Southwestairlines HOW IT ALL STARTED Southwest Airlines (SWA) begins in June 18, 1971, when SWA first operated a first airline consul between Houston, Dallas and San Antonio. Rollin King and Herb Kelleher are the founders of the company. The end of 1971 SWA immediately began to expand. In 1972 all Houston service is transferred to Houston’s Hobby Airport form Houston Intercontinental, that is make more convenient for people to fly. During the first year of operations the customers were the Southwest’s first priority. Five years after the first operated a twin-engine the SWA places its sixth Boeing 737 into service while flying over one and a half million satisfied customers to their destinations.
Also at the same year SWA gets clearance to begin spreading to Austin, Corpus Christi, El Paso, Lubbock, and Midland/Odessa. Also, SWA carries its five millionth passengers and SWA becomes the public. SWA stock is listed on the New York Stock Exchange. In 1978, Herbert Kelleher comes aboard as permanent President, CEO, and Chairman of the Board for SWA. In 1979, SWA introduced in ten cities to self-ticketing machines in ten cities to make it even faster and more convenient for people to fly. Year later SWA added its 22nd Boeing 737 to the family and it was the first 737 to be completely owned by SWA.
Furthermore, in 1985 SWA take off with new service to St. Louis, Missouri and Chicago. Moreover, in 1988, SWA becomes Sea World of Texas’ official airline, later in the year SWA again becomes the official airline of Sea World of California. Also, SWA wins the first Triple Crown, a prize for airline companies that consist for Best On-Time Record, Best Baggage Handling, and Fewest Customer Complaints. A year later, SWA wins the second Triple Crown.
In addition, in 1994 for third, 1995 for fourth, and 1996 for fifth annual Triple Crown. In 1997, SWA begins new service to Islip, New York, and Connecticut. After past twenty-eight busy years SWA is became the fifth largest major airline in the United States. SWA spans over fifty-six airports compare with 1971 only Dallas, Houston and San Antonio. Also, SWA is known in the airlines industry as a quality flight and the most modern fleet.
SWA is a service business and it is continuing to improve its services. INDUSTRY OVERVIEW, TRANDS AND OPPORTUNITIES. Air travel slowing industrywide. According to Standard & Poors’ Industry Survey, in 1998, air travel for the industry’s major carriers was projected to increase 2.9% to 590 billion revenue passenger miles (RPMs). This is somewhat slower than the projected 3.5% gain for real gross domestic product (GDP) in 1998.
In 1999, RPMs would advance 2.5% to 605 billion, while real GDP is seen growing 1.7%. The recently sluggish pace for air travel represents a break from the normal pattern: since 1987, air travel has grown 1.8 times faster than real GDP. Two elements are working against air travel at present. First, the industry is experiencing a cyclical slowdown that has its origins in the Asian financial crisis. Second, with the days of deeply discounted fares over, fewer first-time travelers are entering the market.
The big swing factor for air travel in 1998 and 1999 will be the international market. International travel accounts for some 27% of total Revenues per mile (RPM) and 22% of revenues for the largest U.S. carriers. For the first eight months of 1998, international RPMs climbed 3.7% over the year-earlier period. However, as capacity grew 5.8%, the load factor deteriorated to 73.7% from 75.2%. Most of the international weakness is confined to Asia, where traffic is off about 8%. While the economic slowdown that’s underway may not deteriorate into a recession, it is expected to take its toll on corporate profits. Historically, business travel reflects changes in corporate profits, though sometimes with a lag.
In 1997, the Travel Industry Association of America reported that business travel increased 7.6%. Business travel, which accounts for some 40% of enplanements, could lag overall air travel in the future as soaring fares make videoconferencing an attractive alternative. The outlook for vacation and personal travel in 1999 appeared positive. Strong consumer sentiment and a strong dollar are supporting leisure travel, which accounts for about 60% of enplanements. The strength in the consumer sector is reflected in the sentiment readings calculated by the Conference Board, a private research firm. In June 1998, consumer sentiment reached a 29-year high of 138.2. Though the measure subsequently backed off to 126.0 in September, it remains significantly above the 47.3 nadir recorded in early 1992.
With consumers in fine spirits, more dollars will be allocated for leisure and travel. The U.S. airline industry took in estimated revenues of $88 billion in 1997, of which $79.5 billion (90%) was derived from passenger fares. Carrying mail and cargo and in-flight sales delivered another $8.5 billion. Domestic travel accounted for 78% of passenger revenues in 1997; international travel accounted for 22%. The largest domestic airline in 1997, based on carrier revenues, was United Airlines, a unit of UAL Corp.
With the exception of Southwest, all major airlines today operate through hub-and-spoke networks. In such a network, passengers are flown from surrounding spoke cities to a central hub airport, where they transfer to the next leg of their flight. Travelers, of course, prefer point-to-point service, and Southwest is able to satisfy that need by primarily operating in short haul routes. The air travel industry is capital-, labor-, and technology-intensive. Airlines are subject to intense competition, which produces falling yields and razor-thin margins.
To succeed, airlines must quickly employ any new process or procedure that can reduce costs. Internet and Airlines The Internet has the potential to radically alter the way airline seats are priced and distributed, it also promises to greatly enhance load factors (percentage of available seating capacity that is filled with passengers) and profits. Today customers of major airlines can book their ticket via the Internet. Cyberauction sites, such as priceline.com, are greatly enhancing customers’ bargaining power. So, Internet can hurt airlines by making travelers too price-sensitive. Ticketless travel is becoming universal in the industry.
Southwest went ticketless in 1994. Labor Labor is the industry’s largest single expense, accounting for 34% of total costs in 1997. Employment can be divided into six broad craft positions: pilots, engineers, flight attendants, dispatchers, machinists, and clerical workers. Most airline workers belong to one of a dozen major unions. Strikes occur infrequently, because under the Railway Labor Act of 1926 airline contracts don’t expire, they just become amendable. Regulation Regulation of domestic airline fares and markets ended with the Airline Deregulation Act of 1978. However, the industry continues to be regulated with regard to safety, labor, operating procedures, and aircraft fitness and emission levels by the Department of Transportation and its affiliated agency, the Federal Aviation Administration (FAA).
Competitors Southwest’s top three rivals are America West, Delta, and United AirLines. America West Holdings is the holding company for America West Airlines (AWA), one of the top 10 US airlines. AWA serves more than 55 North American destinations, including six in Mexico and one in Canada. Its fleet includes about 110 aircraft, which fly from hubs in Phoenix and Las Vegas and from a mini-hub in Columbus, Ohio. AWA serves additional locations through code-sharing alliances with Continental (which owns a 9% stake in the company) and other airlines, including Northwest and British Airways. Delta Air Lines, the #3 US carrier (behind UAL’s United and AMR’s American), is expanding its US regional operations while building a global alliance.
With major hubs in Atlanta, Dallas/Fort Worth, Cincinnati, New York City (Kennedy), and Salt Lake City, Delta flies to 185 US cities and more than 40 foreign destinations. United flies more than 570 jets to some 130 destinations in the US and 27 other countries; it has hubs in Chicago, Denver, London, San Francisco, Tokyo, and Washington, DC. UAL’s United Express connects passengers from regional carriers to United’s system. UAL also operates United Shuttle, offering more than 460 short-haul flights daily to 21 western US cities. STRATEGY OF SOUTHWEST AIRLINES Southwest Airlines is a growing company from a fact of that it expanding its business all over The United States.
Southwest Airlines employ two major price strategies, a Flexible – price strategy, (also called a variable – price strategy ) and a low – price strategy, to compete against other airlines. Passengers would not fly at high prices, and demand for air travel is highly elastic. There are two segments exist, that are separated which are pleasure travelers (in which demand tends to be elastic) and the segment of business travelers (in which demand is typically inelastic). And they do that by placing some restrictions on lower price tickets – requiring advanced purchase. And Southwest Airlines does offer lower prices for children and senior citizens.
Also there are low prices depending on purchasing period of time, for example, you can purchase a ticket in an advance of three weeks at lower price comparing to purchasing ticket within three or four days of flight. So here we see that these examples clearly show us that Southwest Airlines employ both flexible – price strategy and low – price strategy, even though pricing strategies change over time. In order to offer low prices and earn healthy profits, Southwest Airlines works especially hard to control its costs. At the beginning they reduced their employee training cost and spare-parts inventories, by using only a single type of aircraft. But mostly, Southwest Airlines focus on their low cost measured by available-seat-miles ( ASMs), which positioned them to maintain its price leadership.
Also, Southwest introduced its ticketless travel by reducing their service cost, saving the company twenty five million, and many other major airlines did. There is a low employee turnover at Southwest, and the reason to that is a high employee morale, which also helps to maintain low costs, and it is important to them to maintain that morale. To fend off the competition posed by new airlines that imitate its low-price strategy, Southwest Airlines should focus more, as they did before, on lower costs. And by focusing on and controlling the lower costs, they can offer lower prices, which is the major attraction for the customers. Southwest Airlines’ main strength is that it low-fare carrier.
Despite the fact that Southwest is flying from coast to coast, it doesn’t serve meals. Passengers get peanuts, pretzels and cookies on flights up to three hours long. On trips longer than five hours passengers get snack bars including a fruit bar, cheese wedge, crackers and sausages. Nevertheless, Southwest receives few complaints about the lack of food on flight. Moreover, Southwest Airlines recommends customers to bring their own food to flight.
To keep the cost low Southwest flies only Boeing jets. That keeps costs low down because Southwest’s pilots are certified to fly any plane in the fleet. It’s also cheaper to keep parts and spares for a single aircraft model. In a year 2000, more 32 Boeing 737 aircraft will join to serve Southwest Airlines. Nowadays, airline has 306 planes, all Boeing 737s, and they planning to increase this number to 500 airplanes by 2005.
The major strength of the Southwest Airlines is the people that working there. The Southwest Airline has a workforce of 29,000 and almost two-thirds of the employees have been with the company for less than five years, in fact, airline adds 5,000 employees per year. From the beginning, the employees of the Southwe …