Case I Success
The Southwest Airlines Corporation is an American company which operates under the name Southwest Airlines. Airlines is the largest low-cost carrier in the United States with its headquarters in Dallas, Texas. Southwest Airlines were initiated in 1967 in a small begging. The Airlines pride itself as being one of the trusted domestic carriers, and they serves the most domestic passengers of any U.S. airline. In 2011 Southwest Airlines bought Orlando-based AirTran Airways, so as to boost its growth trend in the market. Southwest Airlines have ultimately used more than $100 billion in capital in the past decade, but it remains profitable. In addition, they have paid its shareholders dividend yearly - an aspect which shows a steady growth. The Airlines’ balance sheet records are about $3 billion in cash on hand and $600 million in available credit. This is a record to recon within the industry. Moreover, its competitors are experiencing a shrinking passengers’ growth, Southwest Airlines continue to grow its passenger base. The growth in passenger number is a great achievement in the company.
The Airlines operates under a strategy “One Plane Fits All”. Unlike the other airlines in America, which operate several regional jets, turboprops, and narrow-body and wide-body aircraft, Southwest Airlines operate only one plane type, the Boeing 737 series. This is one of the hidden secrets for cost saving strategy for Southwest airlines in aspects of maintenance costs, spare-parts inventories, mechanic training, and other nuts-and-bolts airline issues. In addition, it makes it easy for the company to be flexible in moving its 527 aircrafts throughout the route network minimal cost of disruptions and reconfigurations. While most airline carriers depend on a hub-and-spoke system, which painstakingly collects passengers from different destinations and flies them to a central airport, and then redistributes them to their destinations, Southwest Airlines do not do that, but they only fly nonstop between the two points. This is a strategy to reduce the time that planes rest on the ground. Towards this, the Airlines are calculated to be an Airline one hour longer than other competitors. The Airlines have kept a simple In-Flight Service which ensures that it is efficient in its operations. It operates this by operating one one class of service in a cabin, which is more spacious than in the competitors. There is a relatively happy workforce in the company. The Airlines talk that 87% of their employees belong to a union. However, Southwest Airlines are not known for striking employees. It is also noted that their employees have the highest salary in the industry. Happy employees have enabled the airline to grow their passenger base, since it is known for good services in the market. In this regard, the company has successfully achieved a great reduction in cost, which has enabled it to continually grow its profits. Therefore, the critical success factors (CSFs) are cost reduction for efficient operation. In this regard, the company has made great progress in the local aviation industry in the US despite the global economic crisis.
A business organization can have a number of possible strengths to boost the performance these may include: a pull of skilled manpower, sound book values or financial health, brand name, like Southwest Airlines that is popular across the United States, and adjustment in equipment purchase or installation, inadequate competition, and own premises among. The pool of a skilled manpower helps in cutting the training cost; hence, reduce annual overheads. A good financial position means that an organization can service its financial commitment and access more funds, such as loans. Own premises reduce the amount of recurrent costs. All these strengths can lead to cost reduction that may be needed to adjust to a short-term market need; for instance, the sudden rise in jet fuel prices that will automatically affect the normal running of the business. Strength, therefore, can be used to sustain competitiveness.
Number of Fleet and Types of Fleet
The Airlines, since its inception in 1967,have been tremendously growing in the domestic market. To boost the upward trend, Southwest Airlines have been in the forefront to set a number of world records in the airline industry, due to its preference for high performance machines. Southwest Airlines are the largest airline operator in the U.S., and this is achieved by fleet development to carry passengers to various destinations across the United States.
The significant point about fleet renewal at Southwest Airlines is to facilitate the efficient use of fuel in the long run, as fuel is a global problem when supply dwindles. Renewal replaces older and more energy intensive machines with low fuel consuming ones. The current fleet of aircrafts at the Southwest Airlines is the U.S. leader in the domestic aviation industry. The Airlines have won the overall award for its service and customer care. This has increased their competitive level in the market.
This kind of fleet superiority, which isBoeing 737 series in the domestic and global airline industries, places the Southwest Airlines in a strategic position to continue dominating the industry even in the years to come. The company’s prospectus runs for the next 4 years in terms of new airline arrivals only. These kinds of realignments and strategies will ensure that the Southwest Airlines remain a strong brand.
The airline has not been able to venture into international flights to gain economies of scale associated with operating overseas networks.
Strong Corporate Governance Structure
Corporate governance may be a great strength, if properly structured in an organization, in order to improve accountability in running activities of the firm. Corporate governance builds formidable relationship between the shareholders and business managers. Turner observes that corporate governance “is used to describe a range of issues relating to the ways in which companies may be directed and controlled”. A broader definition of good corporate governance takes cognizance of the social and business environment, to enhance social functions of the firm in society. Stakeholders’ roles are critical in the maintenance of competitiveness and long-term sustainability of an organization’s activities (OECD, 2010). Corporate governance should outline operations with respect to policy structure, its implementation, and other amicable strategies to withhold the stakeholders’ preferences.
The Southwest Airlines, in line with the requirements of corporate governance, have an elaborate corporate governance structure for its full functionality. The Board of Directors is given the responsibility of ensuring the Southwest Airlines corporate governance is created, updated, or protected to enhance the shareholders’ value.. The Southwest Airlines publicly disclose all their policies relating the corporate governance, which builds the stakeholders’ trust. Southwest Airlines Board of Directors maintains the high level corporate governance ethics that are constantly being reviewed to comply with the latest issues that affect the structure. To help in this regard, the Board works on corporate governance structure directed by the following sub-sections:
- The Southwest Airlines Constitution
- Corporate Governance Statement
- Southwest Airlines’s Executive Remuneration Philosophy
- The Southwest Airlines Board
- Board Committee members
- Board Committee Charters
- Southwest Airlines Group Business Practices Document
- Southwest Airlines Diversity Statement
The elaborate nature of the Southwest Airlines corporate governance and its transparency conforms to all the requirements of corporate governance outlined above. Therefore, the firm’s shareholders and all other stakeholders see the accountability of the highest level. They, in turn, trust the company’s ideals, which are an endorsement to its operations for the sustainability of the Southwest Airlines.
The global economic crisis and the continue fluctuation in fuel prices pose a great threat to the Airlines growth and development. In addition, fierce competition in the U.S. domestic market is also another notable threat to its profitability
Case II Failure
The first come first serve boarding system as well as bags fly free strategies have elicited a fierce debate on the practicability of these strategies in the aviation industry. However, this daunting questions have been adequately answered by the Southwest Airlines The Southwest Airlines for many years it has operated, the company established a unique boarding system, which involves not assigning seat numbers to passengers, but rather passengers can get their seats on the plane on a first come, first serve basis, without any classification. This system of boarding the plane makes passengers in a more egalitarian situation. Also, unlike most competitors, the Southwest Airlines do not put any charge for passenger’s checked bags. “Bags Fly Free” is a tagline for marketing, and this attitude promotes an image that Southwest Airlines need to project, that they are committed to serving the interest of customers on the basis that they offer discounts.
While almost all airline companies assign seats by giving the passengers a chance to choose a where to sit when they are getting their boarding pass,. But in Southwest Airlines operate in the contrary by ensuring that each customer is given an opportunity based on his or her arrival time. It is prudent to note that having operated under this policy for many years, the company took took to review of the policy. According to Garry Kelly, the Chief Executive Officer of Southwest Airlines, the policy of first come first serve boarding system will have to stay. The Southwest Airlines surprised many of its rivals on its policy of not charging bags. This strategy has put its competitors on a very bad light in the eyes of the passengers. In this regard, the airline uses the strategy as a marketing tool not only to make it one of the most profitable airlines in the US but also efficient in its services to the passengers. In this economic dynamic economic crisis, the Southwest Airlines has strategically positioned itself to ensure that it continuously offers the best services which not only satisfy the customers but also reflect on their aspiration.
The aviation industry is very competitive and each airline must innovatively design strategies which are geared towards business sustainability. Therefore, Southwest Airlines first come first serve boarding system and bags fly free strategies are some of the main competitive advantages which the airline pride itself on. It should be noted that there are several passengers who still believe that seats should not be allocated but rather got through the basis of first come first serve and to ensure that the airline maintain this segment of customer, the strategy is still well embraced. In addition, a company tradition is quite important in its marketing and operation culture. Therefore, Southwest Airlines has maintained its culture which has been the bedrock of its success for the many years it has existed. In the US, many airlines reap a lot of revenue based on the charges they put on bags. But the Southwest airline has not been lured into this aspect of charging the passengers extra money on their traveling bags. It should be noted that, with modernization and the global trend in aviation, the above strategies are outdated and forms part of the stumbling block for the company to achieve its full potential in the market.
The strategy to leave the passengers to get seats on the first come serve basis has brought disorganization in the airline boarding system. However, it might have been created on a good note, but the social status of the day does not favor it in the market. This is because it promotes unnecessary disagreement among passenger. In this regard, the strategy has failed, and it does not promote economic prosperity of the Airlines.
Southwest Airlines have generally been able to sustain their critical success factors (CSFs), which include cost reduction in its operations. This has enabled them to be profitable in the dynamic and competitive industry. Cost reduction strategies of the Airlines are designed and geared towards better services for affordable costs. In this regard, the Airlines have transformed themselves into one of the biggest American domestic airlines.