Southwest Airlines is the oldest airlines of United States having it’s headquarter at Love Field in Dallas, founded in the year 1971 on 18th June. It started its airline with only three Boeing 737 aircraft and served only 3 cities Houston, Dallas and San Antonio (Ray, Xue & Barney, 2013).The competition of the airline was with Braniff, Texas International and Continental.The airline. It started with great struggle having legal battle for the construction of the airport that has made it bankrupt at the time of its first flight. The founder CEO of the airline, Herb Kelleher, had taken this as a motivator and won over the odds to be the most popular airline today (southwest.com, 2016).The company started with low fare strategy and believed in delivering best customer service. It had always encouraged its employees to identify themselves with others.
The southwest airline expanded its operation in California in 1989 when USAir started losing the market due to poor customer service. The airline became the passenger boarding leading airlines in 1993 and served 10 cities by 1995. Further captured 70% of market share (Wilkinson, 2013). The strategy and style of operation of the airline is same as it was there during the inception. It gives importance to airports that are underutilized and those which are near metropolitan area like Hobby in Houston, Midway in Chicago, Love Field in Dallas, San Jose and Oakland in Bay Area. The only type of aircraft that it flies is 737s fuel efficient and has 200 of them (Yang & Xinde, 2014). It generally has flight time of 65 minute and believes in giving non-stop fly to its customers. The airline is able to avoid flight delays by avoiding spoke and hub system.
The airline main competition was with surface transportation and in 1993 the fare for flying was $60 for a trip of 500 miles (Su-ying et al., 2013). This was $49 for 436 miles in 1984. It captured the market by charging low price and providing frequent flights. Initially only 8000 people were flying between Chicago and Louisville, after the entry of Southwest airlines, the number of people flying between the cities has increased to 26000 people (Purce, 2014).This has been possible due to drastically lower price and increased frequency of flights. By 1992, the airline had become the most leading carrier in passenger and in 1994; it dominated most of the leading markets consisting of intra-Texas market as 70% and intra-California market as 50% (Pfeffer & Sutton, 2013). The airlines have always followed the strategy of low costs, low fares and frequent flights. Its fare was simple and uncomplicated. It was easy to understand and made 55% of its tickets were booked by travel agent.
The company’s operation policy was simplified and never added meal service in the flight as that would increase its fares, rather provided peanuts and beverages. The airline runs a flyer club which had given opportunity for the regular flier to take the membership and reduce their prices for each flight (Nickson, 2013). The airline was running successfully since last 21 years and had gained competitive advantage in the market with respect to other firm in the airline industry due to its unique cost structure which has been supported by the productivity of its workers. The airlines aircraft is turned only in 15mins compare to 35 mins for other airlines and it has a ground crew of six that is manned by a single agent compared to that of other flight that had nearly three agents and ground crew of twelve.
The attitude of its employees is always friendly towards customer and the company’s policy towards its employees was very conducive which has made them more productive. The airline also provided extensive customer service and won several rewards in this behalf in the year 1992, 1993 and 1994 (Smith et al., 2014).
The Human Resource department of the Southwest airlines was called as “the People’s Department” which is different from other airlines. The Human Resource policies were made by involving the employees in the decision making procedure and taking proper care for the welfare of the employees (Nel et al., 2014). The recruitment policy of the airline was little longer as they believe in hiring the best person out the number of people applied. The company also had extensive training and development programs for the employees that have increased the productivity of the employees and reduced the cost. The company has nine separate employee unions, but never faced serious problem of labour strikes or any other labour problems (Mendenhall & Osland, 2012). It has maintained healthy relation with them. Further, the company has made the employees as partner to the airlines by selling company’s stock to them which make them feel the ownership for the firm. To brief, the company has developed a work culture that sees hard work, dedication, fun, equality and cost consciousness.
Internal opportunities and internal threat refers to the internal prospects and risk that the organization encounters while doing business and trying to grow over the period. The Southwest airlines had the opportunity to expand in the international and national markets due to large potentiality of rising demand of travelling through air. To grab the opportunity the company was the first one to offer discounts, allow ticketless travelling and provide services for deliveries of air freight (Mendenhall & Osland, 2012). The airlines have an opportunity of applying new technologies to make the travel more easy and exciting. The number of destinations for the flight has increased rapidly which has given it an opportunity to expand and grow. The airlines have been increasing services for business class people and providing more services for leisure in the flight by serving them beverages and ground nuts in the flight. The company generally believe in hiring people who have larger skill knowledge so that they can create new opportunities for the company and it can grow with meeting the opportunities.
The threats faced by the company refer to the risk that the airline faces due to several issues that may arise internally or externally to the company. The reduction in the number of travellers for leisure may be a threat to the business of airlines as the company will lose its business. The role of competitors is always a threat to the company especially in a system with online ticket reservation. With the easy facility of comparing the prices between different airlines through online booking system has brought a fall in the sales of the tickets. It has acted as a threat to the company’s sale of ticket (Mathis et al., 2016). To overcome it, the company has to adopt online ticket sale and let the company adopt policies that retains the customers to the company.
The rise in operating cost due to the changes in the government rules and regulations becomes a threat to the airlines as this may lead to large increases in the operating cost. The rising cost may compel the company to raise their flight prices which may further lead to lose the customer due to tough competition in the market. Another threat that the company may face is the threat of terrorist attack. There are several stories and incidences when the flight has been hijacked by the terrorist (Gross, Lück & Schröder, 2016).
The prices of oil and gas also influence the airlines cost and plays an important role in increasing the threat for the company. The oil and gas industry sees a drastic fall in prices which may lead to fall in production and hence reduces the cost of the good Further the cost of airline security also increases the annual cost.
Achievement of Southwest Airlines based on Resource based view Model
Resource based view model (RBV) consider resources as a key to attain performance superiority by the firm. A concept of VRIO has been analysed here with respect to resource. It is shown that if resources meet the VRIO attributes then it will make the firm attain competitive advantage against its competitors and sustain its profit and position in the market (Knott, 2015). The model had gained its importance in 1980s and 1990s when the concept of gaining competitive advantage by the firms was in discussion and corporate were seeking competitive environment in the market. The model stated that the firm need to improve their resources and search for resources that bring competitive advantage to the firm instead of looking for a favourable environment outside their organization.
Figure 1: Resource-based-view Model
(Source: Jiang et al., 2012)
According to the model if the firm tries to use its resources for exploiting external environment then it become more feasible rather than trying to adopt new skills for different opportunity (Kehoe & Wright, 2013). In other words, the model basically says that companies should try to enhance the productivity of their existing resources rather than looking for new resources to meet new opportunities.
According to the model, there are two resources each company has, even in case of Southwest Airlines; the resources are tangible and non-tangible. The tangible resources are the physical things, like land, machines, buildings, equipments and capital. These resources can be bought from the market and is available for everybody (Hendry, 2012). The rival firm can easily adopt the same resources and be at par with the firm. On the other hand, the intangible resources are those which have no physical presence but still are owned by the company, like market goodwill, brand value customer loyalty and other such assets that are earned over a long period sustainable growth and development and cannot be bought from the market.
The tangible resources of Southwest airlines are same as any other competitor firm or may be little more in terms of physical assets. However, the intangible resource refers to its brand equity and customer loyalty that the company has earned over the period of time and is able to sustain it due to its continuous effort to innovate new techniques to meet the customer requirement and satisfy them to the core in terms of low price, good quality and best service.
The model has taken two assumptions that the resources are heterogeneous and immobile. The heterogeneity of the resources indicates the difference in the skills and capabilities of the resources between the firms (Gatewood Feild & Barrick, 2015). If the resources are identical then the firms will never be able to achieve competitive advantages. The immobility of the resources indicates that the resources should not be mobile in the sense that they should not move to different companies. With such resources the company can earn competitive advantage as the rival firms will not be able to replicate the resource and implement the same strategies as the firm. It refers to resources like, intellectual property, brand equity, business processes and other similar types.
Like, in case of Southwest Airlines the resources which it owns apart from other rival firms are its pro-active actions and strategies that the company makes before any other rival firm to capture the opportunity of the market. One of such was that of identifying two types of travellers in the market, before any other rival firm could identified (Evans, 2015). There are price-sensitive leisure travellers and time-oriented business travellers. The company was the first to identify them and being pro-active, made two-tiered pricing structure customised according to the requirements of the categories of travellers.
The model explains the VRIO framework as given in figure 2.
Figure 2: VRIO Framework
(Source: Ferreira & Campos, 2013)
The VRIO framework states the question of value, rarity, imitability and organization. The resources are valuable if they help to increase the value of the organization by differentiating itself from another and reducing the cost of production and attaining the competitive advantage (Cummings & Angwin, 2015). The resource that does not meet these conditions cannot be called as valued resource. The resources should meet the condition of rarity, i.e., it should be rare and not easily available; otherwise, it will result in competitive parity between the firms. Further, the resource should not be easy to imitate by the companies so that they cannot be easily substitutable, otherwise the companies will lose the advantage over other firms (Buller & McEvoy, 2012). Lastly the organization need to value the resource and should be capable of exploiting the valuable, non-imitable and rare resources to achieve long-run sustainability.
Southwest Airlines competitive advantage is based on high quality service and low cost products. It has developed instrumental and terminal values that are unique and different from its rival firm and created a culture of work among its employees which is the rarest of all. The employees are committed to the success of the firm and are always cooperative with the single goal of company’s success (Bennett & Ho, 2014). They provide excellent service to the customers and there is no problem of competition and status among the employees. Even the manager work as a ticket agent, baggage handlers and flight attendants when they see the employees are facing problem in completing the task. The organization has given the employees the freedom to make their own rules and norms and solve their problems so that the company is at benefit. They award the employees for good task and give them recognition that encourages the employees to serve more than 100% to the company.
The South-west airlines is able to develop competitive advantage against its rival by effective management of the people. The company has given more importance to see that its employee work differently than its competitors firm. The company has achieved success and had stock that gave best return from 1972 to 1992 not through economies of scale but by working differently through its employees (Alfes et al., 2013). It had a unique way of responding to its rival hatred and competition by advertising a slogan “Make love, Not War”. The slogan had given it the status of “love” airlines which it has attained out of necessity to exist in the market due to the several attempt made by the rivals to push it out of the airline industry.
The success of the airline is not because of using high end technology but because of making apt strategies by using the existing resources. It has sold low frills and low cost airline service at prices which its competitors could never afford and match. The company earned its cost advantage from increasing the productivity of the existing resources and being motivated and having unionized workforce (Bratton & Gold, 2012). The company had fewer employees per aircraft compared to its rival firms but the service provided by them was the best in all terms. It provided 80% of its flight in 15 minutes whereas other airlines need at least 45 minutes. It has shown fabulous increase in productivity and had the unique productivity advantage in terms of utilizing the equipments.
The passenger service provided by the company was unique and the company has won Triple Crown awards for best on-time performance, least passenger complaints, least baggage lost in the same month as that of other firm.
The company has achieved all it success by the effective management of its people and has provided a unique example for the Resource-based-value model by increasing the productivity of its internal resources rather than looking for external favourable environment.
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