Southwest Airlines and Microeconomics Essay

Southwest Airlines is a major US airline established in 1967 that services a multitude of cities in all 50 states and beyond. The company is known for its outstanding quality in providing services and it 's cost effective ticket prices to its many passengers throughout the nation. This airline is based in the southwestern United States, in the city of Dallas Texas, and due to the tremendous number of airplanes that it has and the timely service that it provides to its passengers, this airline services more US passengers than any other airline. This airline also has the largest fleet of planes of any economical or low-cost airline service in the world and employees more than 45,000.

Southwest Airlines original name was Air Southwest in 1967 in Dallas, Texas, before the change of the name to Southwest Airlines in 1971. They were faced with battles due to legal issues with Dallas and Love field, because of the Wright Amendment, but the come to an agreement to allow 4 states to connect to Texas. Southwest bought 129 new planes, because of the expansion of the company growth, which currently have 141 planes that enhance the growth of the company because of shorter flights (Gimbel, 2005). Southwest was started in 1971, by Rollin King and Herb Kelleher, which released it first flight from Dallas Love Field that is located in Houston and San Antonio Texas. The passengers look for an airline services that can get them to their destination at a cheap price. Majority of the passenger are looking for an airline service that will eliminate layovers and multiple stops as possible.

Southwest Airline’s low-cost fare structure and customer service has been its primary core-competency and has enabled the airline to maintain its market share while sustaining its competitive advantage over its rivals for over 40 years. This internal analysis will provide a review of the strengths and weaknesses of events that occur within the firm along with a financial analysis assessment and recommendation for future decisions.

Southwest Airlines is a passenger airline company that arranges and provides scheduled flights for passenger and transportation freight services. The company mainly provides, low-fare, point-to-point services all over the US and near-international markets. The headquarters is located in Dallas, Texas and as of December 2014, the company employed over 46,278 people. The company was founded by Rollin King and Herb Kelleher in 1971. Southwest was the first airline to introduce the frequent mile program. This took place in the mid 1980’s. This type of program allowed passengers to add up traveled miles to use later as credit on a future airline ticket. The traveled miles would add up and would also reduce the price of a ticket. Southwest created the idea of senior discount, fun fares and the fun packs. These were perks that attracted people from different age groups. When Southwest originally was incorporated, the idea was to operate in three cities in Texas, but after taking over Morris Air and TranStar in 1987, this gave them a cutting advantage in the airline industry.

Economic, social-cultural, and technological forces are the external macro-environmental factors Southwest Airlines should be most concerned with. Weak economic growth reduces the purchasing power of an airline’s target market. Southwest, known for being a leader in low cost airline, provides flights at a higher frequency and capacity to attain profit. However, the company experienced increasing overhead through the lapse of long-standing fuel contracts, which previously helped provide a competitive advantage. This factor is also amplified by the growth the company experienced with success. Southwest is the fourth largest airline and has seen fuel cost skyrocket from 29 percent to 35 percent over a seven-year period.

Southwest began in 1971 with three planes serving only three cities in Texas, Dallas, Houston, and San Antonio. Those three planes were Boeing 737s, and they were one of

According to Southwest Airlines website and other media outlets, it is a miracle that Southwest Airlines even exists today. Hard to believe since U.S. Department of Transportation currently has Southwest Airlines as the nations number one domestic airline in passengers boarded. Southwest has the largest fleet of Boeing aircrafts in the world and many of them offer gate to gate WiFi which allows the traveler to use personal handheld devices to pass the time while flying to their destination. In March of 1967, Herb Kelleher and Rollin Dean, incorporated Air Southwest Company before even owning a plane to fly. Later in 1967 they applied to the Texas Aeronautics Commission to fly from Dallas Love

In the opinion of Dr. Grace S. Thomson, “a heterogeneous mix of long and short-haul in very thing segments, passenger, density, and per capita income at end points gives [Southwest Airlines] competitive advantage. The way to establish a company in such a market as the airline industry would be to strategically expand in to airports with less competition. Southwest Airline capitalized on this fact to become a national airline (Keller 2008). Southwest Airlines satisfies what were once negligible markets. Southwest serves “64 cities in 411 non-stop city pairs” (Thompson 2008). Saturating these markets has allowed Southwest Airlines to expand without putting a strain on its pocket book (Keller

Southwest Airlines was introduced in Texas on June 18, 1971 with three Boeing 737 airplanes and only serving three cities of Texas which included Houston, Dallas and San Antonio. The company came a long way since 1971; today Southwest Airlines has 537 Boeing 737 airplanes and serving 68 cities around the US. Southwest Airlines has become a major airline in 1989 when it hit the billion-dollar revenue mark. Southwest Airlines is the United States’ most successful airline due to the low fares, high frequency, and

Being convinced that customers are more likely to travel with Southwest if its flights are reliable and on time, managers pay great attention to on-time arrivals and departure. For this purpose, Southwest managers and employees are all proactive when it comes to suggestions for improving practices and procedures. As a consequence, Southwest Airlines had the lowest operating costs in 2008 (13.85 cents per passenger seat mile versus an average of 19.05 cents for the other 7 major U.S airlines).

This proposal addresses the needed steps to be taken in order for Southwest Airlines to see continued growth in the airline industry. Southwest Airlines has been able to remain one of the most profitable airlines in the industry for an extended period of time. Even with the hindrance of the 2001 terrorist attacks involving airplanes and the U.S recession of 2008, Southwest has continued to see strong revenue growth. Meanwhile, other companies were experiencing major losses and in some cases folding. Southwest Airlines has capitalized on the company’s strength of being the top low cost

There have been few inventions to change how people live and experience the world considerably as the creation of the airplane. Today, traveling by air has become the norm and it would be difficult to imagine life without it. Air travel has improved the way people are able to conduct business by shortening travel time and changing their thought of distance. The companies within the airline industry exist in a very competitive market. One of those companies, Southwest Airlines, features low-fare, no-frills air service with frequent flights of mostly short routes. Costs are kept down by the exclusive use of Boeing 737 aircraft, which allows for low maintenance costs and quicker turnaround times for flights, and by an emphasis on ticketless travel (Encyclopedia Britannica). This paper will address two segments of the general environment and how they affect Southwest and the airline industry; evaluate how Southwest has addressed two forces of competition; predict what Southwest might do to improve its ability to addresses these forces; assess the external threats affecting Southwest; discuss Southwest’s greatest strengths and most significant weaknesses; determine Southwest’s resources, capabilities, and core competencies; and analyze their value chain.

Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998).

Fuel costs remain a major concern for the entire airline industry. Southwest paid $3.16 per gallon for jet fuel in the third quarter of this year, $1 more than last year, and expects to pay $3.45 per gallon in this year’s fourth quarter. Although airlines are converting to more energy efficient planes, fuel is about 35% of the airlines total operating costs. According to Martin (2012), “Airfares are not rising as fast as fuel costs, partly because airlines realize that passengers will use alternatives if flying becomes too expensive.”

Southwest Airlines has developed at a high growth rate within these recent years, and one of the major factors which contribute to its success is an effective use of SWOT analysis which required the business itself to know its strengths. From the beginning, Southwest has been focused on emphasizing its’ low-cost flying strategy, a brand developing strategy that has made the airline brand well-known in the market. The management at the Southwest has made effort to cut any additional operating costs to support the low-cost fare to consumers. It was the first airline to offer many services including allowing customers to purchase tickets directly on their website instead of through an agency, proving customers with in-flight entertainments such as videos and TV series at no additional charge, and using paperless boarding pass during check-in process. Based on the Center for Aviation and airline reports, it stated that during 2014, Southwest successfully recorded its fifth consecutive quarter of record profits. Its consistent profitability has demonstrated its rapid growth for the past 44 years. It benefited from the strong demand within the United States marketplace. Thus, it has begun to initiate flying services to major cities such as Los Angeles, Denver, etc. Additionally, Southwest’s strengths also include the relationship between the management team and its employees which create a low turnover rate with its employees receiving much training for a better performance.