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Strengths weaknesses opportunities and threats for southwest airlines

Financial strength is mainstay, but cost and culture challenges loom large At 43 years of age, Southwest Airlines is firmly entrenched in middle age within a mature US market place. During its more than four decades the airline has largely retained its appeal and perpetuated its renegade image, even if that perception is now more legend than reality.

As its merger integration with AirTran comes to a close, Southwest continues to exploit its domestic strength by forging a presence in key US markets while laying the groundwork to bolster its international offerings in 2015 with service from a new international terminal at its sixth largest base measured by seats deployed, Houston Hobby.

  1. In FY2009, the company derived only 1. This operating strategy allowed Southwest to achieve high asset utilization and reliable on-time performance.
  2. Heavy dependence on a single producer Boeing Southwest Airlines is currently the largest single purchaser of Boeing 737s. The Gulf crisis and economic recession caused the airlines to lose billions of dollars.
  3. There are no formal union-management structures or processes There are no formal union-management structures or processes for consultation and representation beyond negotiations and grievance procedures.
  4. The most significant change in the history of the industry came in 1976 when the Civil Aeronautics Board CAB asked Congress to dismantle the economic regulatory system and allow the airlines to operate under market forces. But Southwest needs to define itself for the long term in light of the rise of ULCCs and the product evolution taking place within the industry.
  5. The company also had four owned Boeing 737 aircraft in long-term storage in FY2009. The industry was affected by the global economic downturn.

But even as it still engenders positive customer sentiment, Southwest faces numerous challenges. These include preserving its culture and finding new ways to generate revenue.

Southwest Airlines SWOT Analysis

Southwest Airlines Strengths 1. Financial wherewithal During 2Q2014 Southwest recorded its fifth consecutive quarter of record profits. Its consistent profitability and balance sheet strength have resulted in the airline holding the position of the only US airline to achieve investment grade status until Alaska Air Group secured that coveted position earlier in 2014. Southwest managed to remain profitable during the financial downturn of 2008 and 2009, and its CY2013 profits of USD754 million were the highest recorded by the airline since 2008.

During 1H2014 it generated USD1. Southwest has an iconic brand Southwest is one of the most recognised brands in the US, and it consistently works to exploit its heritage through advertising during high profile sporting events and in social media. This provides important differentiation in a commoditised industry.

Standing out by not going along with the crowd and forgoing the revenue is arguably a net gain, albeit perhaps not easily accountable. Minimal revenue opportunities Southwest has rejected the product unbundling that nearly all of its US counterparts have undertaken that airlines tout is designed to allow customers to tailor their experiences. The reality is for most airlines — full service, hybrid, and ultra low-cost — ancillary revenue presents the largest opportunity to grow revenue significantly over the medium and long term.

Growth in Southwest Airlines Co.

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CAPA - Centre for Aviation and airline reports Southwest has attempted to pull some ancillary levers in its own, usually more positive way — selling select boarding positions at the gate, tightening flexibility around its most restrictive fares and increasing some other fee revenue. During 2013 the airline estimated that those changes would result in roughly USD175 million of incremental revenue on an annual basis.

Southwest Airlines plots course to meet previously missed ROIC targets Southwest transported roughly 133 million enplaned passengers in CY2013, and its revenues outside freight and passenger operations fell 2.

  1. Operates its own booking service Which make Southwest airlines less divers than the other airlines Does not offer segmented seating options business flights, first class, etc Southwest does not offer first class seats on any of their airplanes. This service also enables the company to provide its markets with frequent, conveniently timed flights and low fares.
  2. The airline is no longer really low-fare or low-cost, but does not offer any of the amenities of hybrid or full service airlines. Union leaders also initiate dialogue, as they did when raising questions over how the company was implementing the Family and Medical Leave Act.
  3. During 2013 the airline estimated that those changes would result in roughly USD175 million of incremental revenue on an annual basis. This service also enables the company to provide its markets with frequent, conveniently timed flights and low fares.
  4. Therefore, the company is well positioned to benefit from recovery of US airline industry and it would help the company to generate additional revenues.

US hybrid airline JetBlue carried 30 million passengers in CY2013; but recorded ancillary revenue of USD670 million in CY2013, of which USD170 million was derived from its Even More offering extra legroom, priority boarding and in some cases expedited security clearance. Also a customer favourite, JetBlue has successfully grown its ancillary revenue through creating products customers value rather than making passengers feel nickel and dimed.

It is not a stretch to conclude Southwest could create some added value for its legions of fans. Its product is outdated Southwest has the balance sheet strength to leverage new products that its customers would find appealing, and that in the medium term would generate high margin revenue. An extended legroom offering is now the norm for numerous airlines worldwide including many ULCCsand offers an opportunity to drive up ancillary revenue.

Southwest has actually densified its aircraft and decreased seat pitch during the past couple of years — another trend apparent in the US industry.

But other than offering onboard Wi-Fi, its product is arguably stale, and more importantly, it could be missing an opportunity to leverage its strong brand to create new revenue opportunities. Southwest Airlines Opportunities 1. New international operations Southwest introduced its own-branded international service during 2014 after many years talking about expanding to adjacent international markets.

The addition of international service is important network diversification for Southwest as it has arguably penetrated most of the domestic US 85 domestic destinations as of 21-Sep-2014. Its ability to offer its large passenger base access to near international leisure destinations is strengths weaknesses opportunities and threats for southwest airlines natural progression, and should create some revenue upside once the markets reach maturity.

  • In addition, as of December 2009, the company had firm orders for a total of 91 737-700 aircraft for the years 2010 through 2016;
  • The load factor was 76;
  • One example is when the company decided to implement a flexible benefit plan; it met with union leaders and indicated the plan would be an add-on to the existing contractual provisions and therefore did not require negotiations.

Potential partnerships with foreign international airlines A recent study by CAPA identified a number of US airports which are currently underserved by foreign airlines. Southwest is frequently the dominant airline at the airport, operating only domestic services. There is substantial opportunity for enhanced traffic flows in these relationships.

Southwest Airlines Threats 1. Some of that was due to strong demand within the US market place; but the reality is Southwest needs to maintain certain fare levels to manage its costs. The airline is no longer really low-fare or low-cost, but does not offer any of the amenities of hybrid or full service airlines.

Southwest Airlines SWOT Analysis, Competitors & USP

Southwest argues that not neatly fitting into a mould is part of its renegade image. Yet staying stuck in a 43-year old mindset stifles innovation, which is something Southwest needs to focus on in order to remain relevant in the long term. Costs are rising and likely to rise further Southwest is in the midst of numerous labour negotiations that are making it tough to predict its unit cost increases in the medium to long term.

But the airline will inevitably endure some cost pressure as new contracts take effect after tense negotiations. Southwest has previously acknowledged that its labour agreements are built on an operating model it executed 10 to 15 years ago, and the airline has one of the highest pay structures in the industry. In early 2014 the union representing ramp workers sued Southwest after the airline requested that employees at Chicago Midway prove they were ill during Jan-2014 after inadequate staffing and a winter storm triggered operational disruptions at the airport.

Illustrating the pressure Southwest faces in its employee relations the union representing ramp workers in early 2014 warned: But Southwest needs to define itself for the long term in light of the rise of ULCCs and the product evolution taking place within the industry. Perhaps the most renegade change it needs is for its "family" to undertake a mindset change.

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