Southwest Case Study
In 1993, Southwest (SW) was faced with the decision of how to schedule two new uncommitted planes, and it evaluated three options for enabling either internal or external expansion—adding a new segment direct from Phoenix to Detroit, entering the Dayton market to contribute to growth goals for Midway, or entering an entirely new geographic market in Baltimore which would begin creating a presence for SW on the East Coast.SW sought conservative and controlled growth, and typically prioritized options to expand through the existing route structure; however, in this case, it is important to evaluate the current options on several additional criteria, such as strategic alignment; ground, in-air and total economics; and spiritual impact and cultural fit.
After considering these decision factors, we recommend that SW enter the Baltimore market, as this option has the greatest potential to deliver on SW’s strategic objectives, maximize profit while still preserving the culture so critical to SW’s success to date.SW built its success by developing strategically aligned internal resources and capabilities (Exhibit 1) and executing on a highly focused strategy centered on cost control. SW’s commitment to simplicity and consistency, operationalized across all key business activities (i. e. , use of only one type of plane, non-hub and spoke route system, simplified baggage handling system, minimal in-flight services, etc. ), allowed SW to decrease turn times and ultimately keep costs low.
This resulted in a low-cost, highly efficient domestic airline business that could profitably operate quick turnaround, short-haul, point-to-point flights from secondary airports. Consequently, SW could deliver the important consumer benefits of everyday low unrestricted fares for convenient, frequently scheduled flights and reliable on-time departures. SW’s business practices also created an entirely new service model that would significantly grow any market SW entered.Consumers who would have otherwise driven between certain destinations now had options to fly at a low price, and so they did not perceive the no-frills in-flight experience as a negative relative to other airlines. Additionally, SW’s customer service strategy was highly reflective of its corporate culture, which promoted a fun, friendly, family-like atmosphere. SW placed great emphasis on hiring practices and employee development in order to foster a culture that could maintain a creative, collaborative, flexible, yet stable working environment, which ranslated into high quality as well as fun service for consumers, despite no-frills amenities.
These factors—the customer service orientation and low-cost, convenient fares—created valuable, differentiating competitive advantages in the minds of consumers. SW’s combination of business activities, capabilities, strategic focus and culture were extremely difficult to replicate, particularly for competitive airlines whose business models would make it impossible to operate only a portion of their business according to this low-cost, low-service strategy.As a result, SW would focus on specific markets, consistently execute its strategy, significantly grow the market and then quickly gain majority market share or drive out competition entirely. With this strategy, SW would benefit most at this time by entering a new market versus just increasing flights on a current route (Detroit-Phoenix). Baltimore makes greater strategic sense than Dayton, as BWI is a secondary airport to two other D. C.
airports, and the Baltimore/DC metro area has a relatively large, dense population to draw from beyond just current passengers at BWI.From an economic perspective, initial construction costs could be lower due to BWI not being a major city airport and ground airport fees would be no more costly than their system average. SW could also benefit from the fact that longer-exhihaul flights (average of 611 miles as compared to system average of 375 and <300 for Dayton routes) experience some decrease in total costs given more time in the air. This decreases the total number of landing fees and total time at the gate, a primary driver of costs and drives up potential profits.Importantly, from an overall economic perspective, SW could benefit most in the long-term from entering the Baltimore market because it would allow for easier expansion elsewhere on the East Coast in the future.
With no profitable low-cost airlines operating on the East Coast, it is important that SW establish some presence there to guard against other low-cost competitors entering the market. Additionally, flights between Baltimore and Chicago would further support SW’s broader corporate commitment to increase departures from Midway.Finally, while attaining a staff that is culturally aligned may be a greater challenge in this market due to regional cultural differences, SW can rely on its strong human resources capabilities to maximize the potential of successfully achieving this goal. All of these factors support the decision for SW to expand into the Baltimore market since they can do so in a way that is in line with their corporate strategy and culture, and expect to operate profitably within a short period of time.
