their slow expansion that is their advantage. Southwest choose to be the best at what they were “given” in the early 1970’s, they threw everything at it with a crusader’s commitment and it worked. Then by maintaining their low cost, no frills beginnings as they unhurriedly expanded the continued underdog attitude has worked because essentially as Southwest expands they are underdogs in the markets they are joining. Their competitive advantage is their business model, a difficult one to initiate and maintain in the airline business therefore they need the unique employee spirit to implement such a difficult strategy. For example, their pilots work more hours for less pay but their commitment to making the Airline a success and the feelings generated by the organizational commitment of upper management and their colleagues make that extra work fulfilling because the pilots are conditioned to feel they themselves and their actions are crucial to Southwest’s triumph.  In addition, Southwest operates a gener ­ous stock option plan that extends   to all employees. As a result about 10 percent of the airline’s stock is owned by its employees, which gives them an additional incentive to work hard.

Case Discussion Questions

• What does the success of Southwest Airlines tell you about the relative importance of industry company-specific factors in explaining a con performance?
• What   is the basis of Southwest Airlines competitive advantage? How might it lose that advantage?

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Southwest Airlines Success : A Case Study Analysis

2011, BVIMR Management Egde, Vol. 4, No. 2 (2011) PP 115-118

In this cut throat competitive era service firms may survive with innovative strategies with reference to people, process and physical evidence that differentiate their services from their competitors. The key objective of this paper is to highlight the strategies of Southwest airlines that facilitated it to produce a successful model in airlines industry that was benchmark for the entire world. Paper enlightens that if a service firm gives priority to its employees than customers, it automatically serves customers in better way as services of a company are given through employees and employees’ delight is customers’ delight in service sector.

Related Papers

hasan ahmed

This article analyzes the sources of Southwest Airlines' competitive aduantage using an integrative approach, employing economic analysis tools to illustrate the roles of commitment and organizational capabilities in delivering competitive advantage at Southwest. A framework is presented illustrating that much of the value Southwest generates is (1) created through employee needs satisfaction, (2) converted to customer and shareholder value via organizational capabilities, and (3) captured by the firm as a result of its cost advantage and superior service. This three-part framework may be applicable to other labor-dependent service organizations.

Dr Kasturi Naik

Purpose: A need has arrived for the airline industry to go beyond offering price discounts, tour packages and air miles to enhance customer experience. The research paper attempts to gain insight in how different customer delight strategies can be implemented by the airline industry to survive in the highly competitive global market'. Currently airline industry's customization is starting and ending at the booking platform (mobile/app/website/travel agent) and food preferences. As a result of advent in information, technology and communication customers are hoarded with public relations and marketing messages', social media advertisements and continuous repetitive mails. Time has come to go beyond the customer expectations and delight the tech savvy customers with the unexpected service excellence to gain and retain customer loyalty. Methodology: For this purpose a survey was carried out among customers who are frequent flyers of airlines in Mumbai catering to domestic a...

Proceedings of the Conference on Global Research on Sustainable Transport (GROST 2017)

sekar pratiwi

Business Strategy Review

Professor Jochen Wirtz

Managing Service Quality

kenan aydin

Recently, businesses have been competing each other with their high-tech investments and their technology. Especially, ın a service sector like airline services, ıt is so important to have a good equipment and great technology. According to this, the purpose of this research is to determine whether there is a significant difference between the consumers' service quality expectations and service quality perceptions. To achieve this purpose, the scale which was suggested by Parasuraman et.al(1988), was formed as 5 dimensions and 22 statements(Servqual), has been adapted for airline travel sector. This questionnaire was implemented to the passengers at İstanbul Atatürk Airport with a " face to face " method. Then collected data was analysed in SPSS 16 program.

International Journal of Management

IAEME Publication

The research reported in this thesis was on "Impact of Service Quality on CS in an Airline Industry". The purpose of research was to study the service quality impact of Pakistani Airlines on the customer satisfaction and to suggest measures to accomplish it on better lines. The secondary data was collected by consultation of literature in the libraries and Internet. The primary data was gathered by floating questionnaires and conducting interviews. SPSS software was applied to analyze data for frequencies regression parameters and cross tabulation the results were interpreted by usual principles of statistics. The findings suggested that out of five Seroquel attributes, four of them have significant impact on customer satisfaction in Pakistan: tangibility, responsiveness, reliability and assurance. However, empathy does not have significant impact on customer satisfaction. Thus, Pakistanis are more concerned about flight The Elements of Service Quality and Customer Satisfaction Role in Airline Industry of Pakistan http://www.iaeme.com/IJM/index.asp 582 [email protected] safety, reliable staff, comfortable cabin seats and quick response to their queries and less concerned about individual attention by cabin crew.

Dhruvi panchal

Nadeem Zahoor, Usama saddique , M.Shahid, Shabbir Hussain

Editor iajps

"Impact of Service Quality on Customer Satisfaction in the Airline Industry" was the title of this thesis. The study's purpose was to find out how Pakistani Airlines' service quality affects customer satisfaction and to suggest strategies to improve it. Secondary info was collected through searching the library and the Internet. Primary data was collected through floating questionnaires and interviews. The data was examined for frequencies, regression parameters, and cross tabulation using standard statistical procedures and SPSS software. Four Seroquel features, tangibility, responsiveness, reliability, and assurance, have a significant impact on customer satisfaction in Pakistan, according to the research. Empathy, on the other hand, does not appear to affect customer pleasure. As a result, Pakistanis are more concerned about flight safety, dependable people, comfortable cabin seats, and quick responses to their concerns than they are about individual cabin attendant attention. Keywords: empathy, assurance, reliability, tangibility, responsiveness, customer satisfaction.

International Journal of Aviation, Aeronautics, and Aerospace

Donna Roberts

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European Journal of Operational Research

Samuel Graves

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