Stategic Management

Case study of Southwest Airlines

LEAD WITH LUV

Group Members:

Ammara Ashfaq 10-NTU-1011Gulnaz Abad 10-NTU-1020Fatima Arshad 10-NTU-1018

OVERVIEW» Major domestic airline that provides short haul,

high frequency, point-to-point, low fare service.» Incorporated in Texas and commenced

Customer Service on June 18, 1971 with 3 Boeing 737 aircrafts serving 3 cities – Dallas, Houston, and San Antonio.

» SW operates over 483 Boeing 737 aircrafts in over 63 cities and 32 States.

» Lowest operating cost structure in the domestic airline industry and consistently offers the lowest and simplest fares.

OVERVIEW

» 1st airline to offer a profit-sharing plan to employees beginning in 1979, employees now own about 10% of company stock.

» 1st major airline to offer “ticketless” travel system-wide.

» 1st major airline to enter information superhighway by creating its own web page.

» 1st airline to offer online booking.

SOUTHWESE 2010’s Awards and Recognitions

» Ranked 4th on Fortune’s World’s most Admired company List

» Listed in Computer Worlds’ Best places to work in IT

» Named BEST LOW COST AIRLINE IN NORTH AMERICA by Business Traveler Magazine

» Awarded with Logistic Magazine’s Quest for Quality Award

HISTORY

» Key Dates:

» 1967:» Company is incorporated as Air Southwest Co.

» 1971:» Airline launches first route, connecting Dallas, Houston, and San Antonio.

» 1973:» SWA posts first profit and begins RUSH cargo service.

» 1975:» Southwest had expand its operations to eight more cities in Texas.

» 1976:» Company is renamed Southwest Airlines Co.

» 1977:» Shares migrate to the New York Stock Exchange.

» 1978:» Herb Kelleher becomes Southwest's outspoken new chairman.

HISTORY

1979: SWA flies outside Texas to New Orleans. 1981: Kelleher is named company president and CEO. 1982: SWA begins flights to West Coast. 1990: Revenues exceed $1 billion, making SWA a major airline. 1994: Morris Air and Arizona One are acquired. 1996: Online booking site is launched. 2000: SWABIZ corporate booking tool is introduced. 2005: SWA offered a downloadable desktop application (DING).

HISTORY continued…» 2010: ranked first among Airlines for Customer service

satisfaction» 2011: merged with Air Tran, Florida» 2011:hedged 40% of its fuel needs

MISSION STATEMENT

Proposed Mission Statement

The mission of Southwest Airlines is to provide excellent customer service and timely air travel at an affordable price among markets in the United States. We commit ourselves to the highest standards of integrity in doing what is best for our passengers, the airline industry, our employees and our stockholders.

Proposed Vision Statement

To be the famous, mature and new generation’s Airlines Company that provides the most affordable, reliable and comfortable flight transportation in both domestic and oversees markets.

www.southwest.com

Strategy-Formulation Analytical Framework

External Factor EvaluationMatrix (EFE)

Internal Factor EvaluationMatrix (IFE)

Competitive Profile Matrix(CPM)

Stage 1:The Input Stage

External Factors Evaluation (EFE Matrix)

Weight Rating Weighted Score

Opportunities

Global Expansion .10 1 .10

Space in Market .11 4 .44

Long-term Industry Growth .10 3 .30

Merger or Acquisition .09 4 .36

Growth in freight business .10 1 .10

Increase Domestic Flight in USA .12 4 .48

Threats

Terrorist Attacks & Safety issue .11 3 .33

High Cost of Fuel .09 4 .36

Alternative Forms of Transportation .10 3 .30

Inflation Rate .08 3 .24

TOTAL 1.00 3.01

Internal Factor Evaluation (IFE Matrix)

Weight Rating Weighted Score

StrengthsCost leadership .11 4 .44

Team Spirit Approach .12 4 .48

Sensible Expansion Policy .06 3 .18

E – Business .10 4 .40

Financial Positions .12 4 .48

Hedge position on fuel .06 3 .18

Excellent Public Image .06 3 .18Customers Service .08 4 .32

WeaknessesDepend on Single Producer .10 1 .10

Lower load factor .06 2 .12

High Labor Costs .05 2 .10

Lack of International Flights .08 1 .08

TOTAL 1.00 3.06

Competitive Profile Matrix (CPM) Southwest AMR corp. United

Critical Success Factor Weight Rating Score Rating Score Rating Score

Management .10 4 .40 3 .30 3 .30

Organizational Structure .05 3 .15 3 .15 3 .15

Customer Service .10 4 .40 3 .30 3 .30

Consumer Loyalty .08 3 .24 2 .16 2 .16

Security Precautions .05 2 .10 2 .10 2 .10

Market Share .10 4 .40 3 .30 2 .20

Advertising .12 3 .36 3 .36 3 .36

E – Business .10 4 .40 2 .20 2 .20

Global Expansion .06 1 .06 3 .18 3 .18

Financial Position .15 4 .60 4 .60 2 .30

Price competitiveness .09 4 .36 3 .27 3 .27

TOTAL 1.00 3.47 3.02 2.52

Strategy-Formulation Analytical Framework

SWOT Matrix

SPACE Matrix

IE Matrix

Grand Strategy Matrix

Stage 2:The Matching

Stage

SWOT MatrixStrengths – S1) Cost leadership2) Team Spirit Approach3) Sensible Expansion Policy4) E – Business5) Financial Positions6) Hedge position on fuel7) Excellent Public Image8) Customers Service

Weaknesses – W 1) Depend on Single Producer2) Lower load factor3) High Labor Costs4) Lack of International Flights

Opportunities – O 1) Global Expansion2) Vacuum in Market3) Long-term Industry Growth4) Merger or Acquisition5) Growth in freight business6) Increase Domestic Flight in USA

SO Strategiesi. Market Penetration

(S3, S5& O4,O6) ii. Horizontal Integration

(S5 & O4)

WO Strategiesi. Product Development

(W2 & O5)ii. Market Development

(W4 & O1, O3)

Threats – T1) Terrorist Attacks & Safety issue2) High Cost of Fuel3) Alternative Forms of Transportation4) Inflation Rate

ST Strategiesi. Backward Integration

(S3,S6 & T2)

WT Strategies

SPACE MatrixInternal Strategic Position External Strategic PositionFinancial Strength (FS) Rating Environmental Stability (ES) RatingReturn on InvestmentWorking CapitalNet incomePrice Earning Ratio

5664

Technological changesRate of inflationCompetitive pressureDemand VariabilityPrice Range of Competing Service

-3-3-2-5-1

FS average 5.25 ES average -2.80

Competitive Advantage (CA) Rating Industry Strength (IS) RatingMarket ShareService qualityCustomer loyaltyCompetition’s capacity utilization

-1-2-2-1

Profit potentialGrowth potentialFinancial StabilityResource utilization

6555

CA average -1.50 IS average 5.25

Conclusion:-Directional vector coordinates: X-axis -1.50 + 5.25 = 3.75 Y- axis 5.25 + (-2.80) = 2.45Therefore, the Southwest Airline should pursue Aggressive Strategy.

+6

+6-6

-6

SPACE Matrix FS

ES

ISCA

Conservative Aggressive

CompetitiveDefensive

(3.75, 2.45)

(IE) Internal & External Matrix

IFE Total Weighted Scores (3.06)

EFE Total Weighted Scores

(3.01)

Strong4.0 to 3.0

Average2.99 to 2.0

Weak1.99 to 1

High 3.0 to

4.0

Medium

2.0 to

2.99

Low1.0 to

1.99

Grand Strategy MatrixWEEK COMPETITIVE

POSITION

RAPID MARKET GROWTH STRONG

COMPETITIVE

POSITION

Quadrant II Quadrant I

Quadrant III Quadrant IV

SLOW MARKET GROWTH

Strategy-Formulation Analytical Framework

Stage 3:The Decision Stage

Quantitative Strategic Planning Matrix

(QSPM)

Market Penetration:- Expand into more cities in USA.

Market Development:- Begin international flights.

Possible Strategies

Quantitative Strategic Planning Matrix (QSPM)Strategic Alternative

Internal Factor Market Penetration Market Development

Strengths Weight AS TAS AS TASCost leadership .11 4 .44 3 .33

Team Spirit Approach .12 4 .48 3 .36

Sensible Expansion Policy .06 3 .18 4 .24

E - Business .10 4 .40 3 .30

Financial Positions .12 4 .60 3 .36

Hedge position on fuel .06 --- --- --- ---

Excellent Public Image .06 3 .18 1 .06

Customers Service .08 3 .24 1 .08

Weaknesses

Depend on Single Producer .10 --- --- --- ---

Lower load factor .06 2 .12 1 .06

High Labor Costs .05 2 .10 1 .05

Lack of International Flights .08 1 .08 4 .24

TOTAL 1.00 2.82 2.08

Quantitative Strategic Planning Matrix (QSPM)

External Factors Market Penetration Market Development

Opportunities Weight AS TAS AS TAS

Global Expansion .10 2 .20 4 .40

Vacuum in Market .11 4 .44 2 .22

Long-term Industry Growth .10 --- --- --- ---

Merger or Acquisition .09 4 .36 3 .27

Growth in freight business .10 --- --- --- ---

Increase Domestic Flight in USA .12 4 .36 1 .12

Threats

Terrorist Attacks & Safety issues .11 3 .33 4 .44

High Cost of Fuel .09 3 .27 4 .36

Alternative Forms of Transportation .10 --- --- --- ---

Inflation Rate .08 2 .16 3 .24

SUB TOTAL 1.00 2.12 2.05

SUM TOTAL ATTRACTIVENESS SCROE 4.94 4.13

Recommendation Based on QSPM, the best looking

strategy would be to expand into more cities in USA, ( Market Penetration ).

The longer non-stop flights have more of a competitive market and would be hard to keep low cost flights.