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The competitive environment in whichSouthwest operates can be subdivided intodifferent value-added stages, customer and

service segments, and competitor groups

value-addingactivities

aircraftprocurement

aircraftmaintenance

reservationsystems

schedule androute planning

in-flightservices

after-flightservices

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Southwest performs some in-housemaintenance but offers no post-flight services

Types ofcustomer

travel agentscorporate

travel

managers

individualtravellers

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AirlineIndustry

International National Regional

SouthwestAirlines

Cargo

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Strengths

Southwest has never needed a passport for any

of its travels

Wi-fi Facility

100% refund on cancellation of ticket Refund on additional seating

Carry more customers than other US airlines

Best Low-fare carrier

First to start online booking

In 2004, Southwest airlines was the only airline ofthe ten largest US carriers to report a profit

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Southwest Airlines approach to frequent flyer rewardsis based on number of trips taken; in contrast, otherairlines reward people based on miles flown(Southwest Airlines Annual Report, 2002)

Point-to-Point Flying

Simple In-Flight Service

No Frills, No Fees

Strong Management

A Relatively Happy Workforce

Aggressive Fuel Hedging

(http://www.wired.com/cars/futuretransport/news/2008/07/portfolio_0708)

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Weakness

Does not offer segmented seating options.

Space to carry freight and cargo is limited.

Does not offer international flights. Dependant on a single airplane producer.

Has to be dependent on suppliers for

three primary inputs – jet fuel, air framesand labour

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Opputunities

Expansion into international and othernational markets.

Applying new technologies to make thetravel experience more enticing.

Extend flights to further destinations.

Expanding services to include services forleisure or business classes.

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Threats

Expansion into international and othernational markets.

Applying new technologies to make thetravel experience more enticing.

Extend flights to further destinations.

Expanding services to include services forleisure or business classes

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Situation AGoing in Long haul markets

Situation BGoing into Freight

Situation C Expansion in short haul markets

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Situation A

>6.5 hours Seat pitch 34” Seat width18.5” TV Required Meal Required More personnel Change in Target market

Post flight services would be required Increased fuel consumption Increase in refueling times

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SW:Anatomy of a 15-minuteTurnaround

7:55 Groundcrew chat

around gateposition

8:08 Boardingcall ,baggage

loading,refuelingcomplete

8:03:30 Groundcrew move totheir vehicles

8:07Passengeroff plane

8:04 crewmoves towards

gate

8:06:30Baggageunloaded,refueling

8:15 Jet wayretracts

8:10 Boardingcomplete.

ground crewleaves

8:15:30Pushbackfrom backs

8:18 Pushbackdisengages

plane leaves forrunway

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Turnaround time increases to 90 mins

90-15=75 mins loss

% miles per minute are covered.Hence 75*5=375 miles arelost per flight

Reduction in number of flights Structuring of route needed to be changed

From point to point to hub and spoke

The hub itself has many costly infrastructure requirements(baggage handling systems, large terminals, maintenancefacilities and parts inventories). To address the pricing

complexity created by multiple traffic flows through a hub, hub-spoke carriers conduct complicated yield and inventorymanagement calculations. The result of this complexity is thatthe hub-spoke pricing structure is systematically different frompoint-to-point pricing.

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Southwest does not currently offer meals orFirst Class service, its 737-300 holds 137seats whereas a United Airlines 737-300 holds

only 128 seats. If we go for long haul Number of seats per

plane decreases along with increased revenuefor meal.

Tough competition from already establishedcompetitors.

Concentric diversification strategy indicated by

only grand strategy matrix

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Average flight lengths would rise

The number of daily flights would fall, thus reducingthe number of seats over which to spread fixed costs

Southwest might also find it more economical touse larger planes for its long-haul routes, but thiswould conflict with its “keep it simple” strategy of using only 737s.

Loss of individuality

The retaliation of established carriers againstSouthwest’s penetration into their customer market, resulting in damaging price wars

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particulars Southwest America Delta

Operatingrevenue

5522 15871 13305

Passenger

revenue

5341 14439 10749

Total operatingexpense

5181 18680 14614

Wages and salary 4764 18040 14421

Net profit 241 -3511 -1287

RPM perpassenger

720 1295 1046

Operating incomeper passenger

5.41 (29.87) (14.42)

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Ratios like revenue/employee,netincome/employee,Inventory turnover were lowcompared to industry standards

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Situation B

Lesser revenue earned as compared to short haul

80% of air cargo traffic will be longrange,intercontinental and hub to hub

Regional operations : low utilisation

Long range flights : high utilisation 56% of all air cargo is shipped with at least one

endpoint in the U.S. According to the AirforwardersAssociation, in 2001 31% of total global freight activitywas within the U.S.; 69% was U.S.-abroad and non

US activity Already established competitors DHL,FEDex and UPS

having greater pie of the market

Less space to carry cargo

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Source:Airbus global market forecast

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Situation C19

Core strategy of excluding frills andmaintaining a low cost structure

No changes needed to be done

Can follow profitable strategies alreadyimplemented and stick to core competency

Market penetretion strategy to beimplemented.

Try to become no.1 short haul flight

Hence using its aggressive strategy southwestwould be more profitable in its short haul

market.

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Present Situation

Core strategy of excluding frills andmaintaining a low cost structure.

Long haul services would threaten

Southwest’s current low-cost strategy in anumber of ways.

Demand of full meals

increase in turnaround times increasing costs

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Short Haul vs Long Haul

Short haul flights Long haul flights

<3 hours >6.5 hours

Seat pitch 32” Seat pitch 34”

Seat width 17” 18.5”

TV not required RequiredMeal not required Required

Less personnel More personnel

Stops are more Usually non stop flights

Substitutes like train ,bus areavailable

No substitutes available forpassenger

Reduces aircraft and laborproductivity

Efficient utilisation ofproductivity

Low ticket price High ticket price

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In2002,Sluggish

economy

High energy

prices

Tension in Gulf

spelled0

500

1000

0

2000

4000

6000

1998 1999 2000 2001 2002

SW's Revenue & NI(in $mn)

Revenue

NI

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Passenger Load factor-

is the percentage of

a plane filled with paying

passengers.

62

64

66

68

70

72

1998 1999 2000 2001 2002

Passenger Load Factor

%

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Aircraft Utilization-in

hours and minutes in

a day a plane

is used

0

1,000

2,000

3,000

Average Daily Passengers

passengers

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