Business overview of Southwest Airlines Company

Business overview of Southwest Airlines Company Southwest Airlines Company is an American low cost airline. Although the airline industry is no longer experiencing the rapid growth it exhibited during the 1990’s; commercial air travel in the U.S. remains the preferred method of transportation for a majority of Americans due to cost-effectiveness and timesaving characteristics. Southwest is the largest airline in the world by number of passengers carried per year (as of 2009). Southwest maintains the third largest passenger fleet among all of the world’s commercial airlines. As of May 3, 2009, Southwest operates approximately 3,510 flights daily. Southwest has its headquarters on the grounds of Love Field in Dallas, Texas. Southwest Airlines has carried more customers than any other U.S. airline since August 2006 for combined domestic and international passengers according to the U.S. Department of Transportation’s Bureau of Transportation Statistics. Southwest Airlines is one of the world’s most profit able airlines, posting a profit for the 37th consecutive year in January 2010. Southwest’s successful business model involves flying multiple short, quick trips into the secondary (more efficient and less costly) airports of major markets, and using only one aircraft type, the Boeing 737. Key Issues Southwest’s most visible problem, as with all airlines, is the drop in demand for air travel the past 18 months. While fallout from the terror attacks gets part of the blame, Kelly (Southwest CEO) says more of it goes to general economic weakness and specifically the collapse of the late ’90s technology and telecom bubble. Environmental changes are also having effects on the Industry. Budget conscious business travelers used to love Southwest, not only for its prices, but because it was so easy to buy a ticket at the last moment, move from curb to gate in minutes and be on their way. New security procedures have taken away this added convenience and have even lengthe ned the lines. Southwest operates on a first come, first serve basis and the random gate screenings, which tends to target last-minute, one-way flight passengers (a description of most of Southwest’s passengers) places fliers in the position to have to fly in the much dreaded middle seat. Analysis Models The analysis of Southwest will cover an external analysis, an internal analysis, and a SWOT analysis. External models utilized will be The Five Forces Model of Competition, Driving Forces, and Industry Key Success Factors. Internal models utilized will be a Financial Analysis, and a Competitive Strength Assessment or SWOT Analysis. The Five-Forces Model of Competition Rivalry among firms (High) The extent to which rivalry exists will influence the overall profitability of the industry. Market concentration remains a significant factor affecting rivalry. In 1989, no single airline solely dominated the industry, but the eight largest carriers retained a total market share of 92 high traffic cities with high demand. In order to gain profits, airlines must beat out the competition by offering as much or more flights with time flexibility to a variety of destinations. Other factors contributing to rivalry include high fixed costs, excess capacity, low differentiation, price wars, and readily available prices via the Internet. Due to the nature of the industry, high fixed costs are expected. Contributions to fixed costs in the airline industry include the costs of planes, fuel, pilots, flight attendants, and additional staff for baggage and customer service. The need to meet government regulations and hire experienced employees can cost an airline company millions of dollars. Currently there has been excess capacity on many routes; as a result, airlines have been participating in price wars in order to attract customers at all costs. Minimal differentiation among airlines and switching costs for passengers also magnifies rivalry.