southwest
...hwest’s fleet of planes consists entirely of Boeing 737’s, minimizing the need for extra parts for planes they do not have and making it easier to train maintenance and repair workers to be able to fix problems with the 737’s quickly and efficiently. • Being the first to launch the Boeing 737-300, 737-500 and 737-700, Southwest was able to obtain these models of 737’s at a lower price than other airlines have been able to obtain them. • Website sales of tickets reduces the amount of money passengers have to pay for obtaining a travel agent and cuts the cost of producing paper tickets by half for Southwest. • Ticketless travel was up to 80 percent of all sales for Southwest which cut down paperwork and processing giving Southwest employees more time to concentrate on their customers. • Southwest attempts to stay away from flying into congested airports in large cities, so instead of flying into those cities, Southwest flies into medium sized cities and metropolitan areas increasing its on-time rating. • Flying into smaller cities and metro areas saves Southwest on fuel expenses because planes no longer have to circle large airports waiting to land or taxi on the runways until a gate is available. (C-605) • Southwest does not have to pay the large landing fees and gate and terminal costs at large airports that were controlled by which airline was willing to pay the most. • Southwest has a point-to-point system rather than a hub-and-spoke system which makes it more cost efficient for Southwest, minimizing time spent for planes at the gate and the number of gates that Southwest must have to operate. • Because of point-to-point systems, Southwest’s labor costs are lower than that of competitors. • Southwest did away with assigning passengers seat numbers, giving everyone an equal opportunity to sit where they wanted depending on the time they arrived to the terminal and got in line. (C-606) • Attention to customer satisfaction is a high priority and is believed by Southwest to be one of its competitive advantages over its rivals. (Appendix A) • Marketing and promotions with special deals enticed more customers to fly Southwest. (Appendix C) • Southwest began adding more service in areas where its competition was cutting back such as California. • Good relationships with employee labor unions help keep the employees of Southwest coming back to work. • The management was required to spend at least one third of their time out of the office walking around the facilities and observing what was going on and listen to their employees bringing employee satisfaction up. • Planned no cutbacks after the terrorist attack. Southwest Airlines Weaknesses • Only have Boeing 737’s is a weakness because Boeing, being the only supplier to Southwest, can control whether or not Southwest stays in business by its prices of planes to Southwest. • Southwest offers no international flights leaving that market resource untapped for Southwest and the possible revenues it may generate. • Southwest has a no-layoff policy that is a possible weakness if an employee is not up to the standards and culture of Southwest. Southwest Airlines Weaknesses after 9/11 • Southwest had to cancel about 9,000 flights between September 11th and September 14th. • Southwest had incurred losses between three and four million dollars each day after the terrorist attack in September. • Reschedule of delivery of new Boeing 737’s numbering 26 new total jets. • The fact that air travel after 9/11 diminished, new low fare competitive pricing coming about from larger airlines gives more competition to Southwest who is known for its low prices. • There was a total loss of $95 million in the month of September after the terrorist attacks. • Decline in stock price of 24.1% the first day after the terrorist attack. (Appendix B) Southwest Airlines Opportunities • If Southwest were to move into larger airports like John F. Kennedy or LaGuardia Airport, the low fares may be enough to pull customers to Southwest flights. • Southwest could enter the international market and offer low fares from country to country. • Southwest can take advantage of the fact that it did not make any cutbacks after the terrorist attack and can operate with its normal capacity. • Able to return to full flying schedule of 2,772 flights six days after the attack, giving Southwest the opportunity of a quicker economic return in the industry. (Thompson C-629) Threats to Southwest Airlines • Tough economic bounce back after the terrorist attack. • Many people are scared to take flights after the terrorist attack yet Southwest stays at full capacity employees. • Estimated preattack losses were dangerously close to $1.5 billion in the industry because of the slowing of the economy. • After the attack, analysts believe that the economic effects could be losses somewhere near $7 billion. • Estimation of money used to battle the expenses after the terrorist attack was over $220 million per day for the airline industry. (C-628) Problem Statement The result of the terrorist attack on the United States has scared many Americans into choosing other forms of travel besides air travel. The airline industry has suffered greatly in terms of revenues and debt, and one of these companies within the industry that has suffered is Southwest Airlines. Southwest Airlines’ losses for the month of September of 2001 totaled $95 million and Jim Parker is worried that if the conditions stay current that the losses incurred will be even greater. Also, since the number of travelers has decreased due to fear, other airline companies have begun to decrease their fares to attract travelers back to the airline industry, putting Southwest’s current low fares in competition with new competing low-fare airline incentives. If Southwest lowers its fares to keep up with the increasing competition to gain the airline market back, Southwest will not be able to cover its losses of $95 million in September and the losses it may incur from then on. Causes of Problems Total revenues before terrorist attacks in the year of 2000 for the major airline carriers was $98.1 billion yet after the terrorist attacks the loss was expected to be about $7 billion. (Appendix D1) This was pointed out by a large stock decrease the opening day after the terrorist attack. As shown in Appendix B, the major U.S. airlines all have had declines in their stocks the first day open on the market after the attacks. America West had the largest decrease in stock price with a 65.1% decrease. Southwest Airlines has the lowest decline in stock price, only decreasing in price by 24.1%. Ticket sales for Southwest Airlines are down 9% a year after the terrorist attack. Increasing competition of low-fare tickets from other airline companies are being introduced to the industry. Schedule cutbacks also forced many people to stop flying and choose a different mode of transportation, leaving the airline industry at a major loss. Major airline competitors are afraid that normal flying schedules will not return until the summer of 2002 and if that happens there will be a $15 billion loss in 2002 alone. So the introduction of low-fare tickets from major airlines puts more pressure on Southwest because initially, Southwest was the only major airline offering tickets for an average of fifty dollars. Southwest ultimately lowered its fares as well to keep up with the increase in competition, making Southwest lose even more money. Southwest had lost $95 million in September alone and lowering fares even more than they are will not help Southwest to control its debt and pay it back. Alternatives • Southwest can introduce a new ad campaign targeted at making people feel safe to fly again and yet keep its fares still low but not lower them anymore than they are. The ad slogan can read “They Can’t Keep Us Down,” with a picture of a plane painted like the U.S. flag flying high in the air above the country. • Southwest could continue to lower its fares and ultimately file bankruptcy to get rid of any kind of debt it incurs from lowering its fares so low that it cannot make up the difference. • Continue Eastern expansion into areas like Baltimore and Providence and the Northeast where MetroJet, US Airways’ subsidiary, and keep low fares and incentives such as the rewards program that Southwest previously has. • Continue as Southwest has been doing running its full schedule and holding off on the receiving of its new 737’s from Boeing until 2003 or 2004. • Continue as scheduled with the new 737’s to continue the company growing and apply for a grant that will help pay for the planes since the government is willing to give $120 million to Southwest Analysis of Alternative #1 Since Southwest has catchy ad campaigns to begin with, adding a new campaign to the repertoire could increase the number of customers who will feel safe flying Southwest again. (Appendix C) The idea of having a new...