Southwest leader. Southwest has an excellent strategy and

Southwest Airlines is one of the largest
airlines based on the number of passengers using their services within the
United States. Also Known as the “Discount Airline”; they provide some of the
lowest airfares in the industry in comparison to their competitors, for many Southwest
Airlines is the most convenient US Domestic carrier. Southwest Airlines was formed in June of 1971 by Herb Kelleher and
Rollin King with its first flights from Love Field in Dallas to San Antonio and
Houston. Their strategy was very simple: “Attract passengers by flying
convenient schedules, get passengers to their destination on time, make sure
they have a good experience, and charge fares competitive with travel by
automobile” (Thompson & Gamble, 2016). King and Kelleher’s drive and
ambition has been the key to Southwest’s success to this day. In 2014 Southwest carried 134 million
passengers in the U.S., more than any other airline (Yeo, 2016).

There are several things
about Southwest airlines that are particularly impressive. In an industry in
which every other company has gone through bankruptcy, southwest has never been
close to going bankrupt. Not only that but they were able to make profits for
42 years straight, in 2014 Southwest was the top-performing stock in the
S&P 500 (Baker, 2015). By thinking different and not following what
everyone else was doing in the industry they were able to take advantage of
profit opportunities. For a long time, Southwest focused on flying to and from
small airports where it faced very weak competition and as they grew they were
able to expand into bigger markets. Another thing that is very impressive about
Southwest Airlines is their Company culture, a culture that allows employees to
be heard and feel as they are really part of the Company. The thing that many
find the most impressive about Southwest Airlines is Herb Kelleher and Rollin King’s
determination to succeed in a very competitive and tough industry, despite all
the challenges and obstacles they faced throughout the years they were able to
beat all the odds and become an industry leader.    

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Southwest has an excellent strategy and
it’s definitely a winning strategy based on how they’re performing thus far.

Southwest’s management deserves an A for the exceptional job they’ve done in
crafting the company’s strategy. They have been able to differentiate
themselves from their competitors ever since their initiation, by keeping their
fair prices low and providing brilliant customer service. They were able to
think and act different and not follow what others are doing and that is what
is admired about their strategy. Being able to survive in the airline industry
is a very difficult thing and Southwest was able to do that by simply pleasing
their customers and attracting more and more customers by providing what the
customers want. By keeping their operating costs low, they were able to
constantly generate profits unlike many of its competitors who struggled to
make profits and lost billions of its money.

The following chart demonstrates Southwest
Airlines’ stock prices for 2012-2013 in comparison to competitors. Southwest
has the ticker symbol LUV as mentioned in the case. We see below that the stock
price for Southwest is moving upwards and that is not a surprise when we look
at how the company has been performing. Currently the stock price for LUV is
traded at $63 (Bloomberg, accessed on December 7, 2017).

 

There are a number of operating
practices, policies, and procedures that Southwest is implementing in order to
maintain a low-cost/ no frills strategy. The first point I wanted to mention is
that Southwest uses or operates on only one type of aircraft which is the
Boeing 737. And that is very smart and efficient, by doing that they’re able to
make maintenance and repair simpler and if you only have one type of plane then
it is very easy to find and replace parts. Which of course helps to keep costs
down and that helps them to maintain their low-cost strategy. Another important
aspect of how they operate is that they mainly fly to medium sized airports
avoiding high cost airports and airports with lots of traffic. Also, as
mentioned in the case Southwest has a very short turnaround time, which means
that it quickly turns around its planes from landing to takeoff. By doing that
they are able to get to more destinations without having to expand their fleet
of planes as discussed in the case.

There’s no doubt that Southwest is a
company with a strong culture. Unlike many companies that try to put their
customers first and then their employees, Southwest knows the importance of its
employees and puts them before their customers. Kelleher believed that if you
treat your employees right, they will treat your customers right (Thompson
& Gamble, 2016). Kelleher was also a strong believer in listening to
people’s ideas and letting them know that they’re appreciated. He says, “That
has been a very powerful competitive weapon for us” (Thompson & Gamble,
2016). There are a few elements that make up Southwest’s culture but how they
treat their employees is what makes the company’s culture a strong one. Another
important element of their culture is their excellent customer service which is
of course a product of how they treat their employees. I don’t think that the
departure of Herb Kelleher would have a big impact on the company’s culture and
that is simply because the company has been established long enough and the
culture became a part of the company. Gary Kelly has been a part of the company
for a long time and he’s aware of Southwest’s core values and key elements of
its strategy and culture. But of course, as time goes on things change and Gary
Kelly must be able to adapt to those changes by putting his own touches to the
company’s strategy, which he did. As mentioned in the case “In 2008–2009, Kelly
initiated a slight revision of Southwest’s mission statement and also
spearheaded a vision statement that called for a steadfast focus on a triple
bottom line of Performance, People, and Planet” (Thompson & Gamble, 2016).

They both wanted the best for the company and they both had the same mindset,
and many people believe that Gary Kelly won’t have any issues in sustaining the
company’s culture.

Southwest’s management didn’t just do an
exceptional job in crafting the company’s strategy, they made sure that the
strategy they crafted was implemented and executed in the best possible way.

Southwest’s strategy implementation and execution has been very successful, and
we are able to tell from the company’s performances and their current operating
practices. Southwest’s management deserves an A for being able to implement and
execute the company’s strategy in an effective way. Southwest has followed
several operating practices and execution approaches, and many of which have
been crucial in the success of the company. To achieve their low-cost/ no frill
strategy, Southwest has operated one type of aircraft as mentioned before. In
doing that they’re able to make maintenance and repairs simpler and this has
been extremely crucial in their success because it helped the company to keep
costs low. Another operating practice that has helped Southwest in their
accomplishments is their customer service which is a product of how they treat
their employees. Southwest knows the importance of its employees and puts them
before everything, and in return the employees deliver excellent customer
service. Employees are an important asset to any company and Kelleher believed
that listening to people’s ideas and getting them involved is the best way to
make sure that strategies are being implemented and executed well.

Below are the debt to equity ratios for
2011,2012, and 2013. As we see below the ratio is decreasing which means that
the company’s debt is decreasing compared to its equity. From figure 2 we see
that Southwest Airlines has a price-earnings ratio similar to the industry
average. Earnings per share (EPS) is another ratio that is very valuable,
especially for investors, and EPS has also been increasing throughout the
years.   

 

In the table above, we see the current
ratios for 2011, 2012, and 2013 and of course this measures a company’s ability
to pay short-term debts and other current liabilities using its current assets.

Any ratio above 1.0 is an indication that a company is able to cover its short-term
liabilities. Those ratios are not looking very good, however, to understand
these ratios better you must understand the types of current assets the company
has and how fast it could be liquidated. So, this does not always indicate that
a company is in trouble, but for investors this is an important ratio and
Southwest must address this issue. 

In closing, Southwest has done an
excellent job in maintaining their position as one of the largest airlines within the United States. By keeping their
operating costs low, they were able to constantly generate profits unlike many
of its competitors in the industry. Nonetheless, in order to maintain their
level of growth and remain a successful company they must make a few changes to
its operations. First, I would recommend to Southwest to expand its operations
to other countries since currently the airline is only known nationally.

Southwest can start by introducing flights to countries like Canada and others
in South America. The addition of international service is very important for
Southwest at this point and can bring new revenue opportunities for the airline
and open new markets. Second, I would recommend to Southwest to update its
product, which is of course their aircrafts. Their product is outdated and needs
to be updated in order to keep up with other airlines. Of course, Southwest
tries to keep its costs as low as possible but spending on small things like
updating an aircraft can be appealing for many customers. Finally, as costs
rise in the airline industry, especially fuel prices, Southwest must find a way
to generate higher revenues to cover all the costs. My suggestion for that is
to slightly increase fare prices, even if by a couple of dollars. This slight
change in fare prices could be structured in a way that would not be noticed by
flyers.      

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