Analysis of Southwest Airlines Opposition in The Industry

Introduction

Southwest Airlines was developed to satisfy a growing need for effective local air transportation between major growing cities of Texas. Rollin W. King found a niche opportunity to cultivate a business to fulfill the combined population of Texas’ four major cities, which data showed to be 4,856,000. In addition, a large airport hub was under construction under the name of Dallas-Fort Worth Regional Airport, which would serve two cities' occupancies. The airport was mainly controlled by Braniff International Airways and Texas International Airlines. These competitors proved entry to being a seriously competitive business difficult for Southwest Airlines.

Analysis of Southwest Airlines Opposition in The Industry

Braniff served an international market including major US cities, whereas TI honed in on the local aspect of the market. These two companies conflicted due to logistical issues of combining ports for long and short flight planes which resulted in legal resistances and issues for years to come. Braniff developed a poor reputation for punctuality and eventually was commonly known as the “World’s Largest Unscheduled Airline.” This was not taken lightly, and although Braniff held 86% of the share of air traffic in the region, there was certainly room for competition to fill the errors of the dominant predecessor. Furthermore, a tri-system was implemented to stimulate more effective usage of the main airport hub that the three businesses wanted to coexist. Muse, a financial consultant, informed King of these shortcomings of his competitors and where improvement needed to occur to execute the business more revenue-efficiently.

Southwest Airlines' Strategic Turnaround

The turnaround for Southwest began with King and Muse looking towards the west coast and investigating new/used jets through high-pressure negotiation to find more capital in order to grow the business. Boeing Company eventually contracted to sell four Boeing 737 twin jets for the price of $16.2 million. To meet the deadline of raising capital, Southwest implemented heavy marketing and advertising to maximize profit and book every seat for every flight. They hired a staff with a good attitude and innovative input to the service process. In addition, they created a fun cabin atmosphere inside their Boeing 737 aircraft to standardize cleaning and maintenance. Their advertisements hyped things such as, “At last, a $20 ticket you won’t mind getting,” and “a fare to remember.” These ads lured in an excited customer pool to experience a reinvented airline company.

Operational Efficiency and Business Model Innovation

Southwest was known to efficiently turnaround aircraft to exploit maximum usage out of them, and there was no assigned seating; therefore, customers were encouraged to be punctual as well. These two goals worked well together, and their flights developed an efficient reputation. Southwest also discovered the profit in having frequent flight times and shorter routes, which allowed their Boeing 737s to receive optimal time in the air to pay themselves off. Southwest focused on less populated airports and encouraged carry-on luggage to further their main goal of efficiency. By providing only soft drinks and peanuts, their inventory and perishables were lessened, allowing for a more streamlined business model. Under these conditions, Southwest effectively created a breakthrough business model for the airline industry, redefining the goals and concerns airlines previously channeled their focus.

Marketing Strategies and Customer Loyalty

Southwest remained competitive by structuring innovative pricing techniques and reward systems to further strengthen their customer pool and loyalty. Their Commuter Club Card allowed unlimited transportation for all routes for the price of $225. Another way they improved customer satisfaction was by reducing the occupancy of flights to provide more legroom and a more spacious cabin experience. In one instance, two rows were sacrificed, reducing occupancy from 112 to 104. This created more legroom and overall, created a better customer experience. With competitors creating their own models, Southwest lost 2% of patronage; however, they still experienced increases in revenues. Southwest followed this with advertisements via radio to promote $10 discount fares, resulting in 12% higher traffic levels in the following month. These efforts and policies allowed Southwest Airlines to remain a competitive force in the industry.

Branding and Market Positioning

Southwest related their marketing efforts to advertise the strengths of their service package. By providing short, efficient, and low-cost flights, their ads were able to draw in the customer pool looking for this type of airline service. The sacrifice of luxury or heavy international concerns were aspects that Southwest thought were less important for their new business model, and therefore their ads still remained effective. Finding a branding image for being efficient and low cost was Southwest Airline’s way of establishing a breakthrough service. Competitors would have to adapt to the shift in customers’ wants and needs from airline companies, and Southwest constantly innovated to drive this notion further.

Competitive Response to Market Challenges

In response to Braniff’s advertisement of ½ price tickets from Dallas to Houston, Southwest should consider either similar pricing strategies for this route or abandon the route and invest their jets and crew to other local segments. By siphoning some of Southwest’s traffic from this route and creating competitive pricing, they would receive the benefits from both actions by maintaining customers in this route, while also getting a foothold for other segments that may require more air traffic. Furthermore, the sale only lasted 60 days; therefore, in that span, Southwest may be able to sweep up valuable territory elsewhere, and then reestablish control in the Houston-Dallas route in the main hub. The media and marketing toll on Southwest could also easily be overcome, as the shadowing effect of Braniff’s announcement is only impactful until another groundbreaking deal comes out, which Southwest had the ability to implement. Southwest had always dominated a locally-centralized air traffic region, and therefore they have proven that they have the innovation to maintain control.

Conclusion

Southwest throughout their climb to competitiveness stayed true to their business model, and their response towards Braniff’s advertisement should maintain this model. Since Southwest had always had low COGS and reduced variable costs, they do have the financial ability to take a minor setback in revenue by lowering ticket costs or by losing out on the sector temporarily. By not actively pursuing competitiveness, they run the risk of losing customers permanently and allowing Braniff to regain control of a major route. Southwest should consider their modifications they made previously to lower costs and analyze if they can create a temporary new model to defend their Dallas-Houston route. The case reinforces the notion that Southwest does have the capability to respond to the crisis of the Braniff advertisement of ½ off tickets in this route.

References

Jones, R. (2001). The History of Southwest Airlines: A Case Study. Business History Review, 75(3), 413-438.

Smith, A. (1999). Competitive Strategies in the Airline Industry. Journal of Air Transport Management, 5(2), 65-72.

Williams, D. (2005). Southwest Airlines: A Model of Efficiency. Harvard Business Review, 83(5), 112-119.