Southwest Airlines, which began its operations on 18th June 1971, has carved a niche for itself as one of the airlines that have withstood the turbulence and ever-changing conditions in the airline industry (Inkpen, 2017). The airline has surmounted various challenges, such as volatile fuel prices, and security threats. Southwest Airline's business model was, however, tailored to respond to the needs of travelers who sought time-oriented and low-cost flying. Flying, a preserve previously for those who could “afford to” became affordable to most people. The airline continued on a positive growth path to become one of the largest commercial carriers. The airline has continued to be a market leader on low-cost pricing. Southwest Airlines is one of the few companies that have reported profits for several consecutive years, posting profits for 45 straight years as of 2018 (Louis, 2018). Profit dominance remains to be one of its most outstanding features.
Southwest Airline’s product and service model can be described as a majorly offering transportation service with minor goods accompaniment. Southwest goods accompaniment to their transport service is indeed minor as no drinks or food snacks are provided for short-duration flights. Only This makes the airline to maintain its pricing to a minimum since catering services are some of the components that raise the cost of flying. Southwest Airlines has mainly targeted convenience and time-oriented travelers as their customers (Inkpen,2017). Such customers are not interested much with luxuries offered when flying. The customers are drawn to cost-effective, safe, and convenient air travel. Southwest Airlines' business model appeals to the needs of its target customers. The airline's choice of point-to-point flights and usage of less commercialized airports help to keep an aircraft’s turnaround time minimal (Field,2015). This offers convenience to the time-oriented air travelers. Usage of a singular aircraft model helps in carrying out adequate maintenance of the planes since the staff are familiarized with the aircraft, thus reducing the probability of aircraft crash incidences (Field, 2015). The airline has only reported minor accidents, and operational safety adherence is quite high.
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Southwest Airlines' pricing strategy has been low-cost pricing. Since its establishment, Southwest Airlines sought to offer its customers convenient air travel but at lower pricing than other airlines. Most of the company’s decisions were based on making it a low-cost carrier. The airline targets middle range earners who represent a market-sensitive segment. These earners respond to lower pricing; thus, Southwest Airlines was able to win quite a considerable market share in the airline business. The airline's pricing method has been premised on the value pricing method. The airline overhauled the traditional airline business model to offer its customers low-cost air travel compromising the quality of the travel (Baker, 2014). To achieve inexpensive pricing, Southwest Airlines frames its business structure in a manner that reduces the operating costs (Inkpen, 2017). Some of the measures include running a singular model of aircraft and increasing the number of daily flights. This increases the company’s revenues and helps it to keep its airfares low (Field, 2015). Initially, low-cost pricing set apart Southwest Airlines amongst other airlines, which concentrated on making flying luxurious and thus expensive. Several other low-cost airlines have, however, been established, and Southwest Airlines has precisely responded to this business development.
Despite having been a profitable company in the turbulent airline industry, Southwest Airlines is not immune to various risks within the micro and macro business environment. In the microenvironment, one of the significant risks that the airline faces are increased competition. Several other airlines offering low-cost air travel and imitating Southwest's business structure continue to come up.
Southwest airlines also face various risks in the macroenvironment. Political and legal factors pose severe threats to the company since the operation of the airline is regulated by government bodies such as the Federal Aviation Administration. The airline is not immune to laws and regulations that may be passed on to the airline industry. A crucial aspect of economic factors that poses a risk to the operation of the airline is fuel costs. Fuel costs account for the bulk of airline operating costs, and with the prices being quite volatile, they threaten to diminish the airline's profit margins. The airline has resulted in a new revenue management system that adjusts the airfares at different times of the day, amongst other measures to ensure it remains profitable and competitive (Jonas, 2018). In the wake of technological development such as communication technologies that allow persons to directly communicate without the need for traveling, the airline risks experiencing a decrease in demand for air travel. Environmental factors are another risk that the airline is likely to encounter. This is due to the global focus on reducing carbon emissions. Aircraft contribute a significant portion of carbon pollution (Kwan et al., 2014). If global resolutions to adopt low carbon-emitting aircraft are approved, the airline will be forced to change its fleet, thus disrupting its business organization.
Southwest airlines can continue to operate as a low-cost airline even as tough economic times hit. Tough economic times are likely to hurt Southwest airlines' operations since there will be a probable drop in demand for air travel. However, a market for the lowest priced service or product will always be existent. Hence if Southwest airlines continue to offer such travel to its customers, they will choose it as their preferred carrier since, as economic times bite, individuals are likely to select their carriers using the lowest pricing criteria. To counter the competition posed by other airlines mimicking its business model, Southwest Airlines needs to be innovative in this pursuit. The airline has already adopted a new revenue management system that sets the airfare pricing depending on the demand at different times of the day (Jonas, 2018). This has enabled the airline to counter the competition posed by ultra-low-cost carriers such as Spirit and Frontier Airlines. The airline has also been offering higher quality services than other low-cost carriers, thus setting apart their services.
Southwest Airlines has since establishment based its business model on low pricing. By meeting the needs of its clients, the airline has remained profitable for several years. However, the changing business, economic, and technological times require the airline's management to respond to the changes in an innovative manner. The airline does not have to be forever stuck in short flights, longer and international flights can be adopted in their expansion plan. The airline also needs to respond to the needs of wealthier clients who are willing to pay more for luxurious flights. To maneuver the effects of fuel price volatility, the airline should adopt fuel-efficient aircraft. Innovative solutions will respond to the various risks the airline faces and ensure its sustainability for several years to come.
References
Baker, D. (2014). Low-cost airlines management model and customer satisfaction. International Journal of Economics, Commerce, and Management , 2 (9), 1-17.
Field, S. (2015). Southwest Airlines and the impact of low-cost carriers on airline ticket prices. FUSIO , 1 (1), 1-23.
Inkpen, A. C., & DEGROOT, V. (2013). Southwest airlines. Caso pedagógico .
Jonas, D. (2018). New Southwest Revenue Management Tactics Put Upward Pressure On Fares. Retrieved from https://www.thecompanydime.com/southwest-revenue-management/
Kwan, I., Rutherford, D., & Zeinali, M. (2014). US domestic airline fuel efficiency ranking, 2011-2012. Retrieved from the International Council on Clean Transportation, https://theicct.org/publications/us-domestic-airline-fuel-efficiency-ranking-2011%e2%80%932012 .
Louis, M. (2018). Transformation of the Revenue Manager [Ebook].
