Southwest Airlines Case Study

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Business Studies

Southwest Airlines

Southwest Airlines has been a highly successful airline, it has been one of the most successful airlines in U.S. history with the low cost carrier model created by Southwest emulated successfully by many other airlines across the world. Today it is the largest domestic carrier in the U.S. And has a history of consistent profits, with on a few quarters in the recent recession showing losses (Southwest Airlines, 2013). There are numerous reasons behind the success, the main reason are the leadership and the way that the firms ability to gain and maintain effective competitive advantages. These will provide a good basis from which to consider the future of the firm.

Effectiveness of Leadership

Southwest Airlines was founded by Rollin King and Herb Kelleher, having seen successful interstate airline operating out of California it was believed that Texas could also support an interstate airline (Barratt, 2008). The idea was to create an airline that would operate in the interstate market, but would provide low cost flights, which were also enjoyable. At the most basic level, history shows that the leadership must have been effective, not only did the firm survive the initial threat to its existence with winning a three-year legal battle brought about by three other Texas airlines trying to stop the firm from taking tot he skies, the firm has grown at an exponential rate.

It may be argued that the key aspect of the leadership has been the leadership style and values which are able to gain the loyalty and trust of employees and support high levels of productivity. The leadership style has been referred to as servant-leadership; a style where the needs of the employees are put before the needs of the leader. Although, when Herb Kelleher started the firm and took the helm as a position this term was not used, there was a basic belief that if employs were treated well, as if they were internal customers, they would treat the employer well and be motivated to provide high levels of customer service.

The leadership strategy appears to have worked well, the organization has been able to create a corporate culture where employees are not seen to take themselves too seriously, and are able to help customers have an enjoyable flight. Furthermore, employees have been treated on the basis of merit, for example it was Southwest Airlines which hired Louis Freeman, the first black pilot in 1980, and he was subsequently named the first black chief pilot had any major U.S. airline in 1992 (Southwest Airlines, 2005).

When Herb stepped down as CEO, he stayed on as chairman until 2008, when Gary Kelly, the existing CEO also took on the role of chairman. While the leadership may have changed, the leadership style remain the same, with those in leadership positions throughout the organization supporting the people centric culture, with an strategy to develop and promote people internally, identifying potential in four key areas, the ability to share the people, the ability to build great teams, strategic thinking, and the ability to achieve excellent results, the areas that the company referred to as their leadership expectations (Bryant, 2007). Developing and promoting employees internally supports a people centric approach, and demonstrates commitment by the employers to the employees because the health and support motivation, one aspect which are supported by the human relations school of thought. It has not only been leadership managing people that has been successful, the financial management and leadership strategies such as the use of hedging for fuel have also been key elements of the firms success.

However, by the leadership appears to be highly successful, there have also been some failings which may also be credited to leadership failures. This is seen with the safety failures at Southwest Airlines, it was found that the Southwest aircraft had been flying without the legally required safety checks, some f the aircraft had been flying in this condition for none months, This was a significant failing and indication some internal systemic failings which have to be attributed to leadership.

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The most worrying aspect is even after this problem was identified, the firm allowed the aircraft to continue flying for another nine day. The result was a fine of $10.2 million. Therefore, while leadership may be strong, it has been far from perfect.

Competitive Advantage and Challenges to the Strategy

To be successful a firm needs to have a competitive advantage; something that sets it apart from other firms and attracts customers. Michael Porter has defined two main sources of competitive advantages; cost advantages where a firm is able to produce goods or services at a lower cost than competitors, and differentiation, where the firm is able to provide some type of characteristics which makes the good or service different and preferable to the competing goods or services (Mintzberg et al., 2011). In turn each of these approaches may be applied to either the mass market or niche markets. Southwest has targeted the mass market in the U.S., this is seen with the way that airline had developed and the broad appeal.

The model of Southwest Airlines, providing a no frills low cost service has been highly cost effective. The firm has been able to keep costs very low, without the additional services, such as in-flight meals, and the use of only a single style of aircraft to reduced maintenance costs. More recently straggles such as ticketless sales and self check in; the firm has keep costs to a minimum. Hedging for fuel has also helped to reduce costs. The sales have been supported and flights have had a high capacity, which has allowed the firm to support a cost advantage. Superior profits have then been used to support the firm image.

The firm has also been able to different itself. Having developed a low cost carrier model the firm also gained a first mover advantage, which they fully leverage; Southwest Airlines gained and have maintained a reputation for value. The 'fun' side of flying is also seen in the light hearted attitude of the staff and customer centric approach, differentiating itself as able to provide enjoyable flights. This also presents the firm with a challenge, as any competitive advantage will be emulated and other firms will try and use strategies that are proven to be successful; as seen with the rise of low cost carriers.

To remain ahead the differentiation is constantly renewed, as seen with the associated services making it easy to by Southwest flights, such as the 'Ding' program, indicate the main advantage is differentiation.

The airline has also sought to increase business and retain custom with a loyalty program. Loyalty programs are common in the airline industry, many firms use them to create and maintain loyalty; Southwest is no different, however the firm has tried to create differences to in the scheme. Therefore, the firm competes with differentiation, but seeks to create this through several areas associated with customer service.

Potential Growth Strategies

The firm has established itself as one of the most successful airline in U.S. history, after the first few years of losses the firm has made an almost consistent profit, with passenger numbers growing each year. The market in the U.S. may be seen as now growing more slowly, with firm acquiring AirTran in 2010; it was this acquisition which took the firm to the position of the largest U.S. domestic carrier. This also aids with the potential economies of scope and scale supporting the cost advantage.

The firm is in a market where there is some growth potential, but it is limited and there is a high level of competition with other low cost carriers, such as JetBlue, competing aggressively, as well as full service carriers reducing ticket process to compete. The firm….....

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