An Assignment on

‘Strategy Evaluation of Southwest Airlines’

Course Name: Strategic Management

Course Code: MGT4802

Submitted by:
Group 1
Anik Paul Akash (B16231021)
Konfus Fatima Shorna (B17231101)
Tasnim Kadir Nibir (B18231021)
Mahmudul Hasan Rafey (B18231059)
Rifah Tamanna (B18231071)
Nazia Tasneem Antora (B18231085)
Batch: 2018
Section: A

Submitted to:
Maj Gen (Retired) Professor
Alauddin M A Wadud, Bir Protik

Department of Business Administration - General

Faculty of Business Studies
Bangladesh University of Professionals
Date of Submission: 10th September, 2021
Letter of transmittal
Date: 10th September 2021

To,

Maj Gen (Retd.) Alauddin M A Wadud, Bir Protik

Professor

Bangladesh University of Professionals

Subject: Submission of assignment on ‘Strategy Evaluation of Southwest Airlines’

Dear Sir,

With all due respect, we are glad to submit our paper on ‘Strategy Evaluation of Southwest Airlines’
for your course ‘Strategic Management’. We tried to the best of our ability to complete all the
requirements of the paper you have asked for and to incorporate our learnings from the course while
applying them correctly.

There might be some mistakes on our part for which we apologize sincerely. We have taken all the
measures to complete this analysis and finished it with utmost care. We hope this meets the standards
of your expectation. We are looking forward to your valuable feedback on the paper so that we can
work on our shortcomings. Thank you again for providing us the opportunity to apply our knowledge
gained from the course and putting them to practical use.

Sincerely,

Anik Paul Akash (16231021)

Konfus Fatima Shorna (17231101)

Tasnim Kadir Nibir (18231021)

Mahmudul Hasan Rafey (18231059)

Rifah Tamanna (18231071)

Nazia Tasnim Antora (18231085)

 Contents
Executive Summary..............................................................................................................................iii
1.0 Introduction.................................................................................................................................1
1.1 Literature Review.............................................................................................................................2
1.2 Objective of Study............................................................................................................................3
1.3 Sources and Collections of Data......................................................................................................3
1.4 Limitation of Study..........................................................................................................................3
2.0 Background of Southwest Airlines..................................................................................................4
3.0 Strategy of Southwest Airlines.........................................................................................................5
3.1 Generic Competitive Strategies....................................................................................................6
3.2 Ansoff Matrix...............................................................................................................................7
4.0 Environmental Analysis...................................................................................................................8
5.0 Identifying Competitors (Strategic Group Mapping).......................................................................9
6.0 Performance Analysis....................................................................................................................10
7.0 Competitive Strength Assessment..................................................................................................12
8.0 Competitive Game Theory Analysis..............................................................................................14
9.0 Strategies of Competitors...............................................................................................................16
9.1 American Airline........................................................................................................................16
9.2 United Airline.............................................................................................................................17
9.3 Delta Air Line............................................................................................................................18
10.0 Comparing and Evaluating Strategies..........................................................................................20
11.0 Findings........................................................................................................................................21
11.1 SWOT Analysis.......................................................................................................................21
12.0 Recommendations and Conclusion..............................................................................................26
Bibliography.........................................................................................................................................27
Executive Summary
Southwest Airlines is a successful airline carrier in the oversaturated market of air transportation.
The carrier has been able to distinguish itself from its competitors in a market where differentiation
is all but impossible. This paper analyzes the strategic positioning of Southwest Airlines and looks to
offer a deeper insight into the inner workings of the low-cost monolith. Analyzing the financial
performance of Southwest Airlines, comparing the findings to the carrier’s rivals, it becomes evident
that Southwest has managed to secure a relativelt stable position in this highly competitive market.

We employed different strategic analysis techniques to determine the nature and causes of the
competitive advantages of Southwest Airlines. From our analysis using the available data, we find
that Southwest Airlines falls under the overall low-cost leadership strategy when categorized using
Michael Porter’s Generic Competitive Strategies. We then employed the Ansoff Matrix and
discovered that Southwest Airlines is primarily focusing on Market Penetration and to some extent,
Market Development. Environment Analysis of Southwest Airlines uncovered highly competitive
and unfavorable nature of the market due to suppliers having strong influence and also due to the
threat of substitutes.

Strategic Group Mapping allowed us to identify and distinguish the competitors of Southwest
Airlines in the market, highlighting the competitors that are directly in competition by offering
similar value for similar cost. We then assessed the competitive strengths of Southwest Airlines and
its rivals which revealed that Southwest and Delta Airlines are in direct contention in this ranking.
We then utilized competitive game theory to analyze the validity of one of the recent strategic
decisions that the carrier has taken. Lastly, we compare and evaluate the strategies of the primary
competitors of Southwest Airlines.

iii
1.0 Introduction
Strategy evaluation report gives insight about a company’s overall strategies, tools, missions, all the
action plans taken by the managers, and the continuous and systematic planning and resource
investment by the management employees to sustain in the long run and remain relevant to the
customers over the period.

Southwest Airlines Company has been in the business since 1967. The company has survived two
major economic recessions, one in 2008 and another in 20219-2020, one major terrorist attack within
the airlines industry. While 80+ other airline companies including the 3 major airlines of the U.S
(Delta Airlines, American Airlines, United Airlines) filed for bankruptcy under various chapters of
US Airlines Bankruptcy Protection Law, Southwest could survive without even laying off or cutting
off its employees following the 9/11 attacks. This was only possible due to Southwest being a strong
airline company having sustainable management strategies.

A deeper look into the strategy evaluation of this company will give insight on how to not become
obsolete and generate profit in the long run even when running in a highly competitive market.

Various management tools such as Generic Competitive Strategy, Ansoff Matrix, Competitive
Strength Assessment, Performance analysis, Pay off matrix, and porter's 5 forces model have been
used in this report for the company situation analysis and strategy evaluation report of the company.

1
1.1 Literature Review
A paper, (Raynor, 2011) studied the root cause of the success of Southwest Airlines. The paper
argues that Southwest was actually employing a disruptive strategy. Financial data show that
Southwest's results were highly variable during the time it was growing into a national carrier. The
paper finds that Southwest's disruptive strategy of innovative operational cost reduction did not
produce striking financial returns until it adopted more efficient aircraft, which made its fuel costs
competitive. The author explains that Cost efficiencies alone do not make a firm a disruptor. What is
required is the combination of a low‐cost business model and enabling technologies.

Another paper (Tierny & Kuby, 2008), discovered that the business strategy of Southwest Airlines
(SWA) features low fares and direct flights between major cities. To minimize aircraft turnaround
times, SWA favors smaller, urban-fringe airports over larger, more congested airports. We surveyed
passengers flying to the multi-airport regions of Boston–Providence and Baltimore–Washington to
assess how many and what types of passengers choose their less convenient airport and why. Maps
of final destinations illustrate a reverse traffic shadow favoring smaller airports served by SWA.
Motives for choosing less convenient airports include cheaper fares, fewer delays, and easier ground
transport. Logit analysis confirms that leisure travel, traveling with family, and frequent flyer
membership significantly affect the choice of a less convenient airport.

(Asahi & Murakami, 2017), empirically analyzed the pricing behavior of Southwest Airlines and its
rivals in markets into which Southwest Airlines had newly entered. They used simultaneous demand
and price equations using US airline industry data for the fourth quarters of 2003–2010.
Their results produced two important findings. First, Southwest Airlines may set flexible prices
while enjoying own airport dominant power after its entry. Second, Southwest Airlines' rivals set
competitive prices after it entered their markets, but they set more competitive prices beginning in
the fourth year after Southwest Airlines’ entry on routes through airports where Southwest Airlines
was not a dominant power.

Lastly, (Hallowell, 1996), analyzed the sources of Southwest Airlines' competitive advantage 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 was
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. The paper

2
concluded that this three-part framework may be applicable to other labor-dependent service
organizations.

1.2 Objective of Study

The main objective of this study is to analyze and evaluate strategies and performance of Southwest
Airlines and its competitors’. In addition, identifying drawbacks of strategy of Southwest Airlines is
another objective of this study. So, the specific objectives of this study are:

 Analyzing strategy and financial performance Southwest Airline

 Identifying competitors of Southwest Airlines
 Analyzing strategies and financial performance of competitors
 Comparing and evaluating strategies and financial performance of Southwest Airlines with its
competitors’
 Acknowledging the flaws and obstacle of Southwest Airlines’ strategy

1.3 Sources and Collections of Data

Secondary sources has been used for data collection. For performance analysis, annual report of
Southwest Airline, American Airline, Delta Air Line and United Airline have been used, which was
collected from the companies’ websites.

The main text book of the course, ‘Strategic Management’ by Arthur A. Thompson, Jr., A J
Strickland III, other websites and newspaper articles are the source of the data.

1.4 Limitation of Study

The company we have chosen is a United States based company which operates internationally. So,
we could not get any direct information, as most of the data were collected from secondary sources.
Moreover, we had no funds allocated for the research, hence there was lack of information sources.

3
2.0 Background of Southwest Airlines
Southwest Airlines Co. was founded by Rollin King, M. Lamar Muse and Herbert D. Kelleher, in
1967 in Dallas, Texas. It was named Air Southwest Co. at first, later in 1971, the company was
renamed to Southwest Airlines Co. In the beginning, the company started operating in Dallas,
Houston and San Antonio. From the beginning, Southwest targeted the price factor of Airlines
industries and fought three legal battles at the start of their journey. Currently, it operates in 121
destinations in the United States and 8 additional countries. Southwest Airlines Co. now has over
54,000 employees, who have served over 100 million customers. The company has a fleet of 753 jets
of Boeing 737.

The purpose of Southwest Airlines is-

‘Connect People to what’s important in their lives through friendly, reliable, low-cost air travel.’

Vision of Southwest Airline is-

“To become the World's Most Loved, Most Flown, and Most Profitable Airline.”

And their mission is ‘dedication to the highest quality of Customer Service delivered with a sense of
warmth, friendliness, individual pride, and Company Spirit.’

The company has several values to keep employees motivated and communicate goals, such as,
Warrior spirit, Servants Heart, Wow Our Customers, Keep Costs Low, Fun-LUVing Attitude and
Work Safely.

4
3.0 Strategy of Southwest Airlines
Southwest Airlines has mentioned in their website to maintain a sustainable and balanced business
model between shareholders, customers, employees and stakeholders. The company has stated three
core strategy, which are:

1. Robust Route Network

2. Compelling Brand Appeal
3. Superior Financial Position

Figure 1: Point-to-Point
Model
From further studying, we have found that the strategy of Southwest Airlines also focuses on low
cost, efficient operations and unique marketing. The company had a strong brand image from the
beginning of its journey. The company created “Long Legs and Short Nights” theme and dressed
flight attendants in costumes. The company also provided food services named “love bites and “love
potion”. Even while listing on New York Stock Exchange, Southwest Airlines maintained the theme
and chose the ticker symbol ‘LUV’.

Southwest Airline make their operation efficient through point to point model of travelling. In Point
to Point model, two destinations are connected without any hub or resting and interrupting point. So,
it is a single non-stop flight from one point to another, which saves time and make travelling faster.
The company also utilizes ‘Rolling Hub’ model, which is to spend less time in departing from a hub,
so it is continuous process. As a result, there are less delays and curtails unload and reload time.

Another factor that increase efficiency of the operations is

that, the company uses only one type of aircraft which is
Boeing 737 jets. In consequence, cost of maintenance
decreases, inventory cost also decreases, time in arranging
seating decreases and replacing aircraft also becomes easier.

Lastly, the low cost strategy, which is the most vital strategy
of Southwest Airlines’. Most customers tend lean towards low
cost and fast travel when it comes to air journey. Through its
route and fleet management Southwest Airlines already
achieved the attribute of fast travelling; and by lowering
operating cost and price to the broad market, Southwest Airlines has achieved low cost advantage.

5
3.1 Generic Competitive Strategies

Figure 2: Generic Competitive Strategy (Southwest Airlines)

According to Generic Competitive Strategies, Southwest Airlines’ strategy will fall under Overall
Low Cost Leadership. In Low Cost leadership targets to be market leader by providing low priced
and moderate service to the mass market. In this strategy, a company create value through product
characteristic that are low cost focused. Last but not least, a company of low cost strategy aims to
create sustainable cost advantage by lowering cost in every aspect and process of operations.

Southwest Airlines, as mentioned before aims to create a sustainable business model. In addition, the
company’s targeting of broad market and proving service while maintain low price also matches the
strategy. Southwest has also lowered price significantly than its competitors and continued to do so
while creating value. In Southwest Airlines’ case, the value the company is creating is ‘Convenience’
through simple and fast operating process and low price.

6
3.2 Ansoff Matrix

In order to understand strategic growth of Southwest Airlines, Ansoff Matrix is applied to predict
their current and future plans. According to this matrix, Southwest Airlines is mainly focusing on
Market Penetration and slightly on Market Development.

Southwest Airlines strategically is currently at stable stage, so the company is focusing on proving
upgraded and improved services to more customer. The company is mainly focusing on expanding
their market share by catching more customers who are price sensitive. At this stage, they are mainly
focusing on gaining new customers and retaining existing customers, which indicates to Product
Development.

Figure 3: Ansoff Matrix (Southwest Airlines)

In order to increase revenue and expand business, a company must target new markets. Southwest
Airlines’ main focus in the future should be operating in new areas and countries. However, the
company mainly focuses on domestic market only; even though cost advantage is a great attribute to
have while entering new markets.

Southwest Airline least likely will proceed for Product Development and Diversification, as it
requires drastic changes and high cost. Moreover, it will completely change their current business
model and jeopardize their company.

7
4.0 Environmental Analysis
Michael Porter’s 5 forces is used for determining and understanding current condition of a market.
These five forces depicts the picture of external and internal opportunity and threats a market offers.

The table below shows in what condition the 5 forces are in for Southwest Airline.

Force Strategic Significance

Intensity of rivalry High

Bargaining power of suppliers High

Bargaining power of customers Moderate to High

Threat of new entrants Low

Threat of substitutes: Moderate

Bargaining power of suppliers:

Southwest Airlines only uses Boeing 737, which gives the supplier huge amount of advantage and
bargaining power. On other hand, suppliers of other raw material, technology, decoration etc. have
low bargaining power.

Bargaining power of customers:

Bargaining power of customers is increasing as number of customers are increasing. Another reason
for increasing buying power in low cost and low switching cost.

Threat of substitutes:

Threat of substitute comes from all type of competitors. There are many competitors when it comes
to price advantage. Main competitors of Southwest Airlines are American Airline, United Air Line
and Delta Air Line, however, companies like Frontier Airline and Spirit Airlines are also becoming
strong competitors. Fortunately, Southwest Airline has strong price strategy to tackle such
challenges.

Threat of new entrants:

There are many barriers to enter Airline industry, such as, high capital investment, access to high
technology, strict laws and regulations etc. So, Southwest Airline has low threat of new competition.

Intensity of rivalry:

8
The completion in airline industry is a very high, as it is a diverse and ever changing market. In this
market, both leading and upcoming competitors have potential to change the trend of the market.

9
5.0 Identifying Competitors (Strategic Group Mapping)
Since airline industry is a vast and diverse industry, strategic group mapping has been applied to
identify direct competitors. Price and location have been chosen as main competitive factor to
identify Southwest Airlines’ direct competitors, as they provide low cost services. As shown in the
figure, American Airlines, United Airlines, Delta Air Lines are three major rivals in terms of price
and location factor.

Southwest Airlines provides the lowest travel cost services to 121 destination in the United States
and 8 other countries. United Airlines also has low cost advantage and provide services in 342
destinations worldwide. American Airlines is one of the famous airlines globally that provide quality
services at low cost. They operate in 350 destinations internationally. Lastly, Delta Air Lines
provides services in 325 destinations 6 continents, however, in terms of cost, it is higher than other
airline companies’.

Even though, there are giant airlines companies in the industry such as, Air Asia, Emirates Airlines,
and Singapore Airlines etc., they are not Southwest Airlines’ competitors; as they have different
vision, mission and markets. That’s why, only companies that have similar missions, strategy and
target market have been chosen as competitors of Southwest Airlines.

Figure 4: Strategic Group Mapping (Southwest

10
6.0 Performance Analysis
For Performance Analysis, some indicators has been chosen to evaluate financial performance, such
as, Market Share, Revenue Growth, Net Profit margin, ROE and EPS. These measures identify and
evaluate a companies’ financial condition and capabilities.

Market share is the percentage of total revenue or sales of a market or industry a company owns.
Here, domestic share market of passenger carried has been chosen to compare the performance due
to limitation of data. In 2019, Southwest Airlines was in the lead in the market with 19.47% market
share, however, in 2020, American Airlines took the leading position with 19.3% market share.

Due to COVID-19 pandemic, all airline companies has suffered financially, as a result it is seen that
all the indicators are in negative in 2020. In terms of revenue growth, United Airlines advanced the
most, (4.74%) and Southwest Airline improved the least (2.1%) in 2019. In 2020, all the companies
were in loss and United Airlines took the most damage and Southwest Airlines took the least amount
of damage.

Net profit margin is the percentage of profit generated from net revenue. Southwest Airlines had the
highest net profit margin in 2019, which is 10.25%; and American Airlines had the lowest net profit
margin, which is 3.68%. In 2020, Delta Air Line’s net profit was affected the most and Southwest
Airline also in this case had least amount of damage.

Performance Southwest Airlines Delta Air Lines American Airlines United Airlines
Indicator

2019 2020 2019 2020 2019 2020 2019 2020

Market 19.47% 17.4% 16.76% 15.5% 15.49% 19.3% 10.76% 12.4%

Share

Revenue 2.1% (59.66%) 6% (64%) 2.75% (62.1%) 4.74% (64.5%)

Growth

Net Profit 10.25% (33.97%) 10.14% (72.45% 3.68% (51.25%) 7% (46%)

Margin )

ROE 0.23 -0.35 0.31 -9.15 .14 -1.9 0.26 -1.18

11
 EPS $4.28 ($5.44) $7.32 ($19.49) $3.80 ($18.96) $11.63 ($25.30)

ROE (Return on Equity) indicates a company’s profitability ratio. In 2019, Delta Air Lines had the
highest ROE, which was 0.31 and Southwest was in third position in terms of ROE, which was 0.23.
In 2020, again all the companies’ ROE was in negative, but Southwest Airlines was least affected (-
0.35) amongst the companies and Delta Air Lines was the most affected (-9.15).

EPS (Earning per Share) is also an indicator for profitability but it can also represent corporate value.
In 2019, United Airlines had the highest EPS, which was $11.63. EPS of Southwest Airline was
$4.28. In 2020, United Airlines’ EPS was the lowest, which was -$25.30; and Southwest Airlines
EPS was highest among the companies, which was -$5.44.

So, in 2019, Southwest Airlines was in a moderate position in terms of financial performance, such
as, revenue growth, net profit margin, ROE and EPS. And Southwest Airlines was in the leading
position in domestic market share.

In 2020, every airlines had dealt with damage, however, Southwest Airlines faced the least amount
of damage comparing to its competitors while maintain second position in market share. Hence it can
be conclude that, in total, Southwest had the best performance in last year.

12
7.0 Competitive Strength Assessment
Competitive Strength Assessment is managerial tool to make decision while competing against other
companies. It indicates the position of a company in the market based on the score of some core
criteria, in this case these criteria are key success factors of airline industry.

10 Key Success Factors have been chosen: Service Quality, Goodwill, Financial Management, Fleet
Management, Marketing and Promoting, Punctuality, Cost, Staff Management, Claiming Process and
Boarding Management. All the airline company has been scored on each factor from a scale of 1 to
1;, 1 being the lowest rating and 10 being the highest rating.

Key Success Factors Southwest Delta Air American United

Airlines Lines Airlines Airlines

Service Quality 10 8 7 7

Goodwill 8 8 7 7

Financial Management 9 6 8 6

Fleet Management 8 8 7 7

Marketing and Promoting 7 10 9 8

Punctuality 7 10 7 7

Cost 10 6 8 8

Staff Management 8 7 5 9

Claiming Process 7 9 5 7

Boarding Management 7 8 7 8

Total 81 80 70 74

13
As shown in the table, after summing up the score, Southwest Airline represented the strongest
position in the market with 81 score out of 100, and American Airline is in the weakest position with
a score of 70 out of 100.

The rating has been done based on online reviews, ranking and awards, hence, the scoring might not
be accurate.

14
8.0 Competitive Game Theory Analysis
In recent news, Southwest Airlines has decided to partner up with Sabre Global Distribution System,
owned by Sabre Corporation, which is a platform used by travel agents and companies around the
world to search, screen prices, book flights provided by airlines, rail providers, tour operators etc.
This deal is in stark contrast to Southwest Airlines strategy in earlier part of the decade where they
refused to partner up with 3rd party flight booking agencies, as these generally increase the costs of
the airline carriers. The benefits of this partnering decision include greater customer reach and ease
of accessibility in flight booking and transaction. The drawbacks include lower profit margins for
Southwest Airlines and potentially, increased cost for the customers, which is something clearly
against the overall low-cost leadership strategy of Southwest Airlines.

In order to determine whether Southwest Airlines should or should not partner up with 3 rd party flight
booking agencies, we are going to be employing game theory to analyze this management decision.
Game theory is particularly useful in this situation as it serves as the optimal decision-making tool
for strategizing in situations consisting of competing rivals.

In our case, the players are:

 Southwest Airlines
 Other Airline Carriers

The moves are:

The players can either partner up with 3rd party flight booking agencies, or they can choose to operate
on their own.

The payoffs are:

Partnering up with 3rd party agencies increases cost, but if 1 company alone partners up with 3 rd party
agencies, then that company will be able to increase its income due to increased inflow of customers.

15
The payoff matrix:

Other Airline Carriers

Don’t Partner Partner

Don’t 22 billion 12 billion

Southwest Airlines Partner 30 billion 40 billion

26 billion 15 billion
Partner
26 billion 35 billion

Even though both would be better off not partnering with 3 rd party flight booking agencies, such an
outcome would be unstable as Southwest Airlines and other airline carriers would all have an
incentive to partner up, if their rivals didn’t. Therefore, Southwest Airline and other airline carriers
would be better off choosing to partner with 3 rd party flight booking agencies. The highlighted
section is the Nash Equilibrium, the most probable outcome given the nature of the situation.

If Southwest Airlines does not partner up, the possible outcomes are 22 billion and 12 billion in
earnings, or a probability weighted average of 17 billion. In contrast to this, if Southwest Airlines
does decide to partner up, the possible outcomes are 26 billion and 15 billion in earnings, or a
probability weighted average of 20.5 billion. Therefore, it is in Southwest Airlines’ best interest to
partner up with 3rd party flight booking agencies.

Optimal Strategic Decision: Partner up with 3rd Party Flight Booking Agencies.

16
9.0 Strategies of Competitors
We have chosen American Airlines, Delta Air Line and United Airline as Southwest Airlines’ main
competitors, as they have similar market focus and competitive strategies. Now, the strategy of these
companies will briefly elaborated.

9.1 American Airline

American Airline is the one of the largest airline companies in the

world. The company is mainly revenue growth focused. The
company aims to restructure its financial resources to lower cost.
American Airline also aims to provide quality service.

According to Generic Competitive Strategy, American Airline follow two strategy, Overall Low-
Cost Leadership and Broad Differentiation. Because, American Airline focuses on broad market
where customers are price sensitive. The company also applies Broad Differentiation in terms of
variations in service. The company is continuously changing services to meet up with customers
demand.

Figure 5: Generic Competitive Strategy (American Airline)

17
According to Ansoff Matrix, American Airline applies almost all four strategy in their business
model. Additionally, the company mainly executes, Market Development and Market Penetration
strategy the most, in order to developing new service, gaining new customer and achieving customer
loyalty.

Figure 6: Ansoff Matrix (American Airline)

9.2 United Airline

United Airline also focuses on Broad market and low cost. The
company is mainly employee friendly focused as they mentioned
in their purpose and mission statement. The vision of the company
is to create a diverse environment through innovate solution to
create customer value.

United Airline mainly follows Overall Low-Cost Leadership, it has no differentiation strategy and
targets market without any segmentation.

Figure 8: Generic Competitive Strategy (United Airline)

18
United Airline uses Market Penetration strategy by offering special offers and discount to attract and
retain customers. On the other hand, the company has plan to expand technologically in the future,
furthermore, United Airline is planning to improve customer service and fleet management; which
falls under New Product strategy.

Figure 7: Ansoff Matrix (United Airline)

9.3 Delta Air Line

Delta Air Line is different from its other competitors. The

company focuses on Low Cost strategy but targets corporate
travelers. So, in Generic Competitive Strategy grid, it falls
under Focused Low Cost Strategy. Delta Air Line has its
unique approach to attract its customers by delivering high customer service and adding new
features, such as, tracking luggage on smartphone.

19
According to Ansoff Figure
Matrix,9: Generic
the Company is already
Competitive Strategyapplying
(Delta AirMarket
Lines) Development and
Diversification strategy. Market Development and Diversification strategy helps the company to
increase profitability and expand assets. It also creates opportunity for Delta Air Lines to create new
services. Delta Air Line applies vertical integration to optimize their operation. The company also
has their own fuel source to lower cost. Furthermore, the company focuses on providing unique
services catering to their customers’ needs.

Figure 10: Ansoff Matrix (Delta Air Lines)

20
10.0 Comparing and Evaluating Strategies
Strategies of Southwest Airlines and competitors are similar but not exactly same. All of the
company has its unique quality. The unique attribute of Southwest Airline is low cost. The company
simplified their transportation type and route model to lower cost and minimized turnaround time.
Southwest Airline does not provide in flight food services to cut off cost.

On the other hand, American Airlines, United Airlines and Delta Air Lines heavily focuses on
services. These companies are constantly changing and innovating new service and product idea to
meet customer needs.

Southwest Airline uses Point-to- Point route system, but, American Airlines, United Airlines and
Delta Air Lines uses Hub Spoke model, which a traditional system that takes more time to transit.

Through Generic Competitive Strategy grid, it is shown that most of the company follows more or
less all the strategies but focuses on one particular strategy only. Southwest Airlines focuses on
Overall Low-Cost Leadership, similarly United Airline also follow Overall Low-Cost Leadership
Strategy. Delta Air Line applies Focused Low-Cost Leadership, as they target corporate traveler and
provides low cost service. However, American Airline focuses on both Overall Low Cost strategy
and Broad Differentiation strategy. As it is one of the largest Airlines in the world, they are
branching out in different type of services to diverse customers’ needs.

Delta Air Line is the only company amongst the four that targets narrow market rather than mass
market and costs comparatively higher than other three.

All the company has their own intensive growth strategy as well. Southwest Airlines focuses on
Market Penetration and slightly on Market Development. American Airlines also focuses almost all
the strategies, but mostly on Market Penetration, Market Development and Product Development.
United Airlines is also focusing on Market Penetration and Market Development. Lastly, Delta Air
Lines applies Market Development and Diversification to expand their scope.

In terms of financial performance indicator, in 2019, Delta Air Lines had the most stable; Southwest
Airlines was in a moderate condition. In 2020, all airlines company faced loss, however, Southwest
Airlines handled the damage in best way possible.

In Competitive Strength Assessment, Southwest is in the lead. Other competitors are also close. This
helps determining the companies’ position through its common and core attributes. According to
this, American Airline is in last position, even though the company has the highest market share.

21
11.0 Findings
Southwest Airlines has drawn a lot of attention over the past couple of decades as a thriving
company. Aligning organizational design and business strategy is the key to success of Southwest
Airline. However, in order to survive in the market a company must faces challenges and threats,
moreover no entity is perfect and has its flaws. Through analyzing strategies, financial performance,
environmental factors, key success factors of Southwest Airline, we have identified its Strengths,
Weaknesses, Opportunities and Threats of the company.

11.1 SWOT Analysis

STRENGTHS WEAKNESSES

 More Flexible Than Most Other  Lack of Diversification

Airlines  Myopic Vision
 The Only Large Low-Cost Airline  Overdependence on Boeing 737s
 Strong Airline Company
 Rewards & Pricing To The
Customers
 LUV Culture And Customer
Satisfaction
 Employer Satisfaction
 Boeing 737
 Market Size

OPPORTUNITIES THREATS

 Global Expansion & Long Distance  Economic Downturn & Uncertain Times
Flights  Issues on Boeing 737 MAX
 Incorporating customer-friendly  Competition
technologies  Fuel Price

22
STRENGTHS:

 More Flexible Than Most Other Airlines

Customers can cancel tickets up until 10 minutes before the start of any flight. This gives customers
a last-minute chance to change their choice if needed, which in turn builds a deeper satisfaction level
of the customer and increases brand loyalty. As of May 2020, Southwest Airlines had a brand value
worth $ 6.6 billion and is ranked 4th in the most valuable airlines brand category.

 The Only Large Low-Cost Airline

Any airline company reaches a higher competitive advantage, not through its quality, but its pricing
policies. Taking flights has now become a part of everyday life, not necessarily an experience
journey or luxury trip.

Southwest's business model operates around low operating costs. Southwest Airlines chooses to offer
services to airports that don't charge much as gate fees or access fees. It chooses to limit its boarding
services and focus on the fastest flight and boarding, reducing the cost of each flight.

During negative economic growth, customers look for the cheapest options to travel with. Since
Southwest's business model is based upon an effective low-cost strategy, it easily coped up with the
sudden pandemic hit of COVID-19. Moreover, most of the routes and airports taken and chosen by
this airline are low cost from the very beginning. So, during the ongoing economic downturn,
Southwest did not have to abandon as many routes as its competitors.

 Strong Airline Company

During the early period of the COVID-19 hit, it was estimated that only the strong airlines will
survive the wave of economic downturn. Southwest is strong both in terms of size (large airline) and
cost (low pricing strategy). When other airline companies had to cut off or lay off their employees,
Southwest could retain its employees without even limiting their benefits and rewards, and salaries.
This was only possible due to the size of the airline. Even though a bigger airline does not
necessarily mean that the airline company is doing better, but it indicates that the company is safe to
invest in. And this gave Southwest an upper hand since it had already a big and safe amount in asset
and equity.

 Rewards & Pricing to The Customers

Customers can book their next flights and buy the next tickets through the points earned in their
previous booking and ticket purchase. Besides, Southwest partners with Chase Bank and offers

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customers a Southwest Credit Card which allows them to accumulate Southwest Airlines points on
any purchase.

 LUV Culture and Customer Satisfaction

Southwest is famous for making its customers feel at home while onboard. Southwest wants to earn
profitability and sustain in the long run by increasing customers' loyalty.

The ticker symbol LUV is just another representation of their care for their customers. The entire
vision of Southwest Airlines focuses on making a profit by improving customer relationships and
customer experience with its company. The vision of 'becoming the world's most loved airline'
depicts its priorities on customers. The other part of the vision where it says ' most flown airline'
reflects Southwest's strong desire to make itself the number 1 priority and the option to customers
when it comes to traveling, whatever the purpose may be.

 Employer Satisfaction

According to the Forbes ranking of 2019, Southwest Airlines got ranked as number 2 in America's
Best Employers Category. The mission statement of the company that is directed towards the
employees depicts the company's promise of providing opportunities for the employees to learn and
grow personally. This enhances employee participation and makes the employees feel empowered.

By actively making the employees satisfied in the workplace, Southwest is providing the highest
quality of customer service. The company policy is to make the employees happy, who in turn will
make the customers happy.

 Boeing 737

Focusing on only one type of aircraft has given the company an economic benefit. It reduces the cost
of aircraft operation; training pilots, cabin crews, service employees; changing faulty aircraft;
maintenance and so many more.

 Market Size

Having a huge market share in the airlines' industry is helping Southwest to continue with its low
pricing policies. Because shareholders' equity is contributing much to their operating policies.

From Feb 2019 to Jan 2020, Southwest Airlines is ranked 3rd in the U.S domestic market share
having 16.8%. the first two positions were held by American airlines (17.6%) and Delta Airlines
( 17.5%).

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Being a dominant player in the market, Southwest operates over 4000 flights a day. With such a huge
and unbeatable number of flights, it is hard to annihilate Southwest from the industry by any existing
or new player.

WEAKNESSES

 Lack of Diversification

Southwest does not have multiple sources to generate its revenue from. As we all know that
overdependence on a single source of revenue might be a risky business game. 93% of the total
revenue of Southwest comes from the passenger, which makes up to $ 20.7 billion. Whereas only
less than 1% of revenue is generated from freight, which accounts for $ 172 million only. The other
6% revenue generates from side loyalty programs which are about $ 1.48 billion.

 Myopic Vision

Except for a few tropical vacation islands in Mexico, Central America, and The Caribbean,
Southwest does not offer international flights. To sustain in the long run, focusing only on domestic
flights is not enough. Needless to say that the profitability and sustainability of Southwest are at
much risk.

 Overdependence on Boeing 737s

Even though depending on a few types of aircraft cut down costs to a great extent, Southwest's
overdependence on only Boeing 737s is a problem. We've seen, in the recent past, 2 fatal accidents in
Boeing 737s where injuries of the passengers were recorded. These rise to questions on the
feasibility, efficiency of these airplanes to fly off. Also, the grounding of Boeing 737, which was
privately owned by Southwest, resulted in much loss of its revenue. People avoiding boarding
Southwest planes just because of its faulty, poor, and old aircraft might add to the expense of the
company and cut its revenue.

OPPORTUNITIES

 Global Expansion & Long Distance Flights

By using the already existing brand image and customer loyalty, Southwest can expand its flight
routes from domestic to international. International flights at a cheaper price are yet an unsaturated
market globally and especially in the states. Southwest can easily tap into this new emerging niche.

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Southwest is yet to start longer flights regularly. More and more millennials are choosing to work in
a different state while living in another state. To accommodate the needs of these millennials,
Southwest can introduce its line of business and expand its revenue.

 Incorporating customer-friendly technologies

The booking process of Southwest's seat is already a highly efficient one. Yet, there is always room
for improvement. Southwest can incorporate more e-commerce and f-commerce sites into its
booking process. Besides, other technological upgrades might be done, which will not compromise
their pricing policy, yet provide faster boarding and traveling.

THREATS

 Economic Downturn & Uncertain Times

Global recession, inflation rate, interest rate, savings rate, foreign exchange rate- all play a
significant role in the revenue generation of the airlines' industry. Any airline company will
completely collapse and go to bankruptcy in times of global recession if it's not big enough.
Southwest, till now, could survive the waves of economic recessions, but still, the threat remains for
the future.

Uncertainties of future economic shocks also make the airline industry vulnerable. Work from home
has created an all-time low travel demand by air.

 Issues on Boeing 737 MAX

Issues like mass grounding always put a negative effect on the credibility of the airline's company.
This results in the cancellation of flights to not booking flights in the first place. This also acts as
negative publicity for the company. As we know that negative news spread like wildfire, the slowly
built empire of Southwest can easily be grasped just through this negative yet true news.

 Competition

Competition is always on the rise. To survive this huge competitive era, Southwest needs to make
itself relevant to the customers' needs and cater to them. Otherwise, it would be very easy to become
obsolete, even being one of the leading airlines companies.

 Fuel Price

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73% of the entire cost of any airline industry comes from the fuel cost. The profitability and
sustainability of airlines are heavily dependent upon oil prices. And for Southwest, this is
a=highly alarming since the competitive advantage of this company is low pricing.

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12.0 Recommendations and Conclusion
Southwest Airlines has carved out a position for itself in the consumer air transportation market
through their fast and most importantly, low-cost services. The speed of their activities and the cost
effectiveness of their processes are direct results of their optimization of their business operations
and constant rethinking of their strategic positioning.

Owing to the situation of reduced operational efficiency in recent times for Southwest Airlines, the
drastic measures they have taken in reducing the number of flights in the last quarter of the current
year as well as increasing their workforce is counterintuitive to their strategic positioning. Despite
the backlash from employees, it is in their best interest to ensure that they adhere strongly to their
core competencies of low cost and fast service. The issue of overworked employees can be solved by
their decision of cutting down the number of flights, but the decision of hiring more employees is not
necessarily the best course of action for the carrier. Southwest Airlines should instead, invest in
automating as much of their business processes as they can. This may be in direct conflict with their
low-cost strategy in the short run, as the investments required in automating processes is very high.
However, the long run benefits in cost, as well as the value added to customers in terms of speed and
ease of availing the carrier’s services will be multiplied many folds.

We believe that Southwest Airlines’ decision of partnering with 3rd party flight booking agencies is
the proper strategic move, even though it might decrease their profit margins. This is because the
payoff of partnering with 3rd party flight booking agencies is greater than the payoff of not
partnering with 3rd party agencies. It is crucial to keep in mind that the bulk of Southwest Airlines’
customers are price sensitive customers, who will be looking for deals on various 3rd party websites.
Enlisting with these websites will most definitely increase customer reach, as demonstrated by our
Competitive Game Theory Analysis. The overall strategic position of the company is sound in
almost all regards, as demonstrated by the findings of the financial as well as environmental analyses
that we have performed in this paper.

Southwest Airlines has found itself in a difficult position. It can, however, turn its circumstances
around through proper decision making and keen strategizing. Southwest Airlines’ recent strategic
decisions bear the winds of change in their vision and their long-term thinking. As soon the world
goes back to normal, if they focus on their core competencies of low-cost, point to point
transportation, Southwest Airlines should find itself in a comfortable market position once again.

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