Strategic Management Assignment

Southwest Airlines' Nonstop Culture

By
Group 6, BM-A
Abhinav Prusty – B19001
Avinash Bhat - B19011
Hari Sankar S – B19018
Pranav J – B19033
Soham Ghosh – B19052
Tosha Trivedi – B19056
Q1. Use the Porter’s Five Forces Framework to gauge the attractiveness of the US Airline
industry. You can use data from outside the case if required. 

Ans)

Porter’s five forces for the Airline Industry in the US

Threat of New Entrants – Low

● The industry is highly capital intensive (includes aircraft, technology, infrastructure, and staff),
and a lot of investment is needed to make a new brand. Hence the threat of new entrants is low,
making it highly attractive.
● It is challenging to build a customer base for a new entrant as existing players have managed to
capture loyal customers. Airlines like Southwest and Delta have incentives and loyalty programs
that ensure customers do not switch.
● Government regulations are very stringent, and barriers to obtaining a license have increased
after the 9/11 attacks – which has led to legal and political regulation of the airline industry in the
US.
● Moreover, the airline industry leverages the efficiencies, and the synergies from the economies
of scale and hence, the entry barriers are high

Threat of Substitutes – Moderate

● In the US, which is a developed nation, people do not take a train or a bus unless the flight
fares are exorbitantly high. The buying power of people is high as compared to people in
developing nations like India, where only the upper-middle-class and above take flights
frequently.
● But, there is a good chance of substitute modes of transportation like train, car or a bus taking
precedence, as people can then use services like wifi and stop for breaks during long-distance
drives, at their will though airlines in the US have brought in in-flight wifi.
● Hence, the threat of substitutes is moderate   
      
Bargaining Power of Buyers - High
● Since the presence of the internet is commonplace among all households in the US,
information about price discounts, flight fares, deals, and packages, loyalty benefits are available
at an instant to all. Hence, customers have high bargaining power as they can switch from one
airline to another based on the information
● Buyers can be segmented into
 Business travellers (35% - 2013 data – Appendix C of the case)
 Leisure travellers (65 % - 2013 data – Appendix C of the case)
Travel agents also form a significant group of buyers as they can influence families and couples
with the best deals from an airline.
● Switching costs for buyers is hence low. Southwest airlines have managed to capture a broad
audience owing to their low fares, which other players like Delta and United have imitated
● The brand image of players like Southwest have however ensured that they have a loyal
customer base, who do not switch based on occasional discounts from competing players

Bargaining Power of Suppliers - Moderate

● Major suppliers for airlines are aircraft manufacturers (Boeing, Airbus), fuel suppliers, and
labour.
● Since there are only two aircraft manufacturers, their bargaining power is high. Fuel price is
dependent on the global market price of oil and hence fluctuates. Labour supply is abundant, but
at times regulated by the presence of unions.
● Thus, the bargaining power of suppliers is moderate.

Competitive Rivalry – Very High

● In the US, there are several large and small players in the airline industry, who fight for market
share in the domestic and international markets.
● Some of the prominent players apart from Southwest are Delta, United, JetBlue, and United
Airlines, all having a large fleet of aircraft equipped with modern technologies.
● Airlines compete on various metrics such as offering low prices, better services (in-flight and
infra), and convenience. Hence, it is difficult for a brand to have continued competitive
advantage.
● The industry is in a mature stage, and all airline players stay for a long time due to the amount
of capital invested by them.

Q2. Use the VRIO framework to identify resources/capabilities that enable a sustainable
competitive advantage for Southwest Airlines. 

Ans) VRIO Framework:
1. Valuable: Southwest has its presence in 10 countries apart from the US. This ensures
steady income from existing buyers and also helps to get new buyers from other
countries. This presence has helped the company gain experience in international
business and in learning the culture and trade of various countries. The company also has
a strong distribution network with international agents and contacts across multiple
countries; hence this ensures that their products are readily available to customers. The
company’s spending on market research is also valuable as it helps them to remain
updated with the market demand and trend, to have the edge over its competitors.

2. Rare: The company’s human resources are ‘rare’ and help the company achieve a
competitive advantage. They have also been instrumental in improving operational
efficiency and thereby reducing costs. Taking an example, Southwest’s TAT is 15
 minutes compared to the industry average of 35 minutes. Hence, a happy human
workforce is a rare and valuable resource for the company 

3. Inimitable:  Southwest has a motivated team of employees and associates that that

focuses on customer experience and active forward-thinking. Along with this, the
strategy of low-cost pricing and efficient logistics solutions was something the
competitors could not imitate. The workforce of United Airlines was unhappy, and
Continental’s CEO had people skills problems. The culture of the organization is a
resource because of which workforce remains happy, and hence remain inimitable. The
company also invests in innovation to get first-mover advantage in its product portfolios.

4. Organized: The company is organized as it captured the value of its human resources

and developed a culture that has been successful for an extended period. The
management is selective in hiring people and look for the right cultural fit and attitude.
Also, the presence of a flat hierarchy and the culture of treating employees as a family,
have ensured Southwest remains the leading airlines operator in the US.

Q3. What are the key traits of the approach towards leadership at Southwest Airlines?
Ans)

1) Empowering and trusting attitude: From its inception in 1971, Southwest had provided
a high level of autonomy and thereby maintained a high level of trust in its employees.
While this can be attributed to their people-centric human resource approach, it is more
so due to the leadership style. Herb Kelleher, their founder, practiced a very hand’s off
approach wherein he refrained from involving himself in operational issues. This was a
unique style compared to the more hands-on approach followed by most leaders even
today. By decentralizing authority, Kelleher inculcated a sense of ownership in his
employees. This sense of ownership translated into a high level of alignment of the
employees with the cultural values of the company

2) Openness: Both Kelleher and Kelley ensured that transparency was maintained to the
best possible extent within the organization. One of the practices that highlight this trait is
that of Open book management, wherein employees were given access to the financials
of the company and were also trained to interpret and understand it. Thus, the distance
between upper management and regular employees were reduced. Even when things were
not going smoothly, transparency was maintained. Case in point being during the
extended negotiations between Southwest and the employee’s union regarding the wages.

3) Focus and consistency: Throughout its 40+ years of existence, the leadership at
Southwest remained highly consistent. From operational factors like having a fleet of
single kind of aircraft to its recruitment policy of placing a high emphasis on personal
traits, consistency has been a cornerstone of leadership. These have been maintained
despite the rapidly changing external environment. One of the key reasons why the
transitions from Kelleher to Kelly went smoothly was because these core values were left
untouched. This consistency also enables customers to set the right expectations from
Southwest, resulting in higher satisfaction.