Southwest Airlines Care Study

Southwest Case Study

Mark Kosenesky, Pharm.D.

Background

        Southwest began operations out of Dallas’ Love Field airport in 1971 after a 4-year legal battle with 3 other local airlines.  Southwest started to operate out of Dallas, Houston, and San Antonio.  Later that year, Southwest used both airports in Houston.  Southwest offered $20 fairs between the airports.   In 1970, the average airline flight was $40.65 as a comparison to price.  Throughout the 1970’s, 80’s, and 90’s, Southwest started to expand its operations with more flight and more cities.  Southwest acquired smaller airlines such as Midway and Morris Air to build its business and to service more cities with more and more flights.  Southwest was one of the first airlines to use the new technology, called the “internet”, to purchase tickets for flights starting in 1996.  Southwest officially names website as www.southwest.com in 1997.  In 2003, Southwest started to issue Flight Status checks as a text message.  Southwest also used social media, such as Facebook, to promote itself and its service.

        Southwest differed itself from other airlines by doing things simpler.  Southwest did not offer meals, assigned seats, or first class seating.  Southwest tried to service smaller markets or secondary airports in major cities.  Southwest tried to stay close to the way it started: offer a low price, high frequency way for people to travel.  Southwest does charge any extra and you get don’t get anything extra.  By using a single type of aircraft, Southwest can streamline its maintenance by having the mechanics trained to upkeep only 1 type of aircraft.  With Southwest, it has limited opportunities to grow with its domestic flights and would need to go international. By increasing the amount of flight to other countries could provide Southwest with extra income.  Southwest also need to offer some additional services so that it can generate extra income such as prioritize seating for anything that is not a middle seat.  

Identification

        The areas that Southwest need to address will be the saturation of its domestic markets and its lack of revenue from “Extras”.  In 2015, Southwest put 145 million people on its planes.  In the same time frame, United Airlines moved 140 million people to all destinations around the world.  Southwest’s shortest flight is 148 miles which is Austin to Houston, Texas.  The longest flight is over 2400 miles from Baltimore to Oakland.  Southwest has thousands of others flights each day within the United States.  Southwest has a small international market to Mexico, several Caribbean Islands, and to a few cities in Central America.  Southwest serves almost 100 cities in North America, most of them in the United States.

Most other airlines will “Nickel and Dime” a consumer to make extra revenue on the ticket.  Southwest does not charge people for their bags or for extra bags while some other airlines can charge $25 or more per each bag.  Passengers on Southwest will get a drink, maybe.  If a passenger wants to seat on the aisle or at a window seat, other airlines could charge as much as $59 to do so.  It does not cost any more to fly someone who is seating on an aisle versus someone sitting in the middle.  These “Extra” charges can help the bottom line of an airline.

Evaluation

        In examining a SWOT analysis of Southwest, I have decided to look at 3 strengths of Southwest as being Financials, Iconic Brand, and its Domestic Presence.  Southwest has had growing sales from 2011 to 2013.  The following chart shows Southwest’s annual net Profits over a span of 6 years.  Notice the dropping of profits when the economy faced the recession of 2008 to 2009 and how quickly the profits recovered as the United States economy recovered.

[pic 1]

        Southwest has a nice brand image.  Nearly everyone who sees the various different planes know what airline it is.  Whether it is the iconic blue plane with red and tan on the tail or the killer whale colored plane, people know the planes that are in the Southwest fleet. Southwest will try to make the flights fun.  The flights may have sing-alongs or themed based activities based on the time of year or destination.          

As was discussed earlier, Southwest has a very large presence in the United States.  The following charts shows the percent of flight an airline has within the US:

[pic 2]

As can be seen from the above chart, Southwest is second to Delta Airlines in the number of seats in domestic flights.  Southwest has more domestic flights than United and American.  With this large domestic presence, Southwest services smaller airports.  These smaller airports help Southwest land and gets flights back into the air.  More congested airports like O’Hare or Atlanta, a plane could have to wait to land and then wait to depart.  This would reduce the number of flights that an airline could fly in a day, and thus, reduce revenue.

        With Southwest not operating out of larger airports could offer some issues for passengers who want to fly international.  Some of the airports that Southwest operate, do not have an international terminal.  A passenger, who is traveling out of the country, may not be able to fly Southwest because of not being able to transfer to the other flight.  Just think about it, a passenger is traveling from Phoenix to London.  They could fly from Phoenix to Midway on Southwest, get a taxi to O’Hare, and then fly United or British Air to London.  That would be really inconvenient way for a passenger to travel.  Most travelers will not want to travel that way and could exclude Southwest from travel plans.

        On the Southwest.com website, there is a little section about “TransFAREncy”.  It shows an example of how Southwest does not charge anything for bags, to change flights, or anything.  Southwest gets compared to Spirit Airlines and what it charges for various services on their website.  Spirit will charge $30 for the first bag and $40 for the second.  It charges an extra $2 for bags in the summer and $110 for a change in flight.  Spirit also charges anywhere from $1 up to $50 for a passenger to pick a seat.  These extra charges can add to the bottom line of the airline.  Southwest is positioning itself as being different from the other airlines, but Southwest still has its own way of increasing revenue.  Southwest, along with other airlines, have reduced the leg room on its planes to get more passengers on a flight.  Most airlines have reduced legroom from 33” to 34” to 31” for a savings of about 3” per row.  For every 10 rows under the old configuration, an airline, including Southwest, could now have 11 rows.  On most aircraft, this could mean an extra 12 seats that are now paying for that seat on that flight.

...