Southwest Airlines SWOT Analysis

 

Southwest Airlines
Southwest Airlines (Photo credit: Wikipedia)

 

Southwest Airlines SWOT Analysis

 

Strength Weakness
●    Firm operating strategy●    Strong fleet operations●    Dominant   market position in North America

●    Friendly   Staff

●    Best low   fare carrier

●    Largest airlines   in the world in terms of highest number of

passengers per year

●    40+ years in the industry and has achieved economies of

scale

●    Recognized as a great value   and excellent services

●    Flexible   working hours even though 82%   of employees are

unionized

●    Strong brand image

●    Highest daily   domestic departures than   any other commercial

U.S. airline

●    Contractual   obligations●    Declining profits and margins●    Heavy dependence on passenger revenues

●    Heavy dependence on a single producer –   Boeing

●    Conservative growth strategy – can also be a strength

●    Limited to 57+   cities domestically

●    Operates its own booking service

●    Lowest number   of morning flights in the   industry

●    Does not   offer segmentation (business flights, first   class, etc)

●    Space to carry freight and cargo is limited

●    There are   no formal union-management structures or processes

Opportunity Threat
●    Recovery of   US Airline Industry●    Acquisition   of Air Tran   Holdings●    Recovery of   US tourism

●    International Expansion

●    Longer flights are being introduced

●    Improved   customer satisfaction and value

●    Traveler   traffic is expected to grow   by 3.5% through 2019

●    United States of America is the   largest single market in the

world

●    Intense competition●    Regulation   restrictions●    Price fluctuations in petroleum markets

●    High unemployment and inflation keeps   travelers from flying

●    Joint ventures can negatively affect brand image

●    Failure to meet   shareholders expectations

 

 

 

Strength

Firm operating strategy

 

Southwest strength is on their point to point services. This allows for more direct non-stop trips, minimizing connections, delays an overall trip time. This strategy allows Southwest to provide it’s customers with more flights and lower fares. Southwest also serves less congested airports such as Dallas Houston, Oakland, and  Ft. Lauderdale which enables them to achieve their high rate of on time performance.

 

Strong fleet operations

 

Southwest has a strong fleet base that enable them to service 68 cities in 35 states throughout the United States. They operate fleet of 537 Boeing

737 aircraft, of which 88 and 9 were under operating and capital leases, respectively. The remaining 440 aircraft were owned by Southwest.

 

Dominant market position in North America

 

Southwest is the largest domestic carrier by total passengers, carrying over 101.3 million passengers in 2009. In FY2009, Southwest recorded revenue passenger miles and available seat miles of 74,456.7 million and 98,001.5 million, respectively. In 2009, the company ranked second in North America in terms of number of passenger carried, first being Delta Air Lines. Dominant market position provides a competitive advantage to the company over its peers in North America.

 

Friendly Staff

 

Southwest Airlines’ Employees philosophy includes eleven primary attitudes:

●    Employees are number one. The way you treat your employees is the way they will treat your customers.

●    Think small to grow big.

●    Manage in the good times for the had times.

●    Irreverence is okay.

●    It’s okay to be yourself.

●    Have fun at work.

●    Take the competition seriously, but not yourself.

●    It’s difficult to change someone attitude, so hire for attitude and train for skill.

●    Think of the company as a service organization that happens to be in the airline business.

 

 

 

 

●    Do whatever it takes.

●    Always practice the Golden Rule, internally and externally.

 

 

Best low fare carrier

 

Southwest Airlines is the nation’s leading, and largest, low-fare airline. They are the only airline that offer fully refundable ticket and also do not require advance purchases which enable passengers to make changes to their travel plans.

 

Largest airlines in the world in terms of highest number of passengers per year

 

Southwest operates more than 3,300 flights a day coast to coast, and is the largest U.S. carrier based on domestic passengers boarded as of

March 31,2011, as measured by the U.S. Department of Transportation

 

 

40+ years in the industry and has achieved economies of scale

 

Southwest airline celebrated their 40th Anniversary on June 18, 2011.During this period Southwest went from servicing only cities in Texas to now servicing 68 cities in the continental United States.

Recognized as a great value and excellent services

 

Southwest Airlines Received the 2011 Quest for Quality Award for Excellence in Air Cargo from Logistics Management magazine;

ranked first in on-time performance, value, and customer service.

 

 

Flexible working hours

Even thought 82% of Southwest airlines employees are unionized their labor relationships have been very positive.

 

Strong brand image

Southwest enjoys a strong brand image by no charging it’s customers to check their luggage and by their aggressive ad campaigns.

 

Highest daily domestic departures than any other commercial U.S. airline

Southwest currently has flies to 68 cities in 35 states.

Weakness

 

 

 

 

Contractual obligations

Southwest has significant contractual obligations and commitments mainly with future purchases of aircraft, payment of debt, and lease arrangements. Southwest experienced a lowering of its credit rating from a BBB+ to BBB based on lower demand in 2009.  Both of these contributed issues had a impact on its ability to gain new financing as well as plans for expansion.

 

Declining profits and margins

As with all the airlines, Southwest experienced declining profits and margins due to the lowering of demands in travel beginning with

2007 – 2009. This had a direct affect on  their net profit margins during this time.

 

Heavy dependence on passenger revenues

In 2009, the company derived only 1.1% of its revenues from freight operations, compared to 95.6% and 3.3% from passenger transport and other operations, respectively. Southwest continues to depend heavily on its passenger revenue and have no intention on increasing it’s cargo revenues. This makes its profit margins open to high risk in an environment with volatile fuel costs and customers who are not ready or able to fly.

 

Heavy dependence on a single producer (Boeing)

Southwest Airlines is currently the largest single purchaser of Boeing 737s. Southwest Airlines’ single aircraft strategy may make it dependent on Boeing.

 

Conservative growth strategy

Southwest airlines have always believed in conservative growth tactics which have helped them in the past but in today’s economy it needs to figure out a more aggressive approach to growth to keep in line with its competitors.

 

Limited to 68+ cities domestically

Southwest needs to focus on growth domestically if they plan on succeeding in this new environment.

 

Operates its own booking service

They handle all the airline booking themselves, this does not lend itself to all the people who use a search engine line Orbitz, Price

Line, Kayak etc….

Does not offer segmented seating options (business flights, first class, etc)

 

 

 

 

Southwest does not offer first class seats on any of their airplanes. All seats are standard, first come, first served.

 

Space to carry freight and cargo is limited

Southwest airlines carry a small amount of freight and cargo because of the regulation of how much their plans are allowed to carry. And because they use only on kind of airplanes it is hared it increase it.

 

There are no formal union-management structures or processes

There are no formal union-management structures or processes for consultation and representation beyond negotiations and grievance procedures. Although management keeps the union representatives informed of all company-wide developments.

 

Opportunity

 

 

 

Recovery of US airline industry

As the US airline industry is recovering from the economic downturn of 2008 and 2009, the airline industry has seen consistent increases in passenger traffic in 2010 and 2011 and this trend is expected to increase through 2014. Therefore Southwest Airlines should see revenues increase through 2014.

 

Acquisition of AirTran Holdings

In September 2010, Southwest entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings for a combination of cash and Southwest’s common stock. AirTran Holdings is the parent company of AirTran Airways, one of the largest low cost scheduled airlines in the US. The acquisition will significantly expand Southwest’s low-fare service in many more domestic markets.

 

Recovery of the US tourism industry

The US tourism industry faced many challenges due to the global economy crisis. The future is bright for domestic travel with growth in US tourism expected to be between 3 – 4 % in the next 2 years. Southwest Airlines is in line to take full advantage of this opportunity.

International expansion

 

 

 

 

Southwest is expanding its operations to Mexico with the launch international service. In October 2010, the company announced the commencement international flights to five Mexico Cities in partnership with Volaris, an airline company based in Mexico.

 

Longer flights are being introduced

Southwest is looking to take full advantage of fuel efficiency and aerodynamics and is hoping to introduce long flights at lower fares in the near future.

 

Improved customer satisfaction and value

Southwest Airlines currently operates six Customer Support and Services Centers in Albuquerque, Chicago, Houston, Phoenix, Oklahoma City, and San Antonio. Southwest airlines has got a lot of reconnection because of the extraordinary services that they provide to their customers like:

●    Southwest Airlines has consistently received the lowest ratio of complaints per passengers boarded of all major U.S. carriers

that have been reporting statistics to the Department of Transportation (DOT) since September 1987, which is when the DOT

began tracking Customer Satisfaction statistics and publishing its Air Travel Consumer Report.

●    Named the Stevie Award Winner fro the Company of the Year-Transportation by the International Business Awards for

outstanding performance and customer service.

●    Received the 2011 Quest for Quality Award for Excellence in Air Cargo from Logistics Management magazine; ranked first in

on-time performance, value, and customer service.

●    On June 21, 2011, the American Customer Satisfaction Index named Southwest to the top spot on its Transportation Index for

Customer Satisfaction.

●    In May 2011, Southwest Airlines was ranked as one of the top ten companies in MSN Money’s 2011 Customer Service Hall of

Fame.

●    In May 2011, Consumer Reports ranked Southwest Airlines as the Top Airline in Customer Service.

●    In March 2011, Keynote Competitive Research ranked southwest.com first in its 2011 Customer Experience survey for travel

web sites.

●    In February 2011, Southwest Airlines was featured in J.D. Powers list of 2011 Customer Service Champions.

●    In November 2010, the Zagat Airline Survey ranked Southwest Airlines #1 in the following categories: Top Website; Best

Customer On-Time Estimate; Best Luggage Policy; Best Value; and Best Checkin Experience for Domestic Airlines.

 

 

 

 

Traveler traffic is expected to grow by 3.5% through 2019

The US domestic market will maintain the dominant share of the total North American market at about 95% of the total RTKs.

 

United States of America is the largest single market in the world

 

The United States is the largest market in the world and accounts for 33%  of scheduled RPMs. The future growth in this country looks promising for Southwest since they are based and operate in the United States.

 

 

 

 

Threats

 

 

 

Intense competition

The US airline industry is highly competitive.   Southwest competes on the basis of price, customer service, costs, frequency and convenience of scheduling, frequent flier benefits, efficiency and productivity. Its two major competitors are American Airlines and Delta Airlines. Increased competition may have material adverse effect on the company’s results of operations, financial condition and liquidity.

 

Regulatory conditions

As an interstate air carrier, the company is subject to the economic jurisdiction, regulation and continuing air carrier fitness requirements of the Department of Transportation (DOT), which include required levels of financial, managerial and regulatory fitness. To provide passenger transportation in the US, a domestic airline is required to hold a “Certificate of Public Convenience and Necessity” issued by the DOT.

Also, the company is subject to the jurisdiction of the Federal Aviation Administration (FAA) with respect to its aircraft maintenance and operations, including equipment, ground facilities, dispatch, communication, training, weather observation, flight personnel and other matters affecting air safety. The company incurs substantial costs in maintaining certifications and otherwise complying with the laws, rules and regulations. The increased regulations by the DOT and FAA or comparable agencies in the US may increase significant additional costs to the company and impose restrictions.

 

 

 

 

Price volatility in petroleum markets

The demand for petroleum and related products has historically been cyclical and sensitive to the availability and prices of oil and related feedstock. Fuel prices and availability are subject to wide price fluctuations based on geopolitical issues and supply and demand, which can neither be controlled nor accurately predicted. Fuel has been one of the largest operating expenses for the last several years. The volatility of global and regional oil prices exposes the company to extreme fluctuations in earnings, which is likely to have an adverse consequence on its growth initiatives. Any inability to obtain jet fuel at competitive prices would materially have an impact on the Southwest’s results of operation and financial condition.

 

High unemployment and inflation keeps travelers from flying

As we have seen in the past few years most people cannot afford to fly simply because of the high rate of unemployment and the cost of basis needs on the rise. Economic growth has been slow and inflation has been on the rise. This is a major factor in keeping passengers from flying.

 

Joint ventures can negatively affect brand image

Any joint venture can affect your brand image. Especially when negative publicity is involved. Southwest has entered into joint ventures with Volaris and is now hoping to purchase Air Trans. These could negatively affect their brand image.

 

Failure to meet shareholders expectations

Failure to meet shareholder expectations can cause the market value of the company’s stock to decline, making it more expensive for the company to raise money or acquire other companies using its stock. This pressure to meet short-term goals can tempt management to forgo necessary long-term planning when it includes present-day sacrifices that will be reflected in the company’s quarterly reports.

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One thought on “Southwest Airlines SWOT Analysis”

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