Business Report to Garry Kelly

BUSINESS REPORTS TO GARRY KELLY 8

BusinessReport to Garry Kelly

ReportTo Garry Kelly On Southwest’s Current Strategy Execution and TheStrategic Decisions Going Forward

Howwell Southwest has executed its low cost strategy

Fromthe onset, Southwest airline has worked against competition throughits low cost strategy. Despite the many challenges from itscompetitors, the company has remained strong and today, it commands ahuge segment of the market share. The reason for this is that thecompany has always offered its clients better rates compared to otherairlines.

Thecompany has focused on three aspects:

  • Charging prices that are very competitive.

  • Creating and maintaining a low cost strategy.

  • Making it fun to travel on Southwest.

Everycompany goes into business with the aim of making profit. This meansthat a company cannot undercharge its customers and remain inbusiness. The success of the company is enough proof that the companyhas not been making losses in its low cost operations. Firstly, thecompany’s management understands well that for it to comfortably dobusiness, its planes have to cost effective. To cater for this, thecompany has been using the same class of planes. This minimizes thecost of, maintaining of these planes, as further training onmaintenance is not required.

Southwesthas always had the best team on the board. These people have alwaysbeen keen not to deviate from the mission and vision of the companyand this is what has created consistency in the company.

Thecompany looks keenly at what the competitors are doing and then usestheir weaknesses to their advantage. For example, when othercompanies charge for the first and second bag inspection, SouthwestAirlines does not do so. This incentive attracts many customers,which in turn translates to more profits for the company.

Whatthe company has done right in executing its low cost strategy

Southwestairline in executing its low cost strategy has done the followingthings right.

  1. Having simple fare strategies- the fare strategies are in four categories: the wanna get away fares, anytime, business select and the senior fares. Each category has distinct features and attracts fewer charges compared to other airlines.

  2. Giving incentives to customers- Southwest has always charges less fees to the customers and above this, the company has incentives such as bags fly free policy, offering adult beverages for the business select category and not charging a fee for changing a ticket from a previous flight to another flight. These incentives help to reduce the cost for the customers and this attracts more customers.

  3. Using a single type of aircraft- this was a good decision to use the Boeing 737 aircraft as it reduced maintenance and repair costs as the staff did not need retraining, it minimized the amount of money spent on spare parts, as well as reducing the time spent on maintenance.

Throughthese three aspects, the company has rightfully executed its low coststrategy. When a company does not have so many liabilities, it meansthat the customers can also enjoy the reduced costs and at the sametime, travel comfortably.

Problemsor concerns with the low cost strategy

Southwesthas managed to stay ahead of its competition for a long time.However, it is important to note that there is more to customersatisfaction than reducing the cost for travelling. A company canstill enjoy a monopoly of the market despite charging higher fees solong as the customer is satisfied.

Forthe years that Southwest has been in business, it has managed to growits customer base due to the low cost strategy. The problem with thisscenario is that suppose other airline companies copied all that thecompany does and charges lower fees than southwest?

Thecompany needs to implement other policies over and above the low coststrategy. The company has already gained a good number of clients,the focus now should be towards looking for customer loyalty, andthis way the company will not have to look at what other companiesare doing and then basing their decisions on that.

Itis important for a company to look at what the rival is doing wrongand maximize on that, but at the same time, it is important to looktowards maintaining the customer gained through coming upon withcustomer loyalty programs.

Problemsor concerns

Asaddressed above, every company has its brand and that is what acompany is known to do best. In its advertisements, SouthwestAirlines has for a long time done advertisements that are gearedtowards telling the customers about the low fares it charges. It isnow time to go over this and tell people something beyond the lowprices.

Thereason for this is that the company has already built its customerbase and it is now time to go beyond telling people that it has themost competitive charges compared to other airline companies.

Thecompany needs to come out strongly as a company that is not justabout low costs of air travel. It company needs to think about whatit will do in the case that other airlines charge low fares andcustomers start moving to those other companies.

Policies,procedures and practices that are done well in southwest

Southwesthas survived the tide by implementing policies, procedures, practicesthat have worked to its advantage. Below are some of these policies,practices and procedures.

  • The policy of putting the interests of the employees first- the employees of a company are the face of that company. Human resource is the most important resource in a company. Southwest Airlines has always treated its employees well and even does promotions from within the company among its staff. This keeps the staff members motivated and when an employee is motivated, he or she will serve the customers better.

  • The practice of the management moving around to supervise work- this is a good practice started by Herb Kelleher where he could walk around and engage the staff members. This is a good practice as it makes the employees feel part of the organization.

  • Ongoing Training for staff members- this was a good practice for the company as it equipped the staff with skills for the job success over and above the usual training that the staff gets from the FAA.

  • Boosting flights in areas where the rivals pulled out- this has been a good policy that has worked to the advantage of the company. For example, when most airlines cancelled their flights to certain areas after the 9/11 terrorist attack, southwest moved to give its services to those areas thereby boosting its income.

Policies,procedures and practices not so well done

Everycompany has its weaknesses and the management can make some decisionsthinking that they are the best, but they turn out to be bad policiespractices or procedures that could hurt the company. In the case ofthe southwest, some of these policies, procedures and practices arediscussed below:

  • The no layoff policy- in my opinion, this is not a good policy and it could hurt the company when an employee does not match the goals of the company.

  • The bags fly free policy- this policy is an incentive to the customers, as it will reduce their cost, but for the company it is not a good policy. While it is a policy aimed at beating the competition, it could work against the company and a substantial amount of income is lost.

Areasthat need improvement

Thecompany has survived in the airline market due to its low coststrategy, but it is now time that the management rethinks thatstrategy for the good of the company. There is the need to look intothe complaints of the customers and work on that. This will beimportant, as it will tell the management what exactly it is that thecustomers expect from the company.

Recommendationsfor the company

  • In areas that the company has a monopoly, it could do away with the low cost strategy and focus on maximizing profits by working on providing comfort for its customers.

  • The company should look into its advertisements- the style that the company has been using in its advertisements need to revolve. It is important that a company uses ads that reflect its true mission in a way that communicates well with all customers.

Reference

ThomsonA. A., Gamble J.E., (2014). Southwest Airlines in 2014: Culture,Values and Operating Practices. Case25.