Department of Transportation Case Study
The positive outlook on this threat is that it affects all airlines multilaterally, thus it is incumbent on each airline to offset the potential increases in operating cost. In addition, though fuel prices are considered high, it till remains below the 2008 levels that wounded the airlines industry.
“Airlines have already imposed about 10 broad fare increases in 2011” and these increases in fares nave not slowed down the rise in consumer travel. This cool d be an opportunity tort airlines to earn higher profits if consumer demand for travel continues to grow despite higher fares. 5. Social, Cultural, Demographic, and Natural Environment Forces An emerging international trend that is particularly of interest is the growth of the middle-class in Brazil, Russia, India, and China. This growth fosters the represent of international traveling for many new consumers that previously would have been unable to do so.
In addition, the popularity of Faceable, Tweeter, Social Media, and video conferencing appears to not affect the demand for traveling. Many Mould argue otherwise; however, it is quite conceivable that these types of mediums reduces separations and encourage traveling in many ways.
Just as email did not exterminate the postal service as many projected, social media also help the airline industry. After the September 1 1, 2001 attacks on the World Trade Center, air travel declined sharply out of fear of additional terrorist attacks. Although air travel seems to be getting back to pre-911 numbers, it has changed the culture of the world and the cost to airlines. Since 911, increases in operating cost were immediately absorbed by the airline industry for the additional security expenditures that are required in a post-911 world.
Fortunately, no further successful attempts have been carried out since that day; however, another similar terrorist attack would cause unconceivable harm on the airline industry and its future. Southwest has a very broad target demographic. They appeal to customers that are price-conscious and don’t mind the no-frills” philosophy. This translates to a lot of small business owners, middle-class families, young adults and travelers traveling short-distances. In order to keep costs down, Southwest runs a simplified airline, with a single type of aircraft, no class seating or assigned seats, no movies and no meals on board.
To keep the customers happy and loyal, southwest really emphasizes customer service. An analysis of the environmental influences is critical in understanding the landscape of the airline industry in order to address specific marketing or business problems in which airline impasses compete. The environmental conditions researched are comprised of economic conditions, cultural and social values, legal, and political influences in the market. The current environmental landscape offers many opportunities to the airline industry.
The most promising is the continual expansion of consumer demand for air travel globally.
In particular, the increase of middle-class populations in Brazil, Russia, India, and China is bringing new customers to the international traveling market. Moreover, the growth in the social media market over the last couple of years eave removed many degrees of separation between people and places and has encouraged many to travel to experience such introductions in ‘real life’. But the current environment also offers threats to the industry that should be anticipated by airline companies. A slow recovering U.
Economy and concerns with Rupee’s financial health, coupled with rising fuel prices could thwart the increase in travel demand. Terrorist attacks and natural disasters as floods and earthquakes can also have a global impact on consumer’s demand for air travel and put struggling airlines further into the red. And finally, depending on the nature of further government interference, the effects could be positive or negative. Southwest Airlines has excellent workforce relations with its employees and it goes through astonishing steps to ensure that employees are appreciated and valued.
T premise is that employees in return will understand and deliver the management philosophies to grow the company. This dedication was solidified when the CEO, Gary Kelly, began the 2012 annual meeting saying, “My top priority is protecting the Job security of our more than 43,000 Employees and nurturing a Culture that excites them to come to work”. . 3 Political, Governmental and Legal Forces In October 1978, the Airline Deregulation Act was signed into law by President Carter to encourage market entry and competitive pricing.
Since that time, the federal government; specifically, the Department of Transportation (DOT) and the Federal Aviation Administrator (FAA) with numerous directives and regulations from the federal government have vastly and actively regulated the airline industry.
On laundry 26th, 2012, the latest government mandate is that airline companies must Include all taxes and fees while advertising their fares. Many are concerned that this loud potentially harm travel demand due to the “price shock” from consumers who are not familiar with the new law. As a result, the airline industry could see diminishing profits. 5. Technological Forces Technological developments have both created new opportunities as well as threats for Southwest Airlines. Technological Strategists must also examine the technological sector to examine the impact of changing technology on firm’s operation.
Changing technology may offer opportunities for objective achievement. Technology also helps firms. Emergence of information and communication technologies has enabled bust communication and subsequently provided customers with an alternative for frequent traveling. It has also enabled Southwest Airline to expand its outreach directly to consumers through e-commerce.
For instance, Southwest Airlines was able to introduce tickles travel through the use of technology (Thompson and Gamble, 2012).
Southwest Airlines reservation system is considered to be outdated. It needs to update so that the company can sell international tickets, provide passport information to federal authorities, and better handle customer relationships, along Ninth other services. Southwest airlines running their service with update Boeing 737-200 air craft. Avoiding technological obsolesce they are offering innovating service to the customers.
From the survey of “Texas Business” it is revealed that they are occupying 1st position in ticketing, luggage handling, hospitality and overall performance except offering meals to the passengers.
So, we can say that they are adjusting with situation maintaining continuous changes. 5. 5 Competitive Forces Over the years, Southwest Airlines has been scrutinized from college students to business analysts to near ad nauseas in an attempt to determine how they are able o consistently stay profitable while the competition seems to immerse in the red [ear over year.
Many argue that it is the corporate culture that distinguishes it from the competition, while others claim it is the low-cost strategic model and leadership. Perhaps it is a combination. Perhaps it is none of the above.
Regardless of the reasons, Southwest Airlines must find great comfort in that many have struggled to understand the reasons tort their success and nave been unable to duplicate it?as o yet! The airline industry is marked with intense competition that is exclusively on rice.
For the exception of a few airlines, the market share fight is a bloody landscape of price wars with airline companies displaying a year end loss as their earned trophy in the end. The fundamental cause for this price war is that airlines struggle to find any service and product differentiation. A flight from Houston to Chicago by one airline renders the same result for the passenger as it would with another airline. Granted, there have been futile attempts to offer beverages, food, better seating, and many other amenities to passengers, but these marketing strategies only me to drive operating cost instead of customer loyalty.
As of 2010, the Federal Aviation Administration has awarded an air operator certificate to 190 airline Industries to service the U. S?each competing for market share and profitability while hundred’s rest on the defunct airlines list as casualties of strong competition. Southwest Airlines was awarded and recognized by so many governmental aviation authority. 6 SOOT Southwest Airlines is one of the leading low cost airlines in the US. The company provides scheduled air transportation in the US. Strong operating strategy enables he company to achieve high asset utilization and reliable on time performance.
Also, it helps the company to increase its revenues and to tap profitable markets. However week economic outlook for the US may put pressure on the company’s revenues. Strengths Point-to-point routing Boeing sass Customer service Successful marketing Insaneness Growth into congested markets Raritan integration Boeing sass Labor relations Opportunities Near-international destinations In-flight WIFE and live sports Growth from Raritan Threats Fuel price volatility Diminishing advantage as low-cost carrier Regulation U. S. Anomic condition STRENGTHS Southwest NAS traditionally been a low-cost carrier, which is now they were able to establish a foothold in the market.
They tend to operate point-to-point routes, rather than the traditional hub-and-spoke strategy of the legacy airlines, which allows more flexibility in selecting profitable routes. Furthermore, they tend to rely on secondary airports in larger cities, such as Midway (rather than O’Hare in Chicago) and Laggardly (rather than JEFF in New York) to improve on-time reliability, an important aspect of customer relations.
Southwest has always aimed for 20 minute turnarounds t the gate – another perennial feature of its touted customer service – which is facilitated by its use almost exclusively of Boeing 737-700 planes. This allows for standardize maintenance procedures, and in general faster service. They have also historically had very good customer relations.
This has been aided by successful marketing campaigns, such as ,Bags Fly Free, where Southwest drew attention to a point of differentiation from nearly all their competitors: a passenger’s first and second checked bags are both free.
This strong customer reputation has been instrumental in their continued growth. WEAKNESSES Southwest’s rapid growth has proved problematic in maintaining the reliable service they have always touted. In 2010, their on-time arrival percentage dipped below 80% for the first time in company history to 79. 5% (though was still higher than all of their major competitors), but has since risen back to 83.
5% in 2011. With the integration of Raritan, Southwest’s network will grow almost 20%, begging the question of whether this will further worsen their service.
Additionally, Rattan’s fleet consists of 88 Boeing 717-sass (in addition to a number of sass), which pose new challenges for Southwest’s operations, since they did not previously operated planes other than the odorous sass. Raritan also brings a number of congested markets, such as Atlanta, to Southwest’s operations, which pose both opportunities for growth and potential challenges. There are also always possible challenges when expanding operations internationally, such as compliance with international laws.
The integration of Raritan poses a number of other possible weaknesses as well.
Though all has been smooth thus far, the integration of the various airline unions (Pilots, Maintenance, etc. ) could pose problems to a smooth transition. Any combination of these factors could force Southwest to revise its low-cost strategy. Rhea Raritan acquisition allows Southwest near-immediate expansion in key markets, such as Boston and Baltimore, while diversifying their routes as well, with new destinations such as Atlanta.
It also provides Southwest access to slot-controlled markets such as New York Laggardly and Ronald Reagan Washington in D.
C. , where they previously had little or no presence. In addition, with the acquisition of Raritan, Southwest is poised to begin operating in near-international destinations, such as the Caribbean and parts of Mexico. Raritan ended 2011 serving 68 U. S.
And near- international destinations, and Southwest will continue these routes through the integration process. With the completion of their reservation system overhaul expected in the next year, Southwest can begin considering these routes.
They are currently involved in litigation to internationalist Hobby Airport in Houston, where they have dedicated much infrastructure investment and hold a significant presence, Inch would facilitate their move into these new markets. Further opportunities involved varied methods of generating additional revenue, such as by adding in-flight Infix (wireless internet) through the provider Row 44 All tilling equipped with service charge $5, regardless of duration. As of February 2012, 165 of the fleet’s 610 Boeing sass had been equipped with Wife, with the remainder has been completed by the end of 2013.
Row 44 recently signed deals with the NFG and ML to offer live football and baseball games during flights.
THREATS There are a number of potential threats to Southwest’s success in the highly competitive American airline industry. If they are unable to compete as they grow into busier, more congested markets, or internationally, Southwest will witness minimizing growth. Additionally, as many legacy carriers enter bankruptcy or realign themselves, Southwest loses some its supply advantages, most notably in labor costs.
Southwest has been seeing increasing operating costs over the past few years, which f unchecked or allowed to grow faster than the competition, could force higher prices, and diminish market share. There are also a number of industry-wide threats that could impact Southwest’s profit margin.
Any new regulation – via aviation or environmentally – would hurt Southwest’s pricing ability. Furthermore, since air travel s fairly elastic, in times of economic downturn both leisure and business air travel decrease substantially.
As such, the whole industry suffered, and another dip into recession would hurt Southwest’s operations. And as always, Southwest’s exposure to fuel costs is a major weakness. Fuel prices are notoriously volatile, especially with the let fuel price fluctuating sometimes independently from the crude oil price. The airline as a whole is vulnerable to these swings, on the positive side, but it still negatively affects Southwest’s bottom line.
6. 1 SOOT Matrix 1 . Firm successful with marketing strategy 2. Strong fleet of operations 3. Brand recognition 4.
Customer loyalty 5.
High employee retention 5. Strong customer service base 7. Top ranked low-fare carrier with Boeing sass. 1. Heavy reliance on passenger revenue 2.
Declining operating efficiency 3. Lower load capacity 4. Relatively low employee productivity 5. Conservative growth tactics 5. Provides service to less than 60 cities 7.
Other companies copying Southwest business model 1. Growing U. S. Airline Industry 2. Expansion into Rattans region after Swept 2010 merger 3. Shared Relationship with Nester 4.
In-flight WIFE and live sports 5. Expansion into the freight air business 5.