Southwest Airlines has achieved success through a low-cost leadership strategy while maintaining high customer service standards. An analysis of Southwest and the airline industry examines Southwest's internal strengths like its unique culture and cost-cutting approach. The airline industry forces model reveals threats from substitutes and supplier bargaining power. Opportunities exist for Southwest in international expansion, though changing consumer preferences pose challenges to its stripped-down model. Future industry profitability depends on balancing low fares with improving onboard experiences.

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Five Forces, SWOT and Internal Analysis of
Southwest Airlines and the Airline Industry
Introduction
Since itsinception,the commercialairline businesshasbeenahighlycompetitive andresilient
industry.Fueledbyoligopolisticstrategies,the majorairlineshave definedthe industrywithtunnel
vision,respondingtoone another’smarketmoveswitha“one up “attitude.While thislimitsanycost
leadershipstrategies,itopensdoors foradifferentiator.Throughoutthisarticle we intendtooutline
SouthwestAirlinesinternal competencies,examinethe industrythroughdefinitionandthe five forces
model,andcreate a SWOT analysisof Southwest.Throughthesemetrics,we hope toprovide aholistic
viewof SouthwestAirlinesandthe company’scompetitive position.
Internal Competencies
SouthwestAirlineshasseveraluniquequalitiesthathelpdistance itself fromthe competition,the
mostprevalentbeingtheirexecutionof targeted customerservice.Southwestismarketedheavily
towardsindividualsthatviewthe airlinesasnothingmore thantransportation:consumersthatseek
quick,reliable servicewithoutthe hassle.Offering15minute turnaroundsandflightsthatdon’trequire
a seatingchart, Southwestcreatedamarketforbusinessmenandwomenaswell asfrequent
flyers. AnotherqualitythatsetsSouthwestAirlinesapartisitsunique emphasisonworkerculture
workerattitude. Witha unique hiringstyle,Southwestmanagestoattain,train,andretainskilledand
energizedworkersthatare the envyof the entire industry.These workersare the primarydriversof
customerretentionandservice efficiency,whichultimatelydrive profitabilityforthe firm(Czaplewski,
Ferguson,Milliman,2001).

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Southwesthasalsostreamlineditsbusinessmodel tovalue costefficiencyoverall else,seeking
to minimize “luxury”costs.Forexample,SouthwestAirlinesonlyflies737 modelsof aircraft.Withonly
one type of aircraft, pilotsquicklybecomeexpertswiththe airplane,reducingoverall trainingtime.An
additional benefitof onlyone classof airplane isthe reductionof maintenance costs.Standardizedparts
and reducedtrainingforthe maintenance crew resultsin animprovedbottomline.Anotherexample of
reducingcostsisSouthwest’spatternof avoidingmajorhubs.Bylandinginsecondaryairportsthey
avoiddelaysandreduce dockingfees. The mostnoticeable costcuttingstrategyutilizedbySouthwestis
the eliminationof mostpremiumservices,suchasmeal service.The eliminationof meal service and
other“premium”productshasallowedSouthwesttoreduce in-house costsandpasssavingsontotheir
customers.Southwesthasmanagedtocreate a seriesof interworkingandinterconnectedstrategies
that make itsbusinessmodel incrediblydifficulttoimitate (Gittell,2003).
However,consumerwantschange andSouthwest’s“strippeddown”strategymayeventuallystop
producingsustainableprofits.While Southwest Airlinestargetmarketconsistsof young,middle class,
and those travellingshortdistances,manyconsumerssimplywantmore.Forexample,Southwest’s
strategyislargelyunsustainable inaninternational capacity.Longinternationalflightairlinessuch as
Emirate’soffersfull roomestoitsfirstclasspatrons.These luxuriespull customersawayfromSouthwest
once the distance exceedsafewhours.FortunatelyforSouthwestAirlines,thesemarketsdonottendto
overlap.However,once flighttechnologybeginstooffershorterflightsoverlongerdistancesandthe
overall industrycostof a flightdecreasesthe mainsource of competitiveadvantage maybe the luxury
offered,somethingSouthwesthasnoexperience with.

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Industry Analysis
Major firmssuchas American,Delta,andUnitedhave beendefinedasthe “airline industry”.We
contestthat SouthwestAirlinesdoesnotfitintothisdefinitiondue tohow dissimilarthe firmisin
comparison.SouthwestAirlinesofferstransportationfrompointA topointB,little else.While other
airlinesofferinflightentertainment,fullyrecliningchairs,andevenbeds,Southwestoffersnone of these
luxuries.Withthatinmindwe chose todefine Southwestasa“transportationindustry”,merelyamode
of transportationthatdeliverspeople andgoodsacrosssome distance.Offeringquantityoverquality
tendsto alienate consumerswhosee the airlinesasameansto an end. Young,middle class,and
frequentflyersrarelywanttopay extraforthe luxurieslistedabove,howeverSouthwesthasmanaged
successfullytocapture thatexactmarket.
Trends
Oil Prices
A trendthat has affectedpricingof airline servicesforyearshasbeenrisingoil prices.Between
October2010 and October2014 the price of oil wassteadyat approximately$3.00 a gallon.However,
entrance into2015 broughta massive dropinairline fuel prices.Thisdroptoapproximately$1.40 a
galloncan onlyhelpsmallerairlinefirms,suchasSouthWest.
ConsumerTechonology
A trendthat mayhurt SouthWestisthe increasingadvancedconsumertechnologyonflights.
OfferingpersonalTV’sandIpadshelpsmitigate the painof longflights,somethingSouthWestisslowly
becominginvolvedin.

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CustomerService
As statedabove,anothertrendinairlineshasbeentosatisfysecondarycustomerrequirements,
that isto say anythingotherthanthe actual transportation.Southwesthasbeenable toutilizethe
industrydistractionsasanopportunity.The mostnoticeabletrendinthe airline industrytodayisthatof
increasingconsumerexpectations,oratleastthe majorairlinesinterpretationsassuch.Wantingmore
for lesshasput majorstrainon an extremelyexpensive industryandhasservedonlytoincrease the
elusivenessof sustainable profits.While mostairlineshave soughttosatisfyconsumerwantsbyoffering
more at a highercost,Southwesthasachievedsuccessofferingless.Southwest’sculture encourages
and nurturesimprovedcustomerinteractionaswell.Theyhave managedtoavoidthe industrytrendof
one uppingtheircompetitors,savingmoneyinunnecessarilyofferingmore thanthe consumeractually
wants.If the currenttrendcontinuesSouthwestwillcontinuetobe profitable andslowlyovertake
competitorsasmore consumersleave tojoinSouthwestAirlines.While Southwesthassuccessfully
managedthe expectationsof itscustomersbynotofferinganextravagance fromthe gate,that’snotto
say that consumerswill neverwantanimprovedexperience,achallenge thatSouthwestAirlineswill
likelyface inthe future (AviationTrends,2015).
SWOT Analysis
SouthwestAirlineshasalwaysbeenatthe forefrontof innovationofferingseniordiscountsand
ticketlesstraveling,theyare strengthenedbyanincredible cultureandlow costservices.However,even
as theycontinue tocapitalize onstrengths,SouthwestAirlineshasa numberof opportunitiesand
challenges.ToproperlyassessSouthwestAirlines’place intheirindustry,one mustevaluate their
strengths,weaknesses,opportunities,andthreats.

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Southwestcore competenciescreate anumberof relevantstrengths.Southwestwasawarded
top travel brandby The BusinessJournalintheirAmericanBrandExcellence Awards(Murray).By
supportingthe communityandprovidingequal opportunities,theycontinue tobuildastrongwork
culture andreputation.Southwestmaintainsavalue-creatinghiringstrategythathasmade thema great
place to workfor, a mentalitythathasstrengthenedtheirrelationshipwithunions.Theymeticulously
workto maintaina unique culture bycarefullyreviewingeachapplicantandhiringthe bestfits.
Employeesare exposedtoaunique brandof formal trainingandencouragedtoseeknew approachesto
solvingproblems.Beside investinginbrand,culture,andtalent,Southwestputsalarge emphasison
efficiency,theyhave anextremelyhighcapacityusage,meaningtheyhave veryfew emptyseats,agreat
safetyrecord,andan industryleadingturnaroundtime (Broughton).Theyhave anextremelystrong
domesticnetworkandare able tohedge aggressivelywhenthe fuel pricesare low tomaintainhigh
profitability.
Despite manystrengths,Southwest’sdependenceonBoeingisamajor weakpointinthe
company.Theypurchase all theiraircraftsfromBoeingandin fact,theyonlyflyone classof aircraft,the
737. As a resulttheyhave a highdependence onBoeing737s.A recall or price increase onthese
aircraftswouldcripple the entire business.
There are a numberof industryopportunitiesforSouthwest.Southwesthasarobust domestic
network,butare just beginningtoengage ininternational operations.Internationalflightsandlonger
domesticflightsare agrowingmarket.Southwest’sabilitytoexpandintothesemarketsorpartnerwith
a companyalreadyinthem,wouldimprove theirmarketcapitalization.Theyalsohave anopportunityto
beginresearchanddevelopmentof aircrafttechnology,procedures,andservices.

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ThreatsfacingSouthwestinclude intense competition.The effectsof the economyand
terrorism,andotherlowcost providerssuchasSpirit,Frontier,andAllegiantAirlineshave decreased
Southwest'smarketcap.Theymustmaintaintheirbrandimage asa low-costproviderinthe mindsof
consumers.Southwesthasbeenable toleverage theirstrengthsandopportunitiestoovercome their
weaknessesandthreatswhile maintainingasuperiorconsumerexperience.
Five Forces Model
1. Threatsof newentrants
As statedbythe Economist("WhyAirlinesMake SuchMeagre Profits."TheEconomist) the
threatof new entrantsis slimtonone.The capital and regulatoryrequirementsmake buildinganairline
fromthe groundfloordifficult,tosaythe least.Anothermajordeterrentfornew entrantsisthe highly
competitivenature of the industry.Airlinesfightforimprovedeconomiesof scale andrightstohub
locations.Majorairporthubs are ownedandcontrolledbythe governmentorothermajor
airlines. Fleetcostsare alsoa significantbarrier.Pricesrange from$11 millionto$320 millionfora
plane unit.Fuel costsmake upas much as 50% of the expensesof majorairlines.The uncertainnatureof
fuel andassetpricesmakesitdifficultfornew airlinestobudgetefficiently.Governmentregulationsalso
create difficultiesfornewentrants.Taxes,fees,andregulationsare constantlyaltered(Southwest
AirlinesInvestorRelations,Jan2015). The threat isfairlylow withpotential of positiveimpactonprofits.
2. Bargainingpowerof suppliers
As statedbythe Economist,suppliershave considerablepowerinthe airlineindustrydue toa
relative monopoly.The industryisdominatedbyBoeingandAirbus,billiondollarcompaniesthatseekto
corner the market.Inreference toSouthwest,theyrelyheavilyontheirprimarysupplier,Boeing,a
relationshipthatcouldimpactSouthwestnegativelyonprofits(SouthwestNewsroom, 2011).

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3. Bargainingpowerof buyers
In an article writtenbyTeresaCederholm of YahooFinance (“BargainingPowerof the Airline
Industry’sCustomersandSuppliers”),Cederholmstatesthatprice sensitivityandavailabilityof
alternatives,suchasrail or car, givesbuyers’price consciouschoicesthatSouthwestmustrespondto.If
flightpricesare toohigh,manybuyerswill utilize slowerandcheaperalternativesforlongdistance
travel.The abilityforconsumerstoeasilyswitchgivesthemsignificantpowerinthe transportation
industry,resultinginpotential negative profitability.
4. Threat of substitute products
More time consuming,yetlesscostlyformsof transportationare widelyavailable fordomestic
consumers,suchas cars, trains,andbus transportation. While othermajormodesof transportation
offerthe same basicservice,the airline industryisable toperformitovermuchlongerdistancesandis
cheaperpermile (Kasperkevic,2012). These advantagesgive the airline industrypoweroversubstitutes.
Unlessthe cost of flyingwere tosignificantlyincrease,the effecttoprofitabilityislargelyneutral.
5. Rivalryamongcompetingfirms
In 2014, the OECD competitioncommitteeanalyzedcompetitioninthe airlineindustry,finding
that the fierce competitionandlackof viable mergershasledto“horizontal alliances”withinthe
industry.These factorsaswell asincreasinghybridizationof businessstrategyinthe industryhave
blurredthe linesbetweenshortfare andlongfare firms.Southwesthasconsideredacquisitionsastheir
move againstrival competitors.Withthe purchase of AirTranandJetBlue theyhave managedto
increase marketshare aswell asopenpossibilitiesinthe international market(Schlangensteinand
Hughes,2015).

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Industry Predictions
The onlyreasonthe current industryhassurvivedsolongisbecause of deriveddemand.Thatis
to say that wantingtotravel to anotherlocationorwantgoods fromfar away,createsthe demandfor
the airline industry.Noone wantsthe airlinesjustbecause theylike airlines,the demandisderivedfrom
the consumerwantsand needsof otherproductsandservices.Astechnologyadvances,the industry
cost of maintainingandcreatingthe actual aircraft will greatlyimprove the industry'sbottomline.
Presumablyflightswill shortenandcostsperpassengerwill alsodecrease.All of thesethingscangreatly
improve andsustainfuture profitabilityof the industry.
Conclusion
SouthwestAirlineshasmanagedtoleverageacost leadershipcompetitive strategywhile
maintainingandexceedingthe industry’scustomerservice standards. While Southwestiscurrentlythe
industryposterchildforexceptional service theydonotexcludethemselvesfromexternal threatsand
internal growthpossibilities.Costleadershipfacesthreatbytechnological advancements,increasing
qualityof service providedbydifferentiators.Tailoredcustomerservices,suchasin flightWiFi andreal
time crewupdates,threatenthe positionof costleaders. The future of the airline industryisuncertain,
and reliesonconsumersdecidingwhethertheypreferlow costora significantboostinflightquality.If
customersopinionshifts,cost-leaderswill be forcedtoadapttheirstrategiestoincorporate these
services.We believehowever,thatSouthwestAirlineshaspositionedthemselvesappropriatelyandwill
continue torespondtochangesin the industry.Southwestwillcontinuetocompete inthe industry,and
barringa paradigmshiftinconsumerwants,will continue tobe profitable.

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