CASE26_Southwest - Southwest Airlines INTRODUCTION From its...

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Southwest Airlines INTRODUCTION From its humble roots, Southwest Airlines has emerged as a major airline in the U.S. In an industry where failure is more common than success, the company has achieved steady growth and an impressive performance record. With no reprieve from intense competitive pressure in sight, Southwest needs to determine if its technological innovations, procedural improvements, managed price hikes, and acquisition activity are sufficient to overcome looming challenges in the industry. What are the key industry conditions which render profits elusive for airlines? Does Southwest Airlines have a durable competitive advantage? Do recent issues (such as safety violations and a labor union dispute) signal inherent weaknesses at Southwest or demonstrate the company's strength at handling threatening situations as they emerge? How can Southwest achieve long-term strategic competitiveness against its rivals? What strategy (or strategies) should the company use to continue its growth? Is Gary Kelly the right person to head up Southwest Airlines at this time? ANALYSIS Industry Environment The commercial airline industry has experienced significant consolidation since its inception over three decades ago. The market for air travel is highly competitive and is characterized by extremely low customer loyalty. Price and destination are significant decision factors in the traveler's selection of an airline. Various initiatives to build loyalty, such as reward programs, have not been effective. Commercial airline bankruptcies have become common in the U.S. and are indicative of the difficulties facing domestic air travel service providers. The following factors continue to exert downward pressure on the profitability of industry participants. o High operating costs o Increasing fuel costs o Consumer pressure for low prices o Decreased business travel, due to corporate budget cuts in the soft economy o Increased costs associated with satisfying safety and security regulations Competing for market control against six major U.S. firms, Southwest is the industry's low-cost leader. New entrants have been unable to successfully compete on Southwest Airlines - 1
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Southwest Airlines the basis of cost, with the exception of 7 th -place rival, JetBlue. Major airlines, recognizing the need to lower prices, have had little success introducing cost-saving measures. In response to strenuous industry conditions, these rivals have had to resort to aggressively retracting their scope -- attempting to operate with fewer aircraft, employees, and flights to restore profitability. Competitor Analysis To determine actions which could yield strategic competitiveness against its biggest rivals, Southwest must first evaluate their strengths and weaknesses and then remain continually alert to new conditions and opportunities in the marketplace. The table below summarily compares the company to its top three mainstream competitors and its sole low-cost competitor. Charts which illustrate revenue and employee
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This note was uploaded on 10/21/2011 for the course ACCOUNTING 101 taught by Professor Fenjimo during the Spring '11 term at College of Southern Idaho.

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CASE26_Southwest - Southwest Airlines INTRODUCTION From its...

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