By Abel R.

Martinez

Southwest Airlines was started in Texas and

began operation on June 18, 1971, with three
Boeing 737 aircraft and about 200 employees.
The company serviced the three Texas cities of
Houston, Dallas, and San Antonio. Now in its
45 year of existence the airline employs over
48,000 workers and flies to 97 destinations
across the US and seven other countries.
Southwest services 100 million customers
annually with peak departures over 3,900 a
day.

Southwest Airlines is in a highly competitive

market where consumers have high bargaining
power and copy cat ULCCs are constantly
trying to capture a portion of the companys
sales impacting the companys market share.

Vision Statement:
With Southwests
efforts to continue
expanding and going
international an
appropriate vision
statement would be:
To become the leading
airline service in the
world.

Mission Statement
The mission of
Southwest Airlines is
dedication to the
highest quality of
customer service
delivered with a sense
of warmth,
friendliness,
individual pride, and
company sprit.

Southwests philosophy
is all about customer
service. The mission
statement lets the
customer know that
Southwest is dedicated
to the highest quality of
customer service.
Customer service is the
main focus of its
mission statement.

March 2011, ranked fourth on

Fortunes Worlds Most Admired
Company list and was also the
highest ranking commercial airline
Fortunes Worlds Most Admired
Company list, number 7 in 2013 and
number 9 in 2014
December 2010, named Best Low
Cost Airline in North America by
Business Travelers magazine.

2013, Ranked number one by the

American Customer Satisfaction
Index for the 17th year in a row

Top 25 Brands of 2013, number 1

Among Travel- Related Companies
and number 5 overall, The Business
Journals
Corporate Equality Index, Scored 90
out of 100 in 2014. Human Rights
Campaign
One of the Top 100 Military Friendly
Employers, #58 in 2013, #70 in 2014,
G.I. Jobs magazine

Opportunities

Explore social media options for

reaching new customers
Increase the number of flights to
domestic sites
Expand into international markets
Growth potential and expansion
by adding cities that service is
provided in.
Possible partnership with foreign
international airlines
Utilize new technology to enhance
customers flight experience
Research and development to
expand product choices

Threats

Rising price of fuel

Shorter flights burn more fuel
TSA rules requiring pat downs
for those refusing to full body xray.

Possible increase cost of

operations with FAA proposed
changes in rest requirements for
flight crew
Jet Blue, Spirit and other ULCCs
Union labor cost
Strikes or labor disputes

Strengths

Unique management strategies

20 minute average in
turnaround time
45 years experience in the airline
industry
Employee loyalty and morale
very high
Known for low airfare and high
customer service
AirTran acquisition increased
capacity by 22 percent
Bags Fly Free only airline
with no charge for first or
second bad checked in

Weaknesses

Conservative growth tactics

Doesnt offer baggage transfers to
other carriers

No first or business class offered

Limited international flights

Offers no meals

No assigned seating

Not on any centralized reservation

sites

Rivalry among competing

firms
Potential entry of new
competitors
Bargaining power of
suppliers

Potential development of
substitute products
Bargaining power of
consumers

Threat of rivalry is high due to the number of

competing airlines. For 2015 Southwest enjoyed
18.2% of the market share with Delta at 16.9%
and American at 16.1 %.(Transtat) Mergers and
acquisition are always a possibility that can
increase the threat of rivalry. There are also
copycat ULCC such as Jetblue and Spirit that
offer similar product and possibly in some case
lower prices making it easy for consumers to
choose another brand.

Threat is low due to high entry barriers such as

the large amount of capital it would take to
start up a new airline. The average price of
Southwest most common airplane, the Boeing
737-700, was 80.6 million in 2015.(Boeing) The
smallest fleet for a US airline belongs to Spirit
which as of February 2016 had 79 aircraft.
(Spirit)

Bargaining power of suppliers is high. Limited

suppliers of aircraft and Southwests fleet, as of
2015 consisted of 692 737 Boeing aircraft with
no plans to switch to other aircraft.(Southwest)
463 of those aircraft were the 737-700 with an
average cost of 80.6 million today. The Fuel
prices have a great affect on airlines bottom
line giving suppliers a great deal of leverage.
Soutwest paid 19.6 billion in fuel cost in 2015
for domestic flights alone. When combined
with international flights it brings total fuel
cost to 30.8 billion.(Transtat)

Travel time makes threat

of substitution low.
People look towards
airlines when they
need to cover a
significant distance
and dont want to
spend the time it
would take to travel
by car, bus or train.

There is virtually no cost involved for consumers to

switch between products. A consumer can pick
any airline that flies to the destination they are
seeking. Consumers may fly out on one airline and
return on another booking one way travels instead
of round trips if suits their needs. There are
numerous web search engines to help consumers
compare prices of competing airlines. Sites such as
Travelocity, Kayak, Google Flights, and Priceline
allow consumers to compare prices and book the
best fares; bargaining power for consumers is high.

Where is the firm financially

strong and weak?
Southwest has shown
improvement over the last few
years in utilizing the companys
assets and investors funds in
generating earnings.
Southwests low leverage ratio
and high interest coverage ratio
make it appear to be a low risk
investment. The company may
have some liquidity difficulty.
Southwests Quick and Current
ratios show a bad trend over the
last few years and may have
problems paying off short term
obligations.

Raising short term capital?

Southwests best source of short
term capital may be through
equity financing. Due to its low
current and quick ratios
southwest could experience
difficulty getting a short term
loan.

Raising long term capital?

Southwest would be able to use either debt or
equity or a mix to finance long term capital.
Does the firm have sufficient working capital?
With current liabilities higher than its current
assets southwest does not have sufficient
working capital.

Southwest has great experience with over 45

years in the airline industry and a very good
reputation with consumers. Southwest should
use these strengths to expand their brand both
domestically and internationally. With the
acquisition of Airtran it has increased their fleet
size and international connection which would
help them to add more domestic and
international flights

Southwest has opportunities to increase the

products they offer by adding 1st class and
business class seating at least on some of their
longer flights. They could also offer meals on
these flights. By offering these products they
could increase the amount of consumers they
would appeal to. By utilizing social media
outlets they could reach many consumers who
are not reachable through other marketing
techniques.

In order to increase the efficiency of fuel use

Southwest should make sure at least 50% of
their flights are greater than 750 miles.
Southwest has said that employees should be
treated as customers, maintaining this
philosophy will help diminish the threat of
strikes and labor disputes. Southwest Bags fly
free program and quality of service at a low
price helps make them standout but they
should continue to looks for ways to make
them the choice over copycat ULLCs that may
offer a lower price.

If Southwest believes they have a great product at a

lower than average price they should have no
reason to avoid centralized reservation sites such
as Orbitz and Expedia. Some consumer may only
use these sites to compare flights which leaves
Southwest out of the running and gives more
opportunities to the competition. Southwest can
mitigate risk and still expand further into the
international market, while increasing flight
lengths by partnering up with a foreign airline.

The strategy recommended is to increase the

amount of international flights from seven to
fifteen. Capitalizing on several of Southwests
strengths such as 45 years of experience,
reputation of low airfare and high service, and
utilizing the acquisition of Airtran, Southwest
could easily increase the number of
international flights it offers and eliminate the
weakness of limited international flight and
expand the companys reputation
internationally.

By using this strategy Southwest could seize several of the

opportunities that have been identified with minimal
exposure to recognized threats. By adding international
flights Southwest also increases the amount of nonstop
flights and increases the average length of the companys
flights. Southwest could also implement this strategy
through partnership with a foreign airline and minimize
risk. The threats the company faces are the same for the rest
of the industry. Rising fuel cost and FAA proposed changes
in rest requirements for flight crew will affect the entire
industry. With shorter flights being less fuel efficient,
increasing the average flight length would be more
economical while partnering with a foreign airline would
increase the amount of crew members without having to
higher or train new employees.

Southwest Airlines citizenship has always

meant that the company is devoted to each and
every community that we serve. In the
attempts of continued growth and extending
our brand internationally, Southwest pledges
to uphold these values in every country that
we enter.

Finance:
Obtain funding required to purchase new
aircraft to service the additional routes
Determine the cost of any fees, visas or permits
required for conducting business outside the
country.
Determine breakeven point
Develop proposed cost and profit split
between partners
Develop and monitor budgeting cost

Conduct research to determine most lucrative

foreign sites to provide flights to
Conduct research to determine the best foreign
airline to form partnership with.
Develop marketing strategies and advertising
campaign to bring brand awareness to the
foreign market.
Develop marketing strategies and advertising
campaign domestically to announce new
foreign travel locations

Continue researching the most economical long

range aircraft that offers the best fuel efficiency
per passenger.
Research expectancies of foreign travelers,
food, beverages, and comfort

Ensure thorough research has been conducted

on laws and customs of all countries that
Southwest will be doing business in.
Educate all employees on laws and customs of
all countries that Southwest will be doing
business in.
Educate all employees and/or contractors on
Southwests ethical business standards.

Southwest Airlines is in a highly competitive

market and to remain successful must seek to
expand its market. Southwests leadership if
confident that we have a very viable strategy
that will allow the company to capitalize on its
strengths, eliminate a weakness, with minimal
exposure to recognized threat. By forming an
alliance with a foreign airline Southwest will be
able to increase our international flights and
expand the companys brand without worry of
brand dilution.