Southwest Airlines 2011

By: Mayank Kashyap Alpesh Dalwadi Rahul Agarwal Rajeev Aggarwal

Aviation Sector in US
Industry is deregulated Competition and lower fares led to gr expanded demand for airline travel. The average price to fly dropped by more than 50% since deregulation Travel increase from 200 m in 1974 to 700 m in 2007 80% of airline operating costs were fixed or semi variable.

Southwest Airlines
Formed in 1966 by Herb Kelleher and Rollin King Initially started in 3 cities,3 aircraft and 25 employees Current size 544 aircraft 35,000 employees and 69 cities Never gone in red Operated on low cost model Highest operating margin

PESTEL Analysis
Political: Deregulation of industry and events like 9/11 have a severe effect on functioning of airline industry. Also Economic: Change in fuel prices, recession ,debt servicing etc. Social: Customer satisfaction and employee satisfaction, unionization, strike Legal: Following of FAA standards, Mergers and Acquisition should follow the legalities of that country Technological: Introduction of new aircrafts and cost saving technology e.g. Superior fuel efficiency Ecological: Non conducive weather conditions can create operational inefficiency . Also pollution standards need to be met

PORTER FRAMEWORK
Threat of Entrants

Bargaining power of suppliers

Rivalry among existing customers

Bargaining power of customers

Threat of substitutes

Entry barrier Due to deregulation entry barrier are low

Substitutes The substitutes includes buses and train as it mostly short distance (500 miles)

Suppliers Highly dependent on supplier whether it fuel supplier or financial institutions

Buyer High buyer power in case of frequent flying routes because of increase competition And vice versa

Competitive Rivalry Minimal differentiation among airline and lower switching cost increase the rivalry

Very few new players surviving the industry

Switching cost between Bargaining power is high air travel and substitute due to high switching is low costs because of few suppliers particularly for switching of fleets

Rivalry has increased due to excess capacity and dereguation

Price sensitivity of leisure traveller lead to greater treat of subsitute

Reason for success

Followed low cost leadership and implemented the same business model throughout the years Single type aircraft fleet (Boeing 737)-Reduces maintenance cost, flexibility to move aircraft without costly disruptions and increase mobility of aircraft crew. Point to Point Flying-Does not follow hub and spoke strategy, nonstop flying between two points ,minimizes the grounded time and increases frequency of flights. No Frills ,no cost-Keeps customer propositions transparent, does not follow complex price structure which is expensive. Happy work force-Although 87% employees belong to union but then also no strike. Happy and motivated work force increases efficiency. Strong leadership-Kelleher lead from front ,and set an example for others to follow.

Industry Growth(1992-2009)
35.00
30.00

% Growth

25.00 20.00 15.00 10.00 5.00 0.00

Industry Growth

% Market Share (2009) on Revenue Passenger - Miles (RPM) Revenue Airline/Year American Delta United Continental Southwest Northwest US Airways American West Transworld Total 1992 97.1 80.6 92.7 43.5 13.9 58.7 35.4 11.8 29.2 462.9 596.8 Revenue 2009 122.4 100.7 100.5 77.8 74.6 62.9 57.9 % MS 1992 21 17.4 20 9.4 3 12.7 7.6 2.5 6.3 100 % MS 2009 20.5 16.9 16.8 13 12.5 10.5 9.7 0 0 100 HI 1992 440 303 401 88 9 161 58 6 40 1507 HI 2009 421 285 284 170 156 111 94 0 0 1520

Top 4 Firms' MS eight Largest Firm's MS

71.1 100

67.3 100

 Thank you!