Airline diagnostics wiki (1)

Industry Diagnostic of Southwest Airlines

Industry Diagnostic of Southwest Airlines

Sandra Guzman

Lisa Ikkanda

Laura Lopez

Gerame Wong

June 12, 2012

MGMT 449 – Summer

Sandra Guzman

Lisa Ikkanda

Laura Lopez

Gerame Wong

June 12, 2012

MGMT 449 – Summer

IntroductionIntroductionAir transportation was first introduced in 1903 by the Wright brothers. The invention of the aircraft revolutionized the way people travel and products are shipped. Air travel has become a key element in globalization by facilitating economic growth, trade, and tourism. In the United States the most popular airlines are Delta, Southwest, United Airlines, and American Airlines. This diagnostic explores the airline industry and examines how Southwest Airlines fits into the industry.

Air transportation was first introduced in 1903 by the Wright brothers. The invention of the aircraft revolutionized the way people travel and products are shipped. Air travel has become a key element in globalization by facilitating economic growth, trade, and tourism. In the United States the most popular airlines are Delta, Southwest, United Airlines, and American Airlines. This diagnostic explores the airline industry and examines how Southwest Airlines fits into the industry.

US Airline Industry OverviewUS Airline Industry Overview

• Wright brothers fly successfully for the first time in 1903.

• American Airlines in 1928 and United Airlines in 1931.

• Increased R&D of aircrafts after WW2.

• Introduction of jet airplanes for commercial use in the 1950s.

• FAA created in 1958 to develop an air traffic control system.

• Development of wide-body jumbo jets in the 1970s.

• Wright brothers fly successfully for the first time in 1903.

• American Airlines in 1928 and United Airlines in 1931.

• Increased R&D of aircrafts after WW2.

• Introduction of jet airplanes for commercial use in the 1950s.

• FAA created in 1958 to develop an air traffic control system.

• Development of wide-body jumbo jets in the 1970s.

Airline Industry TodayAirline Industry Today

• Approximately 100 certified passenger airlines are in operation.

• Over 11 million flights depart per year.

• Over $160 billion in total revenues.

• Approximately 545,000 employees and over 8,000 aircrafts operating 31,000 flights per day.

• Approximately 100 certified passenger airlines are in operation.

• Over 11 million flights depart per year.

• Over $160 billion in total revenues.

• Approximately 545,000 employees and over 8,000 aircrafts operating 31,000 flights per day.

Map of Airline IndustryMap of Airline Industry

Aircraft Manufacturers•BoeingAircraft Manufacturers•Boeing

Airlines•Delta•United Airlines•Southwest•American Airlines•Virgin•JetBlue•Smaller airlines

Airlines•Delta•United Airlines•Southwest•American Airlines•Virgin•JetBlue•Smaller airlinesAirport Authorities

•Maintenance•Catering•Financing

Airport Authorities•Maintenance•Catering•Financing

Ticket•Agents•Internet•Airlines

Ticket•Agents•Internet•Airlines

CustomersCustomers

Airline Industry StrategyAirline Industry Strategy

• Products/ Services– Scheduled Flights– Chartered Flights– Air Freight– Mail

• Customers– Business Travelers– Personal Travelers– Seniors– Families– Government

• Fare Strategy– Low Fare– Premium Fare

• Products/ Services– Scheduled Flights– Chartered Flights– Air Freight– Mail

• Customers– Business Travelers– Personal Travelers– Seniors– Families– Government

• Fare Strategy– Low Fare– Premium Fare

• Markets– North American– Europe– Asia– Latin America

• Routes– Long Haul– Point to Point

• Company Structure– Independent– Alliances– Code Sharing

• Information Systems– Customer systems– Operational Systems– Logistical Systems– Business Systems

• Markets– North American– Europe– Asia– Latin America

• Routes– Long Haul– Point to Point

• Company Structure– Independent– Alliances– Code Sharing

• Information Systems– Customer systems– Operational Systems– Logistical Systems– Business Systems

Porter’sCompetitiveModel

Porter’sCompetitiveModel

1. Rivalry is strongDelta, United, Virgin, JetBluePrice competition – lowest fares and best dealsBuyer demand is growing slowly – less travelling because of the recession and high airfaresBuyer cost to switch brands are low – since the prices of airfares are relatively close among competitors, buyers are considering other factors when deciding which airline to fly with. Some of these factors include baggage fees, meals, entertainment, flight schedules, and customer serviceProduct differentiation is based on customer service and experience – every airline basically provides the same service, transportation. The thing that will set one airline apart is the experience the customer has.The competition has different objectives regarding air travel – Southwest’s main objective is providing the lowest cost with the best customer service.

1. Rivalry is strongDelta, United, Virgin, JetBluePrice competition – lowest fares and best dealsBuyer demand is growing slowly – less travelling because of the recession and high airfaresBuyer cost to switch brands are low – since the prices of airfares are relatively close among competitors, buyers are considering other factors when deciding which airline to fly with. Some of these factors include baggage fees, meals, entertainment, flight schedules, and customer serviceProduct differentiation is based on customer service and experience – every airline basically provides the same service, transportation. The thing that will set one airline apart is the experience the customer has.The competition has different objectives regarding air travel – Southwest’s main objective is providing the lowest cost with the best customer service.

5. Potential New Entrants is weakCurrently no new entrantsEntry barriers are high

o Other cost advantages held by industry members – Southwest is known for the low-cost provider. United and Delta have the most locations nationally and internationally.

o Restrictive government policies – must gain approval from the Department of Transportation and Federal Aviation Administration (U.S.)Industry outlook is risky and uncertain – global recession is making entry too risky

5. Potential New Entrants is weakCurrently no new entrantsEntry barriers are high

o Other cost advantages held by industry members – Southwest is known for the low-cost provider. United and Delta have the most locations nationally and internationally.

o Restrictive government policies – must gain approval from the Department of Transportation and Federal Aviation Administration (U.S.)Industry outlook is risky and uncertain – global recession is making entry too risky

4. Substitutes are strongGood substitutes are readily available – cars, buses, trainsSubstitutes are attractively priced – depending on where you are travelling, driving or taking a train may be cheaperBuyer have low costs in switching to substitutes – depends on where one is travelling. It could be more economical to drive

4. Substitutes are strongGood substitutes are readily available – cars, buses, trainsSubstitutes are attractively priced – depending on where you are travelling, driving or taking a train may be cheaperBuyer have low costs in switching to substitutes – depends on where one is travelling. It could be more economical to drive

2. Supplier Power is strongFuel SuppliersSupplier products are critical to industry members – FUEL, Boeing aircraftsIndustry members incur high costs in switching their purchases to alternative suppliers – it is expensive to invest in solar power, or other fuel suppliesNo good substitutes

2. Supplier Power is strongFuel SuppliersSupplier products are critical to industry members – FUEL, Boeing aircraftsIndustry members incur high costs in switching their purchases to alternative suppliers – it is expensive to invest in solar power, or other fuel suppliesNo good substitutes

3. Buyer Power is strongEasy access to information (Internet)Buyer costs of switching to competing products is low – customers choose the lowest priced airlineBuyers are well informed about the quality, prices, and costs of sellers – online travel agencies keep consumers well informed about prices and airline customer service qualityBuyers are price sensitive – the recession makes consumers more price conscious

3. Buyer Power is strongEasy access to information (Internet)Buyer costs of switching to competing products is low – customers choose the lowest priced airlineBuyers are well informed about the quality, prices, and costs of sellers – online travel agencies keep consumers well informed about prices and airline customer service qualityBuyers are price sensitive – the recession makes consumers more price conscious

Competitive WeaponsCompetitive Weapons

• Price discounting

• Coupons and advertisements

• Improving service features

• Building a bigger network

• Innovation to improve performance

• Customer service

• Price discounting

• Coupons and advertisements

• Improving service features

• Building a bigger network

• Innovation to improve performance

• Customer service

Drivers of ChangeDrivers of Change

• Technological Advances– New plane innovations to be more efficient– Emerging new Internet Capabilities

• Southwest does not use online agencies

• Fuel Costs– Increase fuel costs changes the design of aircrafts

• Environmental Sustainability– Redesigning aircrafts to be more fuel efficient– Using E-tickets to become paperless– Reducing fuel consumption

• Technological Advances– New plane innovations to be more efficient– Emerging new Internet Capabilities

• Southwest does not use online agencies

• Fuel Costs– Increase fuel costs changes the design of aircrafts

• Environmental Sustainability– Redesigning aircrafts to be more fuel efficient– Using E-tickets to become paperless– Reducing fuel consumption

Strategic MapStrategic Map

Southwest AirlinesSouthwest Airlines

• Founded in 1971 by Rollin King and Herb Kelleher.

• Starting serving three cities in Texas: Dallas, Houston, and San Antonio.

• Started company based on– Low Fares– Customer service– Convenient Schedules– On time arrival

• Founded in 1971 by Rollin King and Herb Kelleher.

• Starting serving three cities in Texas: Dallas, Houston, and San Antonio.

• Started company based on– Low Fares– Customer service– Convenient Schedules– On time arrival

Vision and MissionVision and Mission• Vision

“ Our vision is to expand our locations both domestic and overseas by being the largest and most profitable airline company to achieve both short and long-haul carriers efficiently and with low cost. Also to be an airline carrier that has the most productive workforce to guarantee the best flight possible for each and every passenger.”

• Mission StatementThe mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

• Vision“ Our vision is to expand our locations both domestic and overseas by being the largest and most profitable airline company to achieve both short and long-haul carriers efficiently and with low cost. Also to be an airline carrier that has the most productive workforce to guarantee the best flight possible for each and every passenger.”

• Mission StatementThe mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

SWOT AnalysisSWOT Analysis• Strengths

– Firm operating strategy– Robust fleet operations– Increasing cash flow from operations

• Weakness– Class action lawsuits– Dependent on single aircraft and engine suppliers

• Opportunities– Poised to benefit from the acquisition of AirTrans Holdings– Positive outlook for tourism industry in the U.S.– Growing U.S. airline industry

• Threats– Intense competition– Increasing fuel prices could strain margins– Stringent government regulation could increase operating costs

• Strengths– Firm operating strategy– Robust fleet operations– Increasing cash flow from operations

• Weakness– Class action lawsuits– Dependent on single aircraft and engine suppliers

• Opportunities– Poised to benefit from the acquisition of AirTrans Holdings– Positive outlook for tourism industry in the U.S.– Growing U.S. airline industry

• Threats– Intense competition– Increasing fuel prices could strain margins– Stringent government regulation could increase operating costs

Goals and ObjectivesGoals and Objectives

• Ensure the highest quality of customer service.

• Ready to help customers under any circumstances.

• Every flight to depart and arrive safe.

• Be the most successful low fare airlines with high frequent flights.

• Ensure the highest quality of customer service.

• Ready to help customers under any circumstances.

• Every flight to depart and arrive safe.

• Be the most successful low fare airlines with high frequent flights.

Core CompetencyCore Competency

• The lowest operating costs per plane• An economical point-to-point airplane

network• A fanatical culture focused on customer

service and costs savings• An ability to keep planes in the air more of

the time than its competitors

• The lowest operating costs per plane• An economical point-to-point airplane

network• A fanatical culture focused on customer

service and costs savings• An ability to keep planes in the air more of

the time than its competitors

Value ChainValue Chain

Distribution•On Southwest website

Distribution•On Southwest website

Retail•Via Web•At airport

Retail•Via Web•At airport

Supply Chain Management•Fuel costs•Inventory management•Merchandise

Supply Chain Management•Fuel costs•Inventory management•Merchandise

Service•Customer assistance

Service•Customer assistance

Key Success FactorsKey Success Factors

• Lowest possible fare (price and value)

• Provide safe flights

• Reputation - reliable

• Short duration air service

• Quality customer service

• Direct flights

• Employee satisfaction

• Lowest possible fare (price and value)

• Provide safe flights

• Reputation - reliable

• Short duration air service

• Quality customer service

• Direct flights

• Employee satisfaction

Weighted Competitive Strength AssessmentWeighted Competitive Strength Assessment

Southwest Delta JetBlue

Key Success Factor/Strength Measure Importance Weight

Strength Rating

Weighted Score

Strength Rating

Weighted Score

Strength Rating

Weighted Score

Customer Service 0.25 10

2.50 9

2.25 8

2.00

Brand/Reputation 0.10 7

0.70 10

1.00 6

0.60

Price/Value 0.10 9

0.90 7

0.70 7

0.70

Employee Satisfaction 0.05 9

0.45 8

0.40 6

0.30

Cost Reduction Strategies 0.15 7

1.05 6

0.90 5

0.75

Aircraft Maintenance/Safety 0.15 7

1.05 9

1.35 7

1.05

Time Efficiency 0.05 5

0.25 5

0.25 5

0.25

Marketing 0.05 6

0.30 8

0.40 5

0.25

Environmental Initiatives 0.10 7

0.70 7

0.70 7

0.70

Sum of importance weights 1.00

Overall weighted competitive strength rating

7.90

7.95

6.60

Work CitedWork Cited• Airwise news (May 21, 2012) Retrieve from http://news.airwise.com/story/view/1332383723.html

• Boeing Corp http://www.boeing.com/commercial/news/feature/profit.html

•  Company profile/investor toolkit. (2012, April 25). Retrieved from http://southwest.investorroom.com/

•  Corridore, J. (2011). Standard & Poor’s Industry Surveys Airlines. Retrieved from http://www.netadvantage.standardandpoors.com.lib-proxy.fullerton.edu/NASApp/NetAdvantage/cp/companyIndustrySurvey.do?task=showPDFIndustrySurveyByTicker

• Campbell, S. (2012). How Southwest airlines because a model for customer loyalty. Retrieved from http://www.tmcnet.com/channels/customer-support-software/articles/87080-how-southwest-airlines-became-model-customer-loyalty.htm

• Dow Jones companies and Executive. (2012). Southwest Airlines Co. Financial Statements. Retrieved from http://global.factiva.com.lib-proxy.fullerton.edu/ar/default.aspx

• Fact Sheet. (2012). Retrieved from http://www.southwest.com/html/about-southwest/history/fact-sheet.html#content_top

• Gidman, J. (2008). The deal with online travel brands. Retrieved fromhttp://www.brandchannel.com/features_effect.asp?pf_id=425

•  Hargreave, Steve (Jun 1, 2012) Retrieved from http://money.cnn.com/2012/06/01/news/economy/airlines-fuel/index.htm

• Kelly, G. (2012). Quote. Retrieved from http://www.southwest.com/html/about-southwest/careers/positions.html

• Karen Jacops (March 22, 2012) Retrieved from http://www.reuters.com/article/2012/03/22/uk-southwest-idUSLNE82L00M20120322

•  Marketwatch (2012) Retrieved from http://www.marketwatch.com/story/southwest-airlines-and-airtran-airways-announce-winter-flight-schedules-holiday-travel-now-available-for-booking-2012-06-04

• Mouawad, J. (20120, November 20). Pushing 40, southwest is still playing the rebel. New York Times. Retrieved from http://www.nytimes.com/2010/11/21/business/21south.html?_r=1&pagewanted=all

• Nicas, Jack. (May 23,2012) Retrieve fromhttp://online.wsj.com/article/SB10001424052702304707604577422520354240282.html 

• Airwise news (May 21, 2012) Retrieve from http://news.airwise.com/story/view/1332383723.html

• Boeing Corp http://www.boeing.com/commercial/news/feature/profit.html

•  Company profile/investor toolkit. (2012, April 25). Retrieved from http://southwest.investorroom.com/

•  Corridore, J. (2011). Standard & Poor’s Industry Surveys Airlines. Retrieved from http://www.netadvantage.standardandpoors.com.lib-proxy.fullerton.edu/NASApp/NetAdvantage/cp/companyIndustrySurvey.do?task=showPDFIndustrySurveyByTicker

• Campbell, S. (2012). How Southwest airlines because a model for customer loyalty. Retrieved from http://www.tmcnet.com/channels/customer-support-software/articles/87080-how-southwest-airlines-became-model-customer-loyalty.htm

• Dow Jones companies and Executive. (2012). Southwest Airlines Co. Financial Statements. Retrieved from http://global.factiva.com.lib-proxy.fullerton.edu/ar/default.aspx

• Fact Sheet. (2012). Retrieved from http://www.southwest.com/html/about-southwest/history/fact-sheet.html#content_top

• Gidman, J. (2008). The deal with online travel brands. Retrieved fromhttp://www.brandchannel.com/features_effect.asp?pf_id=425

•  Hargreave, Steve (Jun 1, 2012) Retrieved from http://money.cnn.com/2012/06/01/news/economy/airlines-fuel/index.htm

• Kelly, G. (2012). Quote. Retrieved from http://www.southwest.com/html/about-southwest/careers/positions.html

• Karen Jacops (March 22, 2012) Retrieved from http://www.reuters.com/article/2012/03/22/uk-southwest-idUSLNE82L00M20120322

•  Marketwatch (2012) Retrieved from http://www.marketwatch.com/story/southwest-airlines-and-airtran-airways-announce-winter-flight-schedules-holiday-travel-now-available-for-booking-2012-06-04

• Mouawad, J. (20120, November 20). Pushing 40, southwest is still playing the rebel. New York Times. Retrieved from http://www.nytimes.com/2010/11/21/business/21south.html?_r=1&pagewanted=all

• Nicas, Jack. (May 23,2012) Retrieve fromhttp://online.wsj.com/article/SB10001424052702304707604577422520354240282.html 

Work Cited (Cont…)Work Cited (Cont…)• Robert Boyle, Director of Strategy & Business Units, British Airways (April, 2009) Retrieved from 

http://www.sita.aero/content/technological-trends-and-their-impact-airline-industry

•  Rueters. (2012). Financials: Southwest Airlines Co. Retrieved fromhttp://www.reuters.com/finance/stocks/financialHighlights?symbol=LUV.N

•  Southwest Airlines Co. (2012). 2005 Annual Report. Retrieved from http://www.airtimes.com/cgat/usc/southwest/ar/wn2005.pdf

• Southwest Airlines Co. (2012). 2011 Annual Report. Retrieved from http://southwest.investorroom.com/

• Scott McCartney (April 1, 2012) Retrieved from http://online.wsj.com/article/SB10001424052702303338304575155813404043090.html

•  Southwest Customer Service Commitment Report. (2012). Retrieved from http://www.southwest.com/assets/pdfs/corporate-commitments/customer-service-commitment.pdf

• Southwest Website (Jun 6, 2012) Retrieved from http://www.southwest.com/html/southwest-difference/southwest-citizenship/environmental-initiatives/index.html

• Thompson, A., Peteraf, M., Gamble, J., & Strickland III, A. J. (2012). Crafting and executing strategy. (18 ed., pp. 54-71). New York: McGraw-Hill/Irwin.

• Tycen Bundgaard, John Bejjani, Edmund Helmer (April 12, 2006) Retrieve from http://economics-files.pomona.edu/jlikens/SeniorSeminars/pandora/reports/southwest.pdf

• "US Bureau of Transportation Statistics." RITA. N.p., n.d. Web. 5 Jun 2012. <http://www.transtats.bts.gov/>.

• (May 25, 2012) Retrieved from http://www.centreforaviation.com/analysis/delta-launches-attack-on-jetblue-through-new-leisure-push-from-new-york-74417

• Thompson, Peteraf, Gamble and Strickland. Crafting and executing strategy : the quest for competitive advantage : concepts and cases. Alabama: McGraw-Hill Irwin, 2012. Print. (Pg 94)

• United States Security and Exchange Commission (Dec. 31, 2012) Retrieved fromhttp://investing.businessweek.com/research/stocks/financials/drawFiling.asp?formType=10-K 

• Ycharts (June 9, 2012) Retrieved fromhttp://ycharts.com/industries/Regional%20Airlines/return_on_assets,assets

• Wall Street Journal (June 7, 2012) Retrieved from http://online.wsj.com/article/PR-CO-20120607-905588.html?mod=crnews

• Robert Boyle, Director of Strategy & Business Units, British Airways (April, 2009) Retrieved from http://www.sita.aero/content/technological-trends-and-their-impact-airline-industry

•  Rueters. (2012). Financials: Southwest Airlines Co. Retrieved fromhttp://www.reuters.com/finance/stocks/financialHighlights?symbol=LUV.N

•  Southwest Airlines Co. (2012). 2005 Annual Report. Retrieved from http://www.airtimes.com/cgat/usc/southwest/ar/wn2005.pdf

• Southwest Airlines Co. (2012). 2011 Annual Report. Retrieved from http://southwest.investorroom.com/

• Scott McCartney (April 1, 2012) Retrieved from http://online.wsj.com/article/SB10001424052702303338304575155813404043090.html

•  Southwest Customer Service Commitment Report. (2012). Retrieved from http://www.southwest.com/assets/pdfs/corporate-commitments/customer-service-commitment.pdf

• Southwest Website (Jun 6, 2012) Retrieved from http://www.southwest.com/html/southwest-difference/southwest-citizenship/environmental-initiatives/index.html

• Thompson, A., Peteraf, M., Gamble, J., & Strickland III, A. J. (2012). Crafting and executing strategy. (18 ed., pp. 54-71). New York: McGraw-Hill/Irwin.

• Tycen Bundgaard, John Bejjani, Edmund Helmer (April 12, 2006) Retrieve from http://economics-files.pomona.edu/jlikens/SeniorSeminars/pandora/reports/southwest.pdf

• "US Bureau of Transportation Statistics." RITA. N.p., n.d. Web. 5 Jun 2012. <http://www.transtats.bts.gov/>.

• (May 25, 2012) Retrieved from http://www.centreforaviation.com/analysis/delta-launches-attack-on-jetblue-through-new-leisure-push-from-new-york-74417

• Thompson, Peteraf, Gamble and Strickland. Crafting and executing strategy : the quest for competitive advantage : concepts and cases. Alabama: McGraw-Hill Irwin, 2012. Print. (Pg 94)

• United States Security and Exchange Commission (Dec. 31, 2012) Retrieved fromhttp://investing.businessweek.com/research/stocks/financials/drawFiling.asp?formType=10-K 

• Ycharts (June 9, 2012) Retrieved fromhttp://ycharts.com/industries/Regional%20Airlines/return_on_assets,assets

• Wall Street Journal (June 7, 2012) Retrieved from http://online.wsj.com/article/PR-CO-20120607-905588.html?mod=crnews