Southwest Airlines - Case Study
When a commercial airline starts to receive cheques of over a thousand dollars from its customers in a show of solidarity, is it safe to call it a family? In the wake of the September 11 attacks on the United States, that was the reaction of most passengers to the airline they had flown for years. And for some, decades.
Asides being the most profitable airline in history, Southwest has, through its organic efforts, claimed acres of space in the heart of millions of Americans. Not because it necessarily has the best of services, but because, as studies put it, it knows how to play the long game. The strategy was simple, fly eight flights, get one free. This and several other innovative moves on the chessboard of cutthroat competition has brought southwest from the backsides of Texas into one of the major frontrunners in its industry.
But how did it start? How did it grow? Who engineered such growth? And what lessons can other businesses learn from the Southwest way?
This piece is a case study of America's most profitable airlines. In the ensuing paragraphs, we will explore the nitty-gritty of what made Southwest what it is today. But first, we must revisit some backstory.
It started in 1966 when two friends Herbert Kelleher and Rollin King created their new airline outfit and incorporated it as Air Southwest Co. the following year. At first, Rollin King, a businessman, first thought up the idea of replicating the system of California’s airline company, Pacific southwest airlines, in Texas. And there could be only one friend who would understand his vision at the time, Herbert Kelleher.
However, the young company was quickly embroiled in a tug of war when existing industry giants tried to file lawsuits aimed to deter it from executing its killer strategy of slashing airfares by operating within the state of Texas only. This mode of operation would not only reduce its overhead by staggering margins but it will also shield the airline from a coterie of “unfriendly” laws and regulations. Although its competitors stamped hard and furiously, the airline was allowed to conduct business in 1971. The earliest flight routes were between Dallas Love Field and Houston; Love Field and San Antonio. Four years down the line, the airline management thought an alternative name would fit right for the airline. And so, in 1975, they unveiled the name Southwest Airlines Co. The rebranded company extended its flight route to cover other cities within the US state of Texas.
For years, Southwest airlines have been the undisputed king of the airline competition. Many tie this to their incredible business model. However, on closer observation, experts believe that the airline does nothing "too" strange from the practice of a conventional airline. But what experts do agree on is that Southwest has a series of practices that puts it miles ahead of its competition. Some of which we will consider in the ensuing points.
This name became a sort of trademark for the airlines when, at the start of its operation, it slashed airfares by margins other competitors found to be incredibly ridiculous. From time immemorial, Southwest have been masters at playing the price game. More so, they do it so well that they are hardly ever seen compromising on quality. While other airlines have tried to emulate this model and diverting a huge percentage of their customer base, Southwest airlines have always responded with counter-strategies that sent competitors with tails in between their legs.
A popular example was in the 1990s when its main competitors, the Baniff international, kick-started a 60-day “half-price ticket sale” for flights between Houston and Dallas. The offer was set to sell tickets at a meager $13. The industry price at the time was about $26; Southwest airlines’ ticket price. Southwest responded swiftly by offering its customers an alternative. Passengers could either pay the standard $26 or $13. However, the catch was, customers who opted for $26 tickets were inundated with gifts such as fifths of whiskey or ice buckets. According to the results, 80% of Southwest's customers stuck with $26 tickets. This success once again proved the business theory that most customers would be willing to pay that little extra when gifts or bonuses are in the picture.
One feature that has led to increased profitability for the airline is its decision to stick with one type of aircraft: the Boeing 737. For industry insiders, this has been a winning strategy for the airline. By this decision alone, Southwest only need to train their pilots and engineers on one type of aircraft. When purchases are made on new aircraft parts, those purchases are pretty much predictable as it is for a single type of aircraft. Then there is the cost of reskilling their pilots. With one aircraft type, Southwest must no longer burn millions of dollars updating their pilots on some new technology that does not add a dime to its overall vision. According to a senior executive at Southwest, if the airline had to change a plane at the last minute, most customers would not know, because they all look pretty much the same. While this model has given the airline a rare stroke of mastery on the Boeing 737 model, critics believe that it makes the airline vulnerable as it only patronizes one aircraft manufacturer, Boeing.
As stated at the beginning of this article, customers were seen sending in goodwill messages and some, even cash gifts to an airline they believed has been a loyal partner to their travels through the years. For customer service experts, this was the hallmark of loyalty and solidarity. And only a few companies such as Apple and Harley Davidson have ever come this close in terms of customer loyalty. But the reason is not farfetched.
For decades now, Southwest airlines have been known for their remarkable customer service. Its model has been studied in business schools even. For starters, Southwest airlines do not run first-class services on its flights. Second, there are no assigned seating arrangements. This simply means passengers do not have to wait to board only when their seat section is boarding.
More so, the airline allows its passengers to carry two pieces of checked luggage on one ticket. An anomaly in the conventional airline industry. As an icing on the cake, there are only o.4% chances that your luggage would go missing on a Southwest flight. It hardly ever happened. From its rapid rewards program, heart and evolve interiors, to in-flight entertainment, the list is endless. But one thing is certain, a passenger who flies Southwest is 80% of the time eager to relive that experience.
Though Southwest has been ion the top spot of the most profitable airline of the United States, it is hardly exempted for the harsh realities of the airline industry let alone the economy. The airline has over time, been forced to count its losses from rising fuel costs and other market forces that affect the industry. Nevertheless
, it has remained afloat. And that is the key.
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