What are the key industry conditions which render profits elusive for airlines?
Competition is one of the factors that render profits elusive. For example, Southwest Airlines face stiff competitions from Delta Express, Continental, United and U.S Airways. In fact new companies venturing into the airline industry try to compete with southwest on the low-cost policy. Actually, with the improvement of technology competition has tremendously increased. Competition has forced out many airlines in the business leading to acquisition by competitors, in addition others are strained to file for bankruptcy. Other factors include high operating costs, decrease in number of customers due to inflation, increased regulation and more so the persistent increase of fuel prices.
Does Southwest Airlines have a durable competitive advantage?
As a matter of fact, when the profit of a company consistently exceeds the average for its entire industry, then the company possesses a durable competitive advantage. In this case study, it is clear that the profit made by southwest airline consistently exceeds the average of the industry. Therefore, they have a durable competitive advantage over other Airlines. The airline uses a single line of aircraft, making it easy to maintain, operate and schedule.
The policy of fuel hedging has enabled southwest Airlines to make profits for many years. In fact the Airline has secured a good hedging contract through to 2013. This will lead to a saving of $600 million in the cost of fuel. This is a clear indication that southwest airlines have established a durable competitive advantage.
Southwest Airlines have achieved this by becoming the leaders in the lowest cost producers in the industry, (Francart, et al, 2008). All the activities of southwest airlines are planned towards cost minimization. These activities include, no meals, no reservations of seats, using of secondary airports accompanied by low cost, fast turnaround to ensure that planes spend more time in the air as well as standardized flights of aircrafts.
Additionally, Southwest Airlines have attained durable competitive advantage through the creation of infrastructures, good communication, and consistency in their procedures. Other supportive facts in the case study on durable competitive advantage include consistent profit making, strong management group, unique boarding system, as well as no channels to sell air tickets.
Do recent issues (such as safety violations and a labor union dispute) signal inherent weaknesses at Southwest or demonstrate the company's strength in handling threatening situations as they emerge
Challenges in an industry are the very forces behind change and improvement. In this case Southwest Airline clearly demonstrated the strength of the company to tackle challenges as well an opportunity to express how the airline is safe to travel with. Both situations were handled by the company in a very professional way, hence maintaining its low-cost advantage as well as continued growth, (Francart, et al, 2008).
How can Southwest achieve long-term strategic competitiveness against its rivals?
In order to achieve long-term strategic competitiveness, Southwest Airlines should work on its weakness and capitalize on the weakness of its competitors. This is achieved by improving management-employee relations so as to avoid conflicts as it was in the year 2008. In addition to this, they should introduce continuous structured learning programs for its employees in order to perfect on their service delivery as well as retain current workforce.
The Airline should also capitalize on the opportunities created due the decline of the market after 9/11. Furthermore, the Airline should improve its marketing strategies by capitalizing on internet marketing as well as creating promotional campaigns for example buy one, get one free.
What strategy (or strategies) should the company use to continue its growth?
Southwest Airlines should lay down strategies to expand geographically and operate internationally. This will ensure continuity and increase of market share the Airline holds. Southwest Airlines need to target larger cities, so as to increase its demand and increase profit.
Additionally, another good strategy that the company could employ in order to grow is through an alliance. Due to the financial crisis and increase in fuel prices many competitors of Southwest Airlines have reduced their share price. Therefore, Southwest Airlines should the opportunity by acquiring or merging. This strategy will eliminate the challengers related to venturing into new markets. Southwest Airlines could also continue growing by maintaining and developing low-cost policy, (Francart, et al, 2008).
Is Gary Kelly the right person to head up Southwest Airlines at this time?
Based on the case study, it is clear that Kelly is a key leader in the success of Southwest Airlines. Kelly has worked in the most sensitive and critical departments in the company. This include department of finance, executive vice president, as well as chief financial officer. Kelly also was part of the team who initiated the fuel hedging policy.
Francart, J. Fry, H, Chapman, R & Pelkman, R. (2008). Southwest Airlines. Arizona: Arizona