Corporate Business Strategy Group Assignment

Domeniko Wikarda | Endah Widiastuti | Haris Suhendra | Marisa Karsen | Pramita Wardani

Southwest Airlines in 2010 : Culture, Values, and Operating Practices

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Table of Contents: The Journey of Southwest Airlines Business Strategic Analysis Recommendations

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The Journey of Southwest Airlines in 2010 :

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Southwest Airlines Is a low-cost/low-fare airline. • Their concept is attract passengers by

flying convenient schedules, get passengers to their destination on time, make sure they have a good experience, and charge fares competitive with travel by automobile.

• Target market : Business Travelers and Price-sensitive leisure travelers

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Southwest Airlines Leadership

1996 | Rollin King • Starting a low-

cost/low fare airlines

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2

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1981| Herb Kelleher • Principal : Employee

comes first • Becoming the market

share leader In domestic air travel

1971| Lamar Muse • Personality :

Aggressive, self-confident airline veteran

• He recruit talented senior staff that included a number of veteran executives from other carriers

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2001-2008| Colleen Barret

• Principal : to ensure the employee felt good on what they’re doing and felt empowered

• The first women appointed as a CEO

2001-2001| James Parker • Personality : Honest,

straight-arrow 3

Strategy : • Attractive stewardess • Free Alcoholic beverages during daytime flights • Attractive marketing campaign • In Operational, 25 minutes average turnaround time • Focus on business travelers and price sensitive leisure

travelers

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Key Success Factor of Garry C. Kelly leaderships : • Hire great people and treat them like family • Care for the customers warmly • Keep fares and operating cost lower than competitor • Prepared for bad times with strong financial strategy

2008 - … Garry C. Kelly 5 Objective Strategy of Garry C. :

• Be the best place to work • Be the safest and more efficient airline • Offer customers a convenient flight schedule • Give the best over all travel experience • Do all of the things in an effective way to maintain the

low cost

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6

-400

-200

-

200

400

600

800

2005 2006 2007 2008 2009

Net Operating Expenses

Net Income

Southwest Airlines Financial Performance per year in 2005-2009

70,000,000

75,000,000

80,000,000

85,000,000

90,000,000

2005 2006 2007 2008 2009

Revenue per passengers

2005 2006 2007 2008 2009

Net Operating Expenses - 54 144 - 267 171 98

Net Income 484 499 645 178 99 Revenue per passengers 77,693,875 83,814,823 88,713,472 88,529,234 86,310,229

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Business Strategic Analysis

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The Strategy Canvas of Southwest Airlines

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Southwest Strategies

• Low cost/low-price/no frills strategy • Tagline : Freedom to Fly • Fare promotions to stimulate ticket sales on

flights that otherwise would have had numerous empty seats

• Bags fly free • Shrewd practitioner of the concept of price

elasticity, proving in one market after another • Southwest designed a carefully route system

to concentrate flights between pairs of city to allow Southwest sizable number of daily flights(Point-to-point scheduling of flights)

• Southwest frequent flyer program and giving a reward • Standard Awards; accumulated 1 free round-

trip after 16 credits within 24 months • Companion Passes; accumulated 1 free round-

trip after 100 credits within 12 months 10

Southwest Strategies

• Gradual expansion into new geographic markets

• Adding flights in areas where rivals were cutting back services

• Curtailing flights on marginally profitable routes where numerous seats often went unfilled and shifting planes to routes with good growth opportunities

• Putting Strong emphasis on save, high quality maintenance and reliable operations

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Southwest Airlines Marketing Strategies

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PESTEL Analysis

• Politics - Terrorist attack

- US Housing bubble cause a lot of unemployed and lay off, 10% unemployment rate on 1 oct 2009, highest since 1983 Relate with “No-layoff” policy of Southwest

- Obama election relieve America and world wide politically

• Economy - Industry downturns

- Jet fuel increase

- World wide recession

- Investment stopped coming

• Social

Economic recession force citizens to live more “Saving minded” and more price sensitive, including company demand to cut cost

US Housing Bubble

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PESTEL Analysis

• Technology Fast growth of technology influencing airlines technology (fuel, system, IT, vehicle, etc) growth, with benefit of :

a. Cutting cost

b. Additional technology, such as : Southwest in-flight wi-fi

c. Convenience and speed

• Environment Emiision from jet fuel force ailrines company to have emmision standard Reseach of alternative bio fuel. In the future, people might be more environment sensitive.

• Legal Dog eat dog competition, cause company to use any “legal” tools, such as :

a. Wright amendment in 1979 : Restrict Southwest operational in Love field

b. Access Now, Inc. v. Southwest Airlines Co in 2002 : Access now, inc suing Soutwest airlines, as their websites couldn`t accomodate Robert Gumson (Which was blind)

c. Aneglica Keler`s hot tea accidents : Sued Soutwest $800,000 over spill of hot tea 14

Southwest Airlines’ PORTER 5 Forces

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Threat of New Entrants

MODERATE New LCC Airlines companies

could enter this industry and attract passengers

Buyer Power

HIGH Most of the LCC offers similar

services and limited differentiation

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Threat of Substitute Products

LOW Alternative another vehicle,

like Car, Train, Ship but not significant compete with airplane

Supplier Power

HIGH Need Software & hardware

vendor in along term Only using one type of

Boeing, so Southwest has strong dependency with Boeing

Competitive Rivalry

HIGH, Southwest’s direct competitors are the seven

major low-carriers operating domestically with similar

services

Strength • The first major airline to

introduce ticketless travel • Operated only one type of

Boeing • Point-to point scheduling • Develop good strategies to

expand the business • 25 minutes average

turnaround time

Weakness • Little room for strategic

management • No establish alliances with

other airlines • No international flight

Opportunities • Mostly of passengers like LCC

because of the lower price. So Southwest airlines still could develop their position in the airlines industry

• The development of technology to create IT innovation

Strength – Opportunity Still focus on LCC Operated the other type of

Boeing

Weakness – Opportunity Southwest could strengthen

its position through an alliance

Make innovation in technology

Threats • Rising labor cost and fuel cost • Competitors offer product and

services like Southwest Airlines

• The new LCC Airlines • Terorism • Government regulations • Tax system in US

Strength – Threats Keep promote the new

facilities and features to customers using all kind of media

Try to find another supplier that can reduce operating cost

Weakness – Treats Create “barriers to entry” with

implement innovative strategies

SWOT MATRIX

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Recommendations

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RECOMMENDATIONS

• Expand geographically. Open new route

• Do streamlining and automation in order to

both aid in cost cutting and maintain the

competitive advantage ( Use IT to achieve

operating efficiencies)

• Since Southwest is a player in low-cost

provider so they must keep prices as low as

possible in order to stimulate demands and

look redistribute expenses through other area

• Keep it simple structure (lean organization)

• Maintain high utilization rate of fleet of

aircraft

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Corporate Business Strategy Group Assignment

Domeniko Wikarda | Endah Widiastuti | Haris Suhendra | Marisa Karsen | Pramita Wardani

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