Strategic Design and Implementation- Southwest Airlines Case Study 

Being the smartest and highly responsive lawyer, quite humble and highly skilled in disputes resolution, the Southwest CEO Herb Kelleher clearly knew what was needed to move the young airline player forward. He need to overcome stiff competition by establishing clear vision for the company strong culture based on clients interests and dynamic strategies that kept the competitors bewildered by the magnitude of business war wedged through strategic management by the leadership. The airline leadership provided high value for low cost and consistently delivered what it promised. After analysis of the Airline business experience it has been observed that powerful and dynamic business strategy is key to withering challenges and sustaining growth.

Founded in 1967 by Rollin King the initial aim was to improve intercity air services. King realised that the market was bigger than many realised after a discussion with customers. During this time, Kelleher was the company point person. From the onset, experienced opposition from competitors determined to prohibit Southwest Airlines from operating in new routes. But the CEO Kelleher was determined to win the enemy by its terms, likening the struggle to the stretch of the WW11. The company’s vision was to offer best services at lowest cost compared to other airline. Interestingly, even with the low costs, the employees become among the best paid in the industry (Carpenter & Sander, 2007).

During the initial stages, the Airline experienced threats in its capacity to implement the new plan.  It only had three airplanes. But this was overcome by offering planes at 75 minutes interval with two planes between Dallas and Houston and 250 minutes interval between Dallas and San Antonio. Later, the strategy was changed to hourly flights. Change of strategy to initiate hourly flight after first two weeks caused a problem of scheduling. This challenge was solved by purchasing a new plane in late September 1967.

While the desire to make maximum use of the company’s most expensive assets ensued, the biggest opportunity utilised was the 10 minutes turnaround.  No plane stayed on ground for more than ten minutes due to well orchestrated servicing and maintenance.

The initial operations started under extreme pressure and tight deadlines. Kelleher had to raise additional start-up capital, hire new personnel and solve multitude of marketing problems. Weeks of negotiation with manufacturers yielded to Boeing 737-200, a crucial decision because the airline would not only use it for many years but required few crew members thus minimising operation cost (Carpenter & Sander, 2007).

Notably, the CEO’s strategic approach to operational planning created differentiators that accelerated the Airlines competitiveness in the market. First was the idea to offer no frills low cost flights to and from secondary airports. The airline clung tenaciously to this strategy and created a reputation of having least complains from the passengers. Indeed, these strategies made the 1988 U.S department of transportation to rate it as the best on-time performance service provider, with the lowest number of customer and baggage complains. Indeed, it was the first airline to win all the three categories since the department started its performance rating. The no frills strategy included; no baggage transfer, no meals, no assigning of seats, use of reusable boarding cards. The passengers enjoyed a more efficient system of ticketing. The Southwest airline enabled the passengers to turn up at the designated time and find the ticket already printed by a machine. The passengers only enjoyed a drink and pea nut. No more.  The emphasis on quality was not in the meals but on-time flights and no cases of lost baggage.  In addition, the company did not subscribe to expensive computerised reservation system linking them to travel agencies but used other means to market the airline.

The second differentiating strategy adopted was the short turnaround across the airport which enabled the airline to project itself from the competitors. Many competitors who tried to adopt the approach failed. Those who tried to adopt the strategy were lured by the big routes but fallen by big people who knew what they were doing. Its average flights were 10.5 hours per day. The industry average was 4.5 hours a day. Although this increased the fuel cost and landing fees high above other planes. The airplane made extremely good use of its most expensive assets, their airplanes. It contracted about two thirds of monthly jet fuel supply while purchasing the rest on the spot market. In addition it maintained low operation cost by contracting for major maintenance, data processing and legal services.

Third, while many of competitors developed a hub-and spoke (from big airports to smaller airports), the Airline maintained a spider web pattern.  The CEO refused to use the hub and spoke strategy because he felt that it ties high value assets to few pressure points. Spider strategy allowed for maximum flexibility in dispersing assets while at the same time reducing stress in the operation system (Carpenter & Sander, 2007).

As the capital gains and market share increased the need to expand arose. There was need to expand the services to other States, establish new routes and compete in routes that were underserved and overpriced. The company made success due to the impact of carefully made investigation on the external environment. The idea of looking for markets that were overpriced and underserved was a ground breaking strategy because the company made immediate impact on the operation and strategies of other airline operators such as American, USAir. In addition the operation in new small cities and small airports was important in that the planes could enter and get out quickly.

The Airline put great emphasis on business staging. After sufficient investigation was done and the management agreed to enter into a new market, the airplane embarked on its operations with full force. This high speed venture into new markets was a strong selling point in that it suddenly offered many planes that passengers would easily board once they enter into the airports. This was also a marketing strategy because the Airline could easily make a strong promotion message right from the beginning. For instance, after entry into California, Southwest Airlines engaged the competitors; the USAir and American into stiff fare warfare. At the end of the fare war, Southwest dominated while the two competitors were wiped out of the market almost entirely. Other tactics included offers such as fly one way get one way free with $59 unrestricted fare. The campaign was quite successful (Carpenter & Sander, 2007).

Notably, this success could not be attained without proper marketing strategy. According to Southwest strategists, marketing was ‘fun’. Adopting the fun image was a strong selling point. The theme of its promotion campaign was focused on the concept of love. The attendants wore bright color hot pants. The notion that peanuts and in-flight drinks were ‘Love Potions’ or ‘Love Bites’ was a boost to the campaign efforts. Also use of adjectives such as exciting, dynamic, young and vital while making positions promotion highly enticed the potential passengers. In addition the Airline introduced ‘Fun Fares’ which included one way prices ranging from $19-$85 in 1986. This was accompanied by new uniform for the flight attendants. Two years later, the company went into an agreement with Sea World Texas to launch the ‘Shamu One’, a flying Killer whale plane that became so popular that the airline painted other planes similarly.

While setting competitive and calculated prices, the airline used a two tier pricing as a strategy to influence booking of the planes during the days that passenger turnaround was lowest such as the weekend days. This pricing was accompanied by an aggressive marketing campaign. The prices were reduced to as little as $10 for passengers flying after 7:00 p.m on any day of the week. However, this was short lived because few weeks later, he was able to raise the price without serious negative effect on the gains in the passenger turn around. For a long period (from 1972-1978) the Airline did not increase any fare. The Vice President for finance Gary Kelly argued that the pricing was based on profit rather than market share. The pricing strategy did not go well with competitors as they accused Southwest airline of seat dumping.

In complimenting other strategies the success of the airline was highly boosted by aggressive promotion. The Southwest management team sought to create a scenario whereby the target customers were not the customers from other Airlines but from those who travelled by other means, with more emphasis on bus passengers. This was a very good strategy since it challenged the other competitors who had made a price difference between the road and air transport by heavily charging the passengers. The primary targets were business commuters who constituted 89% of the traffic to the west. The company began promotions targeting marketing share but after a short while it attained a strong corporate image through use of mass media.

During the initial ‘Fun’ promotion approach, many critiques thought that the company was doomed to fail. But to build a reputation so strong that in early1974 it celebrated the millionth passenger, continued to expand routes, offered consistently low prices and consistently reliable service provider.

Today, the operations of the Airline remain admirable compared to other operators of similar scale. The strongest selling points remain the ability to offer high quality services while maintaining low costs and limited ability of competitors to develop substitute products that would compete with its efficient services (Brown & Eisenhardt, 1998).  However, since the airline gains most from business travellers, the introduction of internet communication and efficient new media may in future reduce the number of travellers in short business mission.

The future of the Airline is bright if diversification measures are emphasised in expansion planning. Some of the opportunities include establishment of travel routes in the fast developing countries such as in Africa (Hamel & Prahalad, 1994). For instance, in East Africa, the cost of one way travelling from Nairobi to Mombasa, an 800 Kilometre distance is $130. The cost of travelling the same distance by bus is $20. The Airline can come in as a cheap substitute to the busses and connect the seven countries forming the East Africa Community. The routes are exorbitantly overpriced and extremely underserved.

 

 

References

Brown, S., & Eisenhardt, K. (1998). Competing on the edge: strategy as structured chaos. Harvard

Business Press.

Carpenter, M., & Sander, G. (2007). Strategic Management: A Dynamic Perspective Concept

and Cases, Second Edition. CourseSmart Reader.

Hamel, G., & Prahalad C. (1994). Competing for the future. Harvard Business Press.

 

 

2016-11-04T13:32:17+00:00August 18th, 2015|Free Essays|