Southwest Airline Harvard Case Solution & Analysis

Southwest Airline  Case Study Solution

OVERVIEW AND BACKGROUND

The company, Southwest Airlines, by servicing a wide number of passengers all over the world, has succeeded in achieving the position of market leader of domestic travel in the US. This airline is also considered as the discount airline as it is the most affordable source for most passengers as compared to the rivals present in the market.

The profitability of the company is evident from its past history of consistent profit from the year 1973. Southwest Airlines came into existence in the airline industry with the help of the founders, Mr. Rollin King and Mr. Herb Kelleher on June 18, 1971. The company’s first flight was from Love Field in Dallas to Houston and San Antonio, short hops with no-frills service and a simple fare structure.

The company initiated its operation with a view that “If you take your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure that they have a good time doing it, people will fly your airline.” This approach has been the key success factor for the Southwest Airline Company. Currently, Southwest serves about numerous cities with 108 million total passengers carried (in 2013) and with a total operating revenue of $17.6 billion. Southwest is traded publicly under the symbol “LUV” on NYSE.The symbol LUV reflects the fun loving attitude of the management towards its employees.

Southwest Airline Harvard Case Solution & Analysis

The company proved to be the first major airline to fly a single type of aircraft which later proved to be Southwest’s strategy in creating as well as sustaining low-cost operations. In order to gain the competitive edge by providing more benefits for its customers, Southwest airline was the first to offer ticketless traveling system,which includes the frequent flier program based on number of trips and not number of miles flown.

The company with the prime focus towards its employees was the first major airline to introduce a profit-sharing program for its employees as well as it was the first to develop an online booking system for its passengers by creating its website.

Almost about 74% of the company’s revenue came from the online sales in 2009 whereas, the result shows an increasing trend in the year 2013 which shows that 80% of all the bookings by passengers is made online. The online booking costs only $1 for the passengers whereas, the booking made through the own internal system reservation cost about $3 to $4 and its cost about $15 if purchased through the travel agents or the professional travel partners.

Despite being a profitable company, the company faces some issues related to the serving of the international passengers, increased competition in the airline industry, issues related to the environmental concerns and difficulty in reducing itslabor cost and stock growth despite operating for so many years.

PROBLEM STATEMENT

Despite the consistent profitability situation of the company since 1973, there are some issues and challenges that the company is facing which are identified .

The company is currently using the outdated information system for its operations which cannot help them serve the international clients for travelling purpose, nor can it tackle complex ticketing mechanisms. The company is not achieving the advantages related to the economies of scale which the other competitors are enjoying due to the increased mergers and acquisitions due to the restriction on the air line consolidation and foreign investment.

With the strong company’s policy of low-cost, no frill strategy and its inability to fly long routes and international destination, the company is actually limiting its clients in the long run. The company is missing its large customer segments that are willing to pay top dollar for a full service air travel. Due to the increased fuel cost and issues regarding the environmental concerns that can cause severe impact on the passenger due to high emission and noise pollution, the company is required to play efficiently to overcome such economic concerns which also includes the high taxes, fees and other government mandated cost.

Despite operating since long, the company is unable to reduce its cost related to its labor which gives rise to dysfunctional labor situation and stalled growth.Moreover, the company faces the increased exposure of risk towards its raw material because of the increasing price of fuel each year. The company is currently undertaking the speculation strategy on the energy prices rather than hedging.

Furthermore, due to the increase in fuel prices,the company recorded its first loss in almost 17 years of its operations due to fuel hedging which altogether concluded that the company is currently working at a highly challenging environment to regain its profit levels to an increasing trend as compared to the past.................

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