SOUTHWEST AIRLINES

Group 2
• Jeune Reginald Arvin Bulaon • Shiela Vee Fabian
• Romina L. Miranda • Ivy Rose Dela Cruz
• Dan Louis Ignacio • Ana Liza Quimpo
A.1 What is Southwest’s competitive strategy?

Cost Leadership

• The Only Large Low-Cost Airline

• Creates competitive advantage based on low
costs and correspondingly low prices to
minimize operating costs, optimize profit
margins, keep low prices, and offer its airline
services to the mass market.
• This strategy helped them overcome the global
financial crisis and has been considered one of
the fastest company among its competitors to
recover from the economic recession.
A.2 How successful is it
compared to other US airlines?

Southwest is one of the big four airlines in the

U.S., along with American Airlines (AAL), Delta (
DAL), and United (UAL).
Southwest Airlines is more flexible than most
other large airlines
One of the biggest cash reserves, credit, and
other assets than smaller airlines.
In 2019, the Company returned approximately
$2.4 billion to Shareholders through a
combination of $2.0 billion in share repurchases
and $372 million in dividends.
ANNUAL 2019 FINANCIAL AND
OPERATING STATISTICS:

• Net income: $2.3 billion

• Revenue passengers carried: 134.1 million  
• RPMs: 131.3 billion
• Load factor: 83.5%
• Annual record total operating revenues: $22.4
billion
A.2 How successful is it compared to other US airlines?

• Southwest is one of the big four airlines in the U.S.,

along with American Airlines (AAL), Delta (DAL), and
United (UAL).
• Southwest Airlines is more flexible than most other
large airlines
• One of the biggest cash reserves, credit, and other
assets than smaller airlines.
• In 2019, the Company returned approximately $2.4
billion to Shareholders through a combination of $2.0
billion in share repurchases and $372 million in
dividends.
B. What are the foundations of
Southwest’s competitive advantage?

• Low fare strategy. Southwest is the

pioneer of a so-called airline-within-an-
airline that offers low fares, few flights, and
frequent service. It dramatically lowered
the fares and increased the frequency of
flights.
• Employee-driven. Southwest had always
believed that an important part of its
competitive advantage rested with its
people and how they were managed.
• Customer service. The company’s service
involves frequent on-time departures. By
avoiding a hub and spoke system, Southwest
is able to avoid delays often associated with
connecting flights. This makes short-haul
trips more attractive to travellers who might
otherwise consider driving.

• Use of fuel efficient aircrafts. Southwest

began flying fuel-efficient 737s and now has
over 200 of them. This is the only type of
aircraft it flies. By using a single type aircraft,
the company have save on maintenance and
training costs.
• Productive workforce. They typically have fewer
agent and ground crew than other airlines. The
pilots spend more time in the air than other pilots
at other airlines. Flight attendants and pilots help
clean the aircraft and check passengers in at the
gate. The employees also routinely volunteer to
help customers in need.

• Leadership. Herb Kelleher was featured in

different articles regarding his leadership style. A
recent Fortune article, for instance, was titled “Is
Herb Kelleher America’s Best CEO?’ The author
quotes Michael Derchin, a veteran airline analyst,
who said, “He is the sort of manager who will stay
out with a mechanic in some bar until four o’clock
in the morning to find out what is going on. And
then he will fix whatever is wrong’.
How are these sources of competitive
advantage produced and sustained by what
the organization does and how it does it?
 Southwest
culture

Compensation
program

Training as a
form of a two-
way
communication
Selective on
recruitment

Treat
employees as
customers
Fun place at
work
D. To what extent are Southwest’s sources of
advantage difficult to imitate and likely to
persist over time?

• Southwest had always believed that an

important part of its competitive
advantage rested with its people and
how they were managed and not so
much with their pricing structure. They
treat employees as internal customers
and tried to make sure that Southwest is
a comfortable and fun place to work.
• It also pursued a low fare strategy which
is fast that emphasizes point-to-point
routes and frequent flights. It never
offered meal service on its flights and no
assigned seating for additional cost.

• It used the lowest-cost provider that could

leverage the cost advantage most where
costs are highest and part of this cost
advantage derives from the remarkable
productivity Southwest gets from its work
force.
• It is not just a low fare/low cost carrier. It
also emphasizes customer service. Its
employees routinely volunteer to help
customers in need just to ensure that the
customer will enjoy the trip that enable to
maintain its strong customer base.

And all of these, are not easy for other

airlines to immitate.
E. What issues should Ann Rhoades
raise in tomorrow’s meeting?

• Southwest Airlines’ current position in the

light of new competition
What recommendations
should she make?

• It is recommended that Rhoades should

focus on continued enhancement of
Southwest’s already proven strategies,
with an eye toward addressing the new
challenge from competitors.
• Rhoades should channel employee
anger through communication, training,
and tracking of results metrics.
What recommendations
should she make?
• Rhoades may suggest a formalized,
specialized employee training program to
address the challenges posed by the new
competition and galvanize employees as
“underdogs” forming a united front against
the invading airlines.
• Rhoades can follow the blueprint of
Southwest’s culture committee by creating
a competitive committee devoted to
promoting the underdog spirit.
Cebu Pacific copied Southwest Airline’s
strategic business model in competing with
Philippine Airlines. How successful has this
strategy been in terms of business success
compared to Philippine Airlines?

• Cebu Pacific functional strategies main goal is to

achieve corporate and business unit objectives and
strategies by maximizing resource productivity to
develop & nurture a distinctive competence to provide
a company competitive advantage. Through a
carefully planned objectives for Cebu Pacific
Functional strategies we will work in achieving
success over the whole airline industry which are for
profitability in producing at a net profit in business,
increase in market share gaining and holding the
share for airline industry.
• Cebu Pacific Airline will be focusing on
Marketing Strategy, Research &
Development Strategy, Human
Resource and Management Strategy,
Financial Strategy, Information
Management Strategy and
Manufacturing Strategy. These functions
are an important aspect in developing a
strategic business plan because the
success of the company will depend in
the planning for different department for
specific functions.
• The companies use 2 types of strategies: Market
Development and product development.

• In Market Development a company or a

business Unit capture larger market share of an
existing market. Market saturation and market
penetration develop new markets for current
products. Research and Development
Department is of great importance in business
as the level of competition, production
processes and methods are rapidly increasing. It
is of special importance in the field of Marketing
where companies keep an eagle eye on
competitors and customers in order to keep
pace with modern trends and analyze the needs,
demands and desires of their customers.
Thank you!