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Southwest Airlines research paper Essay Southwest Airlines, since the beginning has struggle and fight to get in the airline business. Starting with Dallas, Texas. Southwest had to fight to stay at Love field airport, when all the airlines moved to the new Airport of Dallas-Fort worth International airport. Winning this battle gave Southwest the opportunity to get all the customers they wanted, from the near downtown airport, instead of driving 15 miles for the new airport, pay for expensive parking and having to arrive one hour earlier. However the other airlines did not like it, like American Airlines and Braniff International. They would have to pay higher fees for use of the new airport and Southwest Airline did not. The other great battle was when Southwest applied to fly from Houston to New Orleans, the application of Southwest Airlines was opposed by local government and by the airlines that flew that route and were operating from the new airport of Dallas-Fort worth, DFW, they felt this could divert customer that could change flying from Houston better than DFW . Jim Wright who was Forth Worth Congressmen was ask by Southwest opponents to help, and as he was a majority of the U. S. House of Representatives, Wright took it to Washington and a new law emerged. The Wright Amendment of 1979 said that â€Å"No airline may provide nonstop or through-plane service from Dallas Love Field to any city in any state except for location in Texas, Louisiana, Arkansas, Oklahoma and New Mexico. † (Thompson, A Gamble, J. (2010). Southwest could only advertise flights out of Dallas Love Field to these five states. The Wright Amendment continue for 18 years, then in 1997 three more states were added to the â€Å"Wright Zone† Alabama, Mississippi and Kansas , and in 2005 Missouri. On 2006 Congress legislation was passed and signed into law that repealed the Wright Amendment beginning in 2014. â€Å"The legal regulatory and competitive battles that Southwest fought in its early years produced a strong esprit de corps among Southwest personnel and a drive to survive and proper despite the odds. † â€Å"They have the warrior mentality, they are here in the airline business to stay and will fight for their share of the market†. (Thompson, A Gamble, J. (2010) The idea of having ticketless help the airline to saved money on paper and accounting for all these tickets. And the idea came from one of the employees. Southwest Airlines places their employees before the customers, this idea has given Southwest Airlines and advantage in customer service that other airlines do not have. In this company the employees feel free to come with ideas and implemented them, if the ideas do not work they will not be reprimand or fired, the failure will be used as example and experience. That gives the employees empowerment and the courage to keep looking for new ideas to improve the service and the company. Herb Kelleher has been an important figure in the culture of Southwest Airlines, with his background; majored in philosophy and law graduating with honors on both. Herb, as everybody called him in Southwest Airlines has given this company a unique culture, where the employees sing and dance with the customers and they give friendship and love more than just customer service. This style has worked for more than 40 years, the airline is love by their customer, who do not really care that there is no first class or preferred seating. They just want the good service and to be transported from point to point safe, on time and with a better price. Even their stock name reflects love. NYSE LUV is Southwest financial name. (Thompson, A Gamble, J. (2010) Southwest Strategic planning for the future, and buying fuel in advance for their planes, gave them the opportunity to save millions of dollars. Southwest was the first airline to negotiate these prices with the oil companies. Southwest Airlines has its own school for flight attendants and training for employees, there is no other University that can train them with the special Southwest Airline Culture. Other airlines have the training schools too, what happen is that the culture is different. Other airlines like United trained the flight attendants for First Class and Business class, besides economy, their training takes longer and their uniforms are more expensive. Southwest uniforms are less expensive and they only have one class, economy. Their flight attendants are also trained to clean the plane on turn around. Other airlines have a cleaning crew that gets into the plane and clean it while the flight attendants are resting; however some airlines have adopted this plan since 9/11. This has saved Southwest salaries on each city for cleaning. Only on cities that the planes stay overnight they have a special cleaning crew that gives the plane a complete service. (Thompson, A Gamble, J. (2010) The idea of having only one type of equipment has given great savings, comparing with other airlines that have different aircrafts and need mechanics specialized on each different aircraft and to have different kinds of plane pieces of maintenance according to each plane. Southwest has all his mechanics highly trained for only one kind of aircraft and the maintenance inventory of their pieces for maintenance in their planes are all the same and this means that they do not need millions of dollars in equipment and train mechanics for each different type of aircraft. After 9/11, Southwest shines like a start as the only airline that do not lose money in 2001 or 2002 and the only airline that did not furlough any of its employees during this time that the rest of the airlines furlough about 500,000 employees among them. It was here when all the eyes of the analyst look at Southwest as the marvelous company that has been doing the right thing all the time, and that was prepared with enough cash, for any eventuality. Southwest Airlines is name in every management book as example of how to conduct an airline and what strategy they have to hold their employees and have very low turn around. Strategy which gives their passengers what they want, and also the strategy has made Southwest a profitable airline since 1973. (Thompson, A Gamble, J. (2010) Company Mission Southwest Airline’s Mission, Vision and Triple Bottom Line Commitment to Performance, People and Planet. (See Exhibit 1) â€Å"Southwest Mission is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride and Company Spirit† (Southwest Airlines). For Southwest Airlines the employees come first and customer second. By having employees satisfied with their job, and treated like family, they will be able to give the best customer service with warmth, friendliness and keep all customer satisfied too. The airline has pursued low fares to make affordable travel to a majority of middle class customers. By charging low fares, and no charging extra fees on baggage, and changing tickets, the customers know exactly what they are paying without paying any extra charges. Southwest serves 72 airports in 37 states and transports 89. Million passengers annually. Southwest had a revenue of $89. 08 billion from November 2012 to November 2013. (Bureau of Transportation Statistics) Internal/External Analysis Strengths  Southwest Airlines firm operating strategy has given profit for 40 years, flying from point to point instead of having a â€Å"hub† like other airlines do, has given Southwest the opportunity to utilized their hours flying for each plane more than others. With their 20 minutes turn over on each point, the airline has on the air their planes most of the time. This capacity utilization makes their cost down and has a competitive advantage over other airlines whose turnaround times were more than 30 minutes. Their bargaining power with suppliers like fuel prices paying in advance and saving millions of dollars over other airlines. Their labor efficiency and pay scales. By training their employees to perform the best and guarantee them good pay and becoming more important than customers, Southwest has economized in having fewer employees per aircraft than other airlines. Employees have in average the same salary as other airlines, employees get profit sharing plan, however they work more. In economies el scale, Southwest Airlines operates only jets Boing 737-300 with 173 planes, Boeing 737-700 with 343 and Boing 737-500 with 25 planes. Having the same kind of planes they operated with very low cost. Widespread Reach: As of the end of 2011, the company serviced 72 cities in 37 states, stretching across the entire United States, and their AirTran acquisition now extends their reach into international skies, mostly over Mexico and the Caribbean islands. Southwest announce 15 more nonstop services from Dallas Love field Airport. Online systems and software, Southwest Airlines invested in next-generation technology and software to improve its ticketless system and its back-office accounting, payroll and human resource information. Previously they have invested in its management information systems to speed data flows and upgrade its customer capabilities. In 2001 implemented new software to generate optimal crew schedules it help improve on-time performance and reduce employees in the schedule department. Southwest operating cost had been lowers than other airlines. (Thompson, A.p. C-294. 2012). Successful differentiation from other airlines is their employees culture, which is transmitted to the customers, employees give a warmth customer service, normally calling the passengers by their first name, singing and hugging and kissing. No other airline does this. †(Guenette, R. November 13, 2013) By giving the same product at a better price than other more expensive airlines, Southwest Airlines has been able to have a larger share of the market. Southwest has a reputable brand with excellent record of safety, this is a major advantage. For the first Quarter of 2013, Southwest reported earnings and revenue that exceeded Wall Street expectations (EPS: $0. 07 per share, Revenue: $4. 08 billion vs. EPS: $0. 02 per share, Revenue: 4. 07 billion). Additionally, average passenger revenue per available seat mile rose 1. 8% along with an increase in passenger traffic by 0. 3%. Keeping the strong numbers in mind from the last quarter, analysts are optimistic about Q2 2013 earnings ($0. 39 a share, up from $0. 36 during Q2 2012). (Ing, S. July 24, 2013). Weaknesses Operating Expenses: The average cost per gallon of fuel from 2005 to 2011 grew 182.  30%, the consumer is constantly demanding added services and amenities to their flights, and the unions are viscously battling for more money for their members; at the end of the day the company does not have much money left over (net profit margin is 1. 14%). Debt: The Company is estimated to possess $361 million of debt on their balance sheet, and until they pay down these debts it will drag significantly on their business. Depending on only one company as supplier for their planes can be a problem if the supplier fails or stop their production. Although Boeing is a robust company, changes can affect Southwest Airlines. The economy, even though Southwest is a low cost airline, until the economy continues low, people cannot fly unless is business or emergency. Achieving sustainable competitive advantage for Southwest is becoming harder as operating costs are going up and the company has a low net profit margin. (Guenette, R. November 13, 2013) Opportunities The industry attractiveness is a strength and an opportunity for Southwest Airlines, the only major airline that do not charge for baggage, many customer look into this as they are also attracted for the price the service, safety and excellent rate on time performance. As a complementary strategy function, Southwest Airlines acquisition of Air Tran gives them the option to fly international for the first time. This acquisition strategy strengthens competitiveness for Southwest Airlines, and gives the opportunity to enter into international markets. Customers that look at how the companies treat their customers and employees, Southwest Airlines have won awards every year for customer satisfaction and by putting their employees first and second their customers. Other airlines that treat the employees as if they were only a number are losing money every year. Example American, United Airlines and Delta Airlines. (Thompson, A Gamble, J. (2010) Threats. The culture establish by Herb Kelleher may not be followed by Gary Kelly and Southwest Executives. Another airlines that are following the pattern of Southwest Airlines, like Jet Blue and Allegiant could get a better share of the Market The airline industry is incredibly competitive, and the race to get the consumer’s business often leads to margin contraction Weather Uncertainty: As we have seen most recently with snow storms in the North east, natural disasters can cause major losses in business for the airlines, and because Mother Nature is so unpredictable, there is always major uncertainty revolving around the company When jet fuel prices rise, airline companies are faced with the decision of passing the pain onto their customers and possibly losing business, or swallowing the costs and ruining their margins The company operates mainly in the United States of America, and thus any economic slowdown exclusive to the American economy could drastically hurt Southwest’s business, while other international companies possess the ability to overcome American decline economy if internationally the economy is better. Goals and Long-term Objectives The analysis shows that Southwest Airlines should seek International market share to gain access to new customers and to spread business risk across a wider market area. Actually Southwest is solely business is within the United States, with the acquisition of Air Tran which was already flying to Mexico, and the Caribbean, Southwest Airlines attempt to fly international is one of the goals and long term objectives. The company has measures their steps into new markets after studying the market and the possibilities, Southwest Airlines will do the same with flight to international markets. Air Tran is already flying to Cancun in Mexico and Puerto Rico in the Caribbean, soon other cities could be added, like Acapulco and Puerto Vallarta in Mexico and other Islands in the Caribbean. Southwest Airlines should not follow an aggressive strategy as the economy is not strong enough. It should continue marketing in the cities where these flights are going to depart from the United States and on their international destination. Southwest Strategy of acquisition has saved the company of all the expenses and complex structure to work in a foreign market. All these procedures and permits and agreements with international governments and the IATA. (International Air Transport Association) are already done by Air Tran. Strategy Selection Southwest Airlines should use the â€Å"Think Global act Global Strategy†, as an International Airline. Southwest Airlines has a brand that is recognized International mainly by the way this company has performed during its 40 years since they start flying. Customers around the world know about their code of ethic, their mission and the way they have run the company by employees first then customers, their safety record and on time performance, and very important their low cost. Should also continue with the Ethical and Cultural Strategy that has been core of the company culture. As the social Responsibility and Corporate Citizenship Strategy. The company Social Responsibility Strategy has been example to many companies not only in the United States, but in other countries too. . (Thompson, A Gamble, J. (2010) Southwest action to enhance employees well-being, by treat them like family and putting their employees first, even before its customers, has given them the merit of recognition of one of the best companies to work for. The company has an ethical strategy and operates honorably and ethically, this was clear when Southwest Airlines was the only Airlines after 9/11 crisis, that did not furlough any of its employees. The airline showed with this example the ethic and honorability which has been their Strategy since the beginning of the company 40 years ago. (Thompson, A Gamble, J. (2010). Southwest Airlines supports several charitable causes, participates in community service activities and contributes to the overall betterment of society. (Thompson, A Gamble, J. (2010) Southwest should continue with these Strategies, as they have shown how well they work for the company, their employees, their customers and their community. These Strategies of Social responsibility and the Strategies stated before about the Vision, Mission, objectives and basic competitive Strategies. Southwest as a low-cost carrier has seen its cost base edge up over the years as it has matured and gained in scale. In response Southwest has modified its business model and has started to fly from crowded markets, such as New York’s LaGuardia . The 2011 Air Tran acquisition, the biggest in Southwest history, has accelerated the process of expansion, and has given the company a larger share in the Atlanta domestic market, and also the international destinations in the Caribbean and Mexico. (Sing, C. 2013) Recommendations/Implementation The above analysis shows that the best recommendation for Southwest is to continue opening new routes in Mexico and the Caribbean. Having already open the door with Air Tram to Cancun, it is feasible that the same permits can be used to fly to the same country. The two destinations we suggest are Acapulco and Puerto Vallarta, following with Los Cabo’s after one year. All these three cities have facilities and International Airports. The affluent of Tourists to these cities is year round. Southwest Airlines could fly these routes with 2 aircrafts. The Company has a contract with Boing for 25 planes during the next 10 years. (Southwest Airlines One Report (February 3, 2013) The persons in charge of this venture will have to be trained to handle international law and all the complex regulations that an airline has to comply, however among the employees of Air Tran; there must be the experience person or persons, needed to handle the opening of the new route. The hiring of ground personnel at the airport of the new destinations, have to be done locally, and the operation manager can be an American. Mexican Immigration Law requires that employees should be of Mexican Nationality, However the Manager can be an American with a job permit up to 2 years (Mexican Immigration Law). Marketing for these two new destinations has to be done principally on the cities that fly nonstop to the new destination. Marketing has to be done also at the new destination, to gain international market share for the airline. The company has the sufficient funds to open these two cities and start operations by next year 2015. (Annex 3) The Company has already a reservations office established and all the ground support for the International service from Air Tran.