SOUTHWEST AIRLINES’ LOW COST STRATEGY 8
SouthwestAirlines’ Low Cost Strategy
SouthwestAirlines is an example of a firm that has set a clear businessstrategy and employed the right business model along with the rightculture and business behavior. The low cost strategy by Southwest isan impressive primary business strategy because the company hasmanaged to consistently make profits with its implementation.
Awell Implemented Strategy
Thelow cost strategy is well executed because of the consistent adoptionof systems of reducing costs and enhancing efficiency. The airlinelaunched International Service and New Reservation System and hasbeen consistent with maintenance of its information systems (Thompson& Gamble, 2014). In addition, the company has a policy ofeffective and vigorous recruitment to get the best employees, who aretrained in the core business practices of the airline. The trainingof its employees helps the airline to initiate them to the low costconsciousness at the company, which is important for the execution ofthe low cost strategy. At the same time, the company has integratedthe services, physical and human resources of its acquisition. Thisintegration helped maintain the low cost operation for AirTranbusiness as a per Southwest’s strategy.
Thelow cost strategy is well implemented because the company hasinvolved its employees in the cost control efforts. As a result, thecompany has still maintained the high quality level of servicesdespite the low cost strategy. The involvement of the employees isexemplified by the maintenance of a cost conscious culture at thefirm where employees are involved in making cost-related decisions.In addition, the company has maintained the low cost of traveling tocustomers while adopting favorable internal human resource policiesthat focus on the wellbeing of employees.
Theimplementation of the strategy involved the right corporate cultureof success and possibility. According to Thompson and Gamble (2014),the airline adopted the “Can-Do” culture since its earlydevelopment history. In the year 2014, the culture of possibility hasbeen well implemented by the people at the firm and should continueto continue with the strategy. As a result of the culture, thestrategy has been well executed to cover all the travel destinationsthat the firm covers. This strategy has made the company a leader indomestic flights in the United States (Thompson & Gamble, 2014).Moreover, the execution of the strategy has a strong commitment ofthe management to continue with the improvement of the cost reductionplan. This has led to the continued success as a market leader undertwo CEOs who succeeded Kelleher from 2001 (Thompson & Gamble,2014).
Rightaspects of the Strategy Implementation
Thefocus of the company on the short-haul traveling has helped its lowcost strategy to be successful. The short-haul travels have helpedthe airline to reduce costs while maintaining high quality ofservices to customers who travel within the United States. In 1981,when Herb Kelleher became the CEO, the company was flying to 27destinations (Thompson & Gamble, 2014). However, currently thefirm is flying to 96 destinations with seven of them being outsidethe United States (Thompson & Gamble, 2014). This is a clearindication of the company’s focus of its low-cost business strategyto the short-haul travels. By travelling more in the United States,the company is able to manage its costs and introduce customerfriendly services that do not increase the costs.
Atthe same time, the company has got it right in the aspect ofleadership during the implementation of the strategy. The leadershipat the company has successfully implemented the strategy bydeveloping the right culture in the organization. The rightleadership at the firm is exemplified by the transformation that HerbKelleher achieved at the airline. One of the aspects of leadershipthat Kelleher did at the company was the promotion of favorable humaninteraction and concern for employees. According to Thompson andGamble (2014), Kelleher visited employees at their workplaces. Forinstance, Kelleher visited the flight crew and attendant in there areof operations, and encouraged them along with listening to theirconcerns and observing their behavior.
Concernsof the Strategy Execution
Themain concern at the execution of the low cost strategy is theconsistency of the low prices amid the current inconsistencies in thefuel prices. The challenge of the external environmental factor offuel may face the company since it is beyond the control of themanagement. Therefore, the airline might be forced to adjust theprices of their flights as a cost adjustment of the fuel pricesglobally. According to Henry(2011), thisis a matter of concern because it may affect the cost of production,which is at the core of the low cost business strategy.
Atthe same time, the management may have the challenge of managing thecompetition from other airlines that seeks to counter the dominanceif Southwest in the domestic airline. While the firm is a marketleader, its market share may be threatened in the future by theestablishment of small airlines that offer same domestic travels asthe company.
Evaluationof Policies, Procedures and Practices
Tosustain its numerous flight schedule, the airline successfullyadopted the cost-efficient Point-to-Point Rout structure as itsscheduling policy and practice. This was unique and helped thecompany to handle its local and international flights. To lower thecosts of maintenance, the firm regularly updated its managementinformation systems, which also improved the quality of operationsand efficiency of service. To improve the experience of customers,the airline also implemented the “Extreme gate Makeover” thatadded business-focused facilities. This was done well and improvedthe quality of its services along with the low cost strategy. Through the policies, the firm was able to instill the work culturethat propelled the firm into a successful execution of the low-coststrategy.
Theacquisition of AirTran is a venture that I approve. This is becausethe acquisition opened the airline to a larger market share andconnected the capabilities of AirTran and its market leadershipposition. I agree with the way Southwest integrated AirTran. This isbecause the integration allows Southwest Airlines to use theresources of AirTran and scheduling of destinations. For instance,the integration enabled Southwest Airlines to utilize the“hub-and-spoke” network system, converted the AirTran fleet toSouthwest’s and took over the employees. Southwest airline willbenefit from the ability to connect flights that were done byAirTran, which will give the firm more local destinations compared toits competitors.
SouthwestAirlines should implement policies and procedures that seek tomaintain the low cost strategy amid the instabilities in the economicenvironment that affects consumers, especially lower income people.According to Thompson and Gamble (2014), the economic depression leftAmericans with low income levels, thereby being concerned withsavings whenever they spend. Therefore, the low cost strategy bySouthwest should continue to be an appropriate response to theeconomic environment in America.
Thelow cost strategy carries a risk of ignoring the quality of servicebeing offered by the firm as it seeks low costs. Therefore, thecompany should focus on catering for the needs of the employees sothat they can address the issue of quality of service. Particularly,the policy of the firm to put the employees first should bemaintained to ensure the highest quality despite the business focusof lowering traveling cost.
Theairline should promote a culture of service that has been establishedin the firm through servant leadership. This is because servant hoodleadership is a core aspect of the influence of the past leadershipat Southwest. Kelleher established the servant leadership culture byleading in work and participating in actual services (Thompson &Gamble, 2014). According to Thompson and Gamble (2014), Kelleherparticipated in loading, and attending of the events of the company.Through the commitment to service, the firm was able to maintain highquality of services despite the implementation of the low coststrategy. As a result, the low cost strategy became a sustainablelong term aspect of the firm and not a short stint in the market.
Thelow cost strategy has made Southwest Airlines record tremendousgrowth over the years to become a market leader in domestic flights.This is because the strategy has been executed well by the pastmanagement and is on course to lead the firm as a business strategyfor the present and the future. In addition, the acquisition ofAirTran is a strategic advantage for Southwest Airlines to capitalizeon through the full integration of AirTran. To make the futurebrighter for Southwest, it is important that the firm adopts theculture of service and focusing on the interests of the employees.Moreover, the company should focus on quality of service along withthe low cost strategy.
Henry,A. (2011). UnderstandingStrategic Management. Oxford:Oxford University Press
Thompson,A.A., & Gamble, J.E. (2014). SouthwestAirlines in2010: Culture,Values,and Operating Practices. Connect, Case 25, Part 2, C-340 – C-375