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Southwest Airlines(2009). Outstanding Service at the Lowest Fares. Mission Statement (actual). The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
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Southwest Airlines(2009) • Outstanding Service at the Lowest Fares
Mission Statement (actual) The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Vision Statement (Proposed) • At Southwest, we strive to be the new generation of flight transportation while providing luxury at a price anyone can afford.
Mission Statement (expanded) We are committed to quality service for the everyday person (1). Southwest provides air transportation to cities all around the United States (2, 3). We fly the most luxurious planes on the market with the latest technology money can buy (4). We competitively provide the lowest airfare price in search for the greatest advantage in today’s busy world (5). We provide the highest standards of safety for all our customers while still offering a reasonable price (6, 7). A portion of our proceeds are donated to various charities throughout the United States (8). Since our first flight in 1971, our employees have been the vital asset in making Southwest the most recognized airline today (9).
Mission Statement Components 1. Customer 2. Product or services 3. Markets 4. Technology 5. Concern for survival, growth, profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees
SWOT STRATEGIES-WO • Hire more part time workers (W1, O11). • Add new technology to older planes in order to become up-to-date and accommodate the handicapped (W6, O8). • With airline companies selling planes SW can purchase models similar to the 737, which could lead to better press if a problem with the 737 arises (W5, O2). • Offer in flight meals for those who meet appropriate requirements based on points received from Visa card usage (W11, O6). • Install televisions and satellite radio in planes for enhanced customer service (W10, O7). • Provide higher quality and luxuries (first class) in some jets for customers willing to pay extra (W8, O9).
SWOT STRATEGIES-WT • Using the code share with ATA airlines begin offering flight to select areas outside the US including (Cozumel Mexico, Select Canada locations, Paris, London, etc.) • Shorten the flight life span of the B737’s in order maintain planes that are consistently up to date with technology. This will allow us to hedge any risk of negative problems arising with the 737’s. Maintaining new equipment allows us to easily liquidate the assets when new items are needed to be purchased. • Add new cities not flown to by Southwest such as Atlanta, Charlotte, Chicago, and New York
RECOMMENDATIONS • The QSPM strategies assessed adding 12 new planes to the fleet or retiring older planes. It is recommended Southwest add 12 new planes at a total cost of $500 million.
$ Amount Needed: 500M Stock Price: $13 Tax Rate: 35% Interest Rate: 7% # Shares Outstanding: 735M EPS/EBIT Analysis
Mission/Vision • Give SW Customers the Freedom to Fly • Low Fares • Frequent Flights • Friendliest Service in the Sky
Strategy to Date • Low Cost, Low Fare • High Frequency • No Frills • Almost No Interlining • No Hubs, No International • Point-to-Point Short-Haul Service • Regional Service HQ in Texas
Strategy Success to Date I • Net Income at $499.0 million in 2006 • Passenger Revenues in 2006 at $9.086 Billion • Many years of top airline performance re: on-time; complaints; and lost luggage • 33 consecutive years of profit through 2006
Strategy Success to Date II • Diluted EPS of $.61 in 2006 • Rivals Delta & United near Bankruptcy • Overall SW looks strong in 2007 despite the aftermath of 9/11 • Long Term Debt at $2.887 billion in 2006
Internal Analysis: Strengths • Low Cost • Fast Turnaround • Work Force commitment and flexibility • Differentiation --not just low cost but better service (on time, no lost luggage,fewer complaints) • Leader in Re-engineering • Operational Simplicity
Internal Analysis: Weaknesses • Low Economies of Scale (small relative to other majors, short routes) • No Hub System • No code sharing -- can sell only tickets from its own offices • No Interlining • No International Routes
Internal Analysis • Financial • Marketing • Management • Operations • Information Technology
External Analysis: Opportunities • Market Expansion: over 100 cities have asked Southwest to offer service • Longer Flights • International Expansion to Canada and Mexico
External Analysis: Threats • Weak Demand • New Rail Service (Dallas to Houston) • Increased Competition -- if they lose their Love Field Restrictions • Increased Regulation (noise) • Dependence on Domestic Markets
External Analysis: Porter’s 5 Forces • Entry of New Competitors: Unlikely • Substitute Products: High Speed Rail, Video Conferencing • Competition Among Existing Competitors: Strong • Power of Suppliers: In 2007, Weak for Aircraft but Strong for Fuel Suppliers • Power of Customers: Strong
External analysis • Economics • Demographics • Environmental • Legal • …...
Strategy Alternatives • Continue Present Strategy -- --Problem is limited growth • Expand Geographically --Point-to-Point --serve other regions efficiently • Expand Geographically --Major Hubs • Remain Regional --through hubs • Increased ticketing via internet
Should Southwest Code Share? • PRO: Increase visibility and potential customers • CON: Increase Costs
How Can High Worker Commitment and Productivity be Sustained? • As Company Expands, New Workers Will Be Needed with Company Culture Transferred to them • Reward System with Bonuses and Incentives but within Cost Controls
Management Depth • Management will have to be extended to support expansion • Kelleher, Kelly and Barrett are still the top trio (see p. 242)
Conclusion • Southwest is a Benchmark Competitor --Setting Industry Standards • They have successfully expanded and continued to innovate -- e.g., ticketless travel, boarding pass download at home or office prior to going to the airport, friends fly free, use of underutilized airports, etc.
Recommendations • Continued Gradual Expansion • Maintain the characteristics that have enabled their success: • Conservative Growth • Cost Containment • Commitment of Employees • … • … • ...
Update • 2008 Results (from SW Website) operating revenues at $11.023 Billion up 10% over 2007 • Expansion continues with new service at San Francisco, planned service to New York • Stock Price 2/9/09 = $7.18; 52 Week Range $16.77 to $6.56 • Hedging on Fuel was successful as Fuel Prices rose but costly when they fell in late 2008.
