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Strategy & Leadership

ISSN : 1087-8572

Article publication date: 5 July 2011

The standard explanation of Southwest's success is that it applied a low‐cost competitive strategy. This paper aims to address this issue.

Design/methodology/approach

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.

Practical implications

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.

Originality/value

This paper points out that managers should learn to see operational innovations and cost savings in the context of disruption, not just price advantage.

• Competitive strategy
• Low‐cost strategy
• Low‐cost carrier
• Industry disruptor
• Point‐to‐point route
• Cost‐cutting innovations
• Disruptive innovation
• Disruption theory
• Delivery services

Raynor, M.E. (2011), "Disruptive innovation: the Southwest Airlines case revisited", Strategy & Leadership , Vol. 39 No. 4, pp. 31-34. https://doi.org/10.1108/10878571111147387

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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Southwest Airlines

By: Andrew Inkpen

After more than 45 years of service, the company was facing some major challenges. Legacy carriers in the United States had become more efficient, and the recent mega-mergers involving…

• Length: 13 page(s)
• Publication Date: Jul 15, 2013
• Discipline: Strategy
• Product #: TB0333-PDF-ENG

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After more than 45 years of service, the company was facing some major challenges. Legacy carriers in the United States had become more efficient, and the recent mega-mergers involving Delta/Northwest and Continental/United were shaking up the industry. Smaller companies like JetBlue and Allegiant were pressuring Southwest's cost-advantage and low-fare focus. A major internal challenge for Southwest would be managing its acquisition of AirTran. To make the acquisition a success, the company would have to integrate a workforce of more than 8,000 and new markets that included non-U.S. destinations. In addition, high fuel prices were a continuing challenge, and Southwest's salaries were among the highest in the industry.

Learning Objectives

This case can be used for a variety of teaching purposes. The case can be used to examine how a firm can be successful in an inherently unattractive industry. Southwest has been profitable and expanding for many years and has been able to maintain a low-cost position despite many potential imitators. The case can be used to illustrate the importance of a unique activity system and the difficulty of imitating the entire system. The case can also be used to review industry structure and generic strategies. Another important aspect in the case is the challenge facing successful firms. After many years of success, how can Southwest ensure that it continues to innovate and create difficult-to-imitate uniqueness? Finally, the case can also be used as a leadership/HR case.

Jul 15, 2013 (Revised: Mar 1, 2017)

Discipline:

Geographies:

United States

Industries:

Airline industry

Thunderbird School of Global Management

TB0333-PDF-ENG

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A unique take on Southwest Airlines Strategy

Anyone who has studied business management either as a degree or as an elective would have definitely studied Michael Porter’s 5 Forces framework. This framework was first published in  Harvard Business Review  in 1979. The model is very much relevant in 21st-century business as well due to its deep 360-degree view of a business.

One of the 5 forces is called “Barriers to Entry” and more often than not either Oil & Gas or Airline industry would serve as an apt example of an industry with very high barriers to entry due to its high Capex and Opex requirements.

But wait, then with so many barriers to entry, why do airlines still bleed red? There are many reasons for this, but one of them is stiff competition with low-cost carriers, the 5th, and the framework’s central force (competition among the players).

Before we move on, the below is an interesting tweet response from Anand Mahindra, on being asked to buy the ailing “ Jet Airways ”.

Remember the quote: “If you want to be a millionaire, start with a Billion dollars and then start (buy) an airline!” https://t.co/dYRdwup3kK — anand mahindra (@anandmahindra) June 29, 2019

The US Airline Industry

Following the 9/11 attacks, the US airline industry has been through rough weather. 20+ airlines have filed for bankruptcy protection under Chapter 7. 60+ airlines have filed for bankruptcy protection under Chapter 11.  This list also includes the top 3 out of 4 airlines namely, American Airlines, United & Delta Air Lines, however they were able to exit the bankruptcy within a few years.

The landscape has been constantly changing with a high volume of mergers and acquisitions, resulting in changing market share statistics.

The graph above covering the period January to December 2020 showcases that the top 4 airlines constitute approx. 65% of the market share.

In this story, we are focusing on Southwest Airlines that was founded on the notions of the low-cost carrier but with its unique strategy has been profitable for the last 45 years in a row. 

The takeoff strategy of Southwest Airlines

Southwest Airlines Co. , typically referred to as Southwest, is one of the United States’ major airlines and the world’s largest low-cost carrier airline. The airline was established on March 15, 1967, by  Herb Kelleher  as Air Southwest Co. and adopted its current name, Southwest Airlines Co., in 1971, when it began operating as an intrastate airline wholly within the state of Texas first flying between Dallas, Houston and San Antonio. 

Most airlines back in the 1960s followed the most popular “Hub and Spoke” model for their operations.

Hub and Spoke model – As the name suggests, there is a defined hub from where the flights originate, and the destinations are the spokes.

The benefit of a hub and spoke model is that it has fewer routes, but the major drawback of this model is its rigidity, and if there is a slight change in the airline routing due to weather, etc., it can have cascading consequences to the other planned flights.

Point to Point model – Southwest, being a low-cost carrier, focused more on the point to point model and bought significant process improvements, in a way mastered it to achieve very high operational efficiency.

In the point-to-point model, each flight is a single journey. The origin and destination are connected via a single non-stop flight. The point-to-point model offers more travel options and flexibility as compared to the hub and spoke model.

For passengers undertaking further journeys, they will have to collect the baggage and recheck them for leg 2 of their journey. This model has considerably led to saved travel hours and done away with the necessity for connecting flights.

Key Differentiating Factors in Southwest Airlines Strategy

Southwest airlines is the third largest airline in the United States of America and arguably the biggest in the low-cost carrier segment across the globe.

So, was the operational efficiency gained due to the change in the flight operations model the only reason why Southwest airlines is the #1 low-cost carrier in the world?

NO, let’s understand what differentiated Southwest airlines strategy from its counterparts.

Customer Eccentricity

For Southwest, they keep the customers at the center of their business operations. They offer certain benefits to flyers which are not offered by other airlines, like

• Southwest allows two checked-in bags, free of cost, unlike many of its competitors.
• Flight change thirty minutes prior to the departure is allowed by Southwest.
• Southwest offers free in-flight entertainment like Live TV, Movies, use of whatsapp and imessage. It offers Wi-Fi services at very nominal rates.

All these have resulted in Southwest being the airline with the least number of complaints, according to the Department of Transportation of the United States of America.

Only one type of aircraft

Many airlines have different types of aircraft in their fleet, but not Southwest. Southwest operates by using only Boeing 737 aircraft. It saves a lot of money by:

• Training cabin crews and support staff on only one type of aircraft.
• Maintenance of inventory of spare parts for one aircraft type.
• In case of breakdown, alternate aircraft can be arranged immediately.
• Its policy of not assigning seats helps tremendously as customers can take any available seat when boarding the aircraft, thereby reducing the boarding time. In the case of alternate aircraft also, this policy hugely benefits the airline reducing the turnaround time.

Right recruitment policies

Southwest stresses a lot on the customer experience and hence it is very imperative for the airline to hire the right kind of people. Southwest focusses on hiring people who have an attitude for serving customers.

Employees undergo various pieces of training which also includes cross-training. Training is heavily centered around team building and collaboration.

The Southwest Airlines case study is a lesson in cultural strategy. An organization built on the fundamentals of customer eccentricity, effective processes, and a dedicated team is meant to achieve success and overcome challenges. This model of exceptional customer service can help a business earn an impeccable reputation in the industry. That’s what makes the Southwest model uniquely priced, yet one profitable in this cruel airline industry.

Southwest’s ability to be different and not follow the herd—not to mention becoming America’s largest airline—can be traced in large part to the Airline Deregulation Act. Thanks to this act, Herb and Rollin realized their Vision and the traveling public benefits on every flight, every day. Gary Kelly, Chairman & CEO, Southwest Airlines

-AMAZONPOLLY-ONLYWORDS-START-

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Vinit Joshi is Corporate Planning & Strategy professional with 15+ years of experience across renowned & diversified business groups. When not working or spending time with family, Vinit loves listening to a variety of music

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Southwest Airlines Success: A Case Study Analysis

In this cut throat competitive era service firms may survive with innovative strategies with reference to people, process and physical evidence that differentiate their services from their competitors. The key objective of this paper is to highlight the strategies of Southwest airlines that facilitated it to produce a successful model in airlines industry that was benchmark for the entire world. Paper enlightens that if a service firm gives priority to its employees than customers, it automatically serves customers in better way as services of a company are given through employees and employees’ delight is customers’ delight in service sector.

Related Papers

hasan ahmed

This article analyzes the sources of Southwest Airlines' competitive aduantage 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 is 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. This three-part framework may be applicable to other labor-dependent service organizations.

Revista Ean

Cristian Berrío Zapata

Duhan Can CAKI

The importance of the airline transportation sector in service sector is developing rapidly with each passing day. The new entrants to the market are trying to take some market share and existing firms are trying to increase their market share. These airline companies operating in highly competitive environment are committed to providing quality service in order to meet customer expectations and preferred customer-centric work. The way to retain or gain customers depends on creating brand loyalty in low cost airline industry which is open to international competition. Therefore, the measurement of service quality, customer brand preference and assessing customer loyalty constitute the main objective of the study. In this study, a questionnaire was carried on in order to make clear the common preference of low-cost airline passengers in Ankara Esenboğa Airport. As a scope of this study, we will evaluate the questionnaire of the relationship between service quality of Turkish low cost airline businesses and brand preference. Keywords: SERVQUAL analysis, Low Cost Airline Business, Pegasus Airlines, Anadolujet Airlines

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Research in Transportation Economics

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World Review of Entrepreneurship, Management and Sustainable Development

Siobhan Tiernan

Arnab Gulati

Tio Rico Mc Pato

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