Strategic Management Case Discussion on Southwest Airline

1. STRATEGIC MANAGEMENT CASE DISCUSSION
MBA MULTIMEDIA UNIVERSITY, CYBERJAYA

2. Strategic Management Case Discussion
on
Presented by:
Julius Tanantaputra 1111200166
Azzalea Nowensha Shika 1111200127
Uun Ainurrofiq 1111200141
Poon Wai Chuen 1111200122
Lecturer :
Mr. Mohd Noor Ismail

3. 1971 June1ST FLIGHT :
1986 Multimillion dollar training center for flight crew
1988 best on time record, bagage handling, fewest complain
1994 1st ticketless travel
1996 own 243 aircraft
1998 fuel hedging strategy
2004 online boarding pass
2006 No.1 in customer satisfaction
2008 purchase AirTrans Airlines [*SWA’s main competitor]
Strategic Profile

4. increased fuel costs
other high operating expenses
decrease in business travelers
due to budget cuts
increased regulation
placed strains on airline companies
Industry Challenge

5. Low Cost Traditional
Airline Airline
vs. Skybus
vs. Frontier vs. Continental
vs. American Airways
vs. US Airways
vs. United
Value
Airline
vs. Jetblue
-Competitive Environment-

6. Source : BTS data 2010
US Airline
Market Share
2010

7. SWOT • Cust Service
• Punctuality
• Union Walkout
2008 unequal payment,
no raise since ‘05
• Violation of safety
• IT Superiority Requirement
• Financially Fit FAA 1998. 117 aircrefts unchecked
Strength Weakness
• Growing Market • Everyone does the
same”
• Efficiency Enabler
(eg. new Technology, new Regulation) • Fuel Price Volatility
• Security
• Economic Downturn
Opportunity Threats

8. As the airline industry as a whole suffers, due to threats from fuel price
increases, ever-escalating operational costs, potential security threats,
and the current global economic crisis, can Southwest maintain its 36-
year streak of profitability?
QUESTION 1

9. Profit
1973 – 2009
1973 – 2011

10. With fluctuating oil prices, can Southwest continue to depend on fuel
hedging as an important source of cost control?
QUESTION 2

14. As it expands its domestic flight operations, will 'point to-point“
methodology still prove to be useful?
QUESTION 3

15. Point to Point Hub and Spoke

16. As the major traditional airlines become more like their low-cost
counterparts, will they ultimately become more of a competitive threat
to southwest?
QUESTION 4

17. Airline Domestic Market Share May 2011 – April 2012
Domestic Revenue Passenger Miles Airlines Share
(billions) Delta 16.2%
100 92 Southwest 15.1%
90 86
80 75 American 13.1%
70 65 United 11.5%
60
50 45 US Airways 8.0%
40 29 Continental 5.1%
27
30 21
20 17 13 JetBlue 4.8%
10 Alaska 3.6%
0
AirTran 3.0%
SkyWest 2.2%
Others 17.4%
Based on Research and Innovative Technology Administration Bureau of Transportation Statistics, 2012

18. Operating Income
Financial Data Year ended December 31,
(Millions $) 2011 2010 2009 2008 2007
Operating
15,658 12,104 10,350 11,023 9,861
revenues
Operating
14,965 11,116 10,088 10,574 9,070
expenses
Operating income 693 988 262 229 791
Operating Revenues Year ended December 31,
(Millions$) 2011 2010
Passenger 14,735 11,489
Freight 139 125
Other 784 490
Total 15,658 12,104
Based on Southwest Airlines Annual Report, 2011

19. Uniqueness No bag fees for second
luggage
No assigned seat cost
Punctuality
The least complaints
compare to others

20. Even though major traditional
airlines become more like their low-
cost counterparts, Southwest is still
the leader of low-cost Airlines

21. Using its current strategies, will Southwest be able to expand
internationally?
QUESTION 5

22. Low Cost Strategies
One Model Fleet Tactic
• Boeing 737-700, 737-500, 737-300 series
• Reason:
• Lowers inventory, record keeping, and maintenance cost,
• Minimize number of technical manual, tools & spare parts
Fuel hedging
Implementation of blended winglets on all 737-700
• Improve performance by extending the airplane’s range, saving fuel,
lowering engine maintenance cost
EcoPower engine wash services.
• Anticipates saving more than $20million iin fuel cost

23. Expand Internationally ??
• Short to medium
737- range narrow body
500 • Std range with max
114 pax : 2815km
• Short to medium
737- range narrow body
airliner
300 • Std range with max
128 pax: 4973km
• Short to medium
737- range airliners
700 • Range with 126 pax
: 2852km

24. Using their own April 2010 Westjet
airlines is not enough announced the
to expand partnership was
internationally terminated
History of partnership:
2008
Westjet Airlines, to
sync flights between
Canada and US

25. The addition of a larger
Current Updates aircraft, the Boeing 737-800,
to Southwest’s fleet, which
is scheduled to begin in first
May 2011, quarter 2012
Southwest
acquired
Airtran to
operate a
multi-aircraft
fleet, serve
international
destinations,
Attract more
Buiness
travelers
In 2012, Southwest will be the first customer
for the Boeing 737 MAX, having ordered 150
of the new planes that will be equipped with
fuel-efficient engines and are expected to be
delivered by 2017.
Based on Southwest Airlines Annual Report, 2011 and Reuters, “Southwest Airlines tooks new ways to stand out” 2012

26. Can it maintain its positive relations with employees and avoid future
union walkouts and negotiations?
QUESTION 6

27. Flight attendants will gain
wage increases and a boost in
Increasing wages can avoid the
401k contributions, but only
future walkout, as long as they
degree that such increases will
feel equal
allow Southwest to keep its
low-cost advantage.
Others program
offered :
Financial
Security The The
Free Flight
• Retirement freedom to freedom to
on
plan create and work and
Southwest
• Profit Sharing innovate have fun
Plan

28. If the current economic crisis persists, how will the present expansion
plan by Southwest fare?
QUESTION 7

29. Company Position
as of Jan 2008
3,400: Approximate number of daily departures
34,000: Number of employees
2,600: Number of employees in the Bay Area
$645 million: Net income in 2007
101.9 million: Passengers carried in 2007
Profit for the last 35 years!

30. Economic
Crisis 2008

31. As environmental uncertainties mount, what overall strategies and as
well as competitive tactics should soutwest consider to maintain it low
cost position and perception of customer loyalty?
QUESTION 8

32. • Fuel Hedging Program
• Customer Loyalty Program
• Maintain minimal cost
– Simple Iniflight Systems
– Strong Management
• Expand to more profitable routes
• Maintain happy work force
• No Frills, No Fees

33. Conclusion
I need to read thru the entire
presentation first.. 

34. DON’T
LET THE GROUP
ESCAPE
EASILY..
aSK
QUESTION :)

35. DON’T
LET THE GROUP
ESCAPE
EASILY..
aSK
QUESTION :)

36. DON’T
LET THE GROUP
ESCAPE
EASILY..
aSK
QUESTION :)

37. DON’T
LET THE GROUP
ESCAPE
EASILY..
aSK
QUESTION :)

38. Low Cost