Southwest Airlines Case Essay

Submitted By comuell
Words: 1545
Pages: 7

Southwest Airlines

Problems, Issues, Challenges & Symptoms
Southwest Airlines has faced many problems and challenges from the time they began in 1971. The two founders, Kelleher and King, thought they had hit the ground running once they had incorporated the company, raised initial capital, and filed for regulatory approval from the Texas Aeronautics Commission. Although, competition stepped in and argued the company’s case before the Texas Supreme Court. Braniff, Continental, and Trans Texas, other Texas- based airlines, lost the battle, but filed a restraining order sometime after. Kelleher won the case again and the right to begin flying.
Southwest quickly realized that in the airline industry, two customer types existed. In order to cater to the time- oriented business travelers and the price sensitive leisure travelers, they created a pricing plan that offered low fare tickets for both groups. Although, an issue arose when customers thought that the below average price was only for introductory promotions so Southwest had to prove themselves.
Southwest operations were also ran different than its competitors. Their approach was known as the “no frills” stance. For example, the airline did not have reserved seating, on-board meals, or hotels or long distance telephone calls for delayed flights. At that point in time, this approach was filling a market niche. Southwest imitators seemed a threat because they followed their strategy and tried to incorporate it into their company, but no one was able to replicate their success.
The northeast brought upon a whole new set of problems for Southwest. Slow entry into the new territory seemed logical with a highly populated area, but challenges such as airport congestion and air-traffic control delays sometimes prevented efficient operations. Southwest also had to deal with longer turnaround time at airport gates and creating issues on frequent flyer scheduling. Even with the additional problems like inclement weather, the airline continued to add new northeast cities. Southwest faced a challenge whether to expand or not because while they did have the opportunity, the company could not grow too fast. Another holdback the airline faced was entry into the Detroit market. While they wanted to expand, the only available gate had to be subleased from Northwest for 18 times higher than Northwest’s cost.
Beginning in 2008, Southwest faced its first issue that threatened future growth. The rising jet fuel price was a major problem for the airline. Operating expenses kept increasing and like other airlines, the cost structure limited reduction opportunities because of the high price of fuel and slim labor flexibility. Southwest also cut 2009 growth in available seats to less than three percent, which took place because of difficult environments.
Southwest faced a great of problems and threats from the beginning to this day. Background Analysis of the Relevant External and Internal Issues
A host of external factors influence a firm’s choice of direction and action and, ultimately, its organizational structure and internal processes. These factors, which constitute the external environment, can be divided into three interrelated subcategories: factors in the remote environment, factors in the operating environment and factors within the industry environment (Pearce and Robinson 81). The airline industry was hit with a multitude of problems between the years of 1978 and 2009.
The Airline Deregulation Act was passed in 1978 and caused major changes to the industry. Before the act, airlines acted as if there were only two market segments, those who could afford to fly and those who couldn’t. But because of deregulation, airline fares drastically reduced, and many firms were able to enter the market. Both established and new airlines took a hard financial hit. Not long after, the fuel crisis of 1979, the air traffic controllers’ strike in 1981 and the severe recession in