The Southwest Airlines business model is based on the low-cost business model. It can offer cheap flight tickets by creating an extremely efficient operation. The economic crisis resulting from the Covid-19 pandemic is putting multiple companies out of business — and that is certainly reflecting on the commercial flight industry as well.
However, against all odds, the Southwest Airlines Business Model is holding this American airline as one of the strongest airlines in the world. Over the last 20 years, Southwest Airlines, unlike many other airlines, has been surfing stability, due to its consolidated business model — and that’s precisely why the company may survive the coronavirus crisis without greater efforts.
Southwest Airlines is, currently, the leading low-cost airline in the United States. It has flights to more than 90 destinations inside the country, including the Caribbean and Central America, and Mexico. According to the site of the company, “Southwest believes in a sustainable future where there will be a balance in our business model between Shareholders, Employees, Customers, and other Stakeholders.”
And add: “To protect our world for future generations and uphold our commitments, we will remain focused on sustaining our unmatched profitability record in the industry, efficiency that conserves natural resources, fostering a creative and innovative workforce, and giving back to the communities in which we work and live”.
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Southwest Airlines’ business model is based on features that differentiate the company from any other airline. Besides low cost, their strategy includes efficient operations with on-time flights, innovative logistics processes and solutions, positive customer experience, and motivated employees — the company is often listed on Forbes as one of the “Best Employers”.
Let’s take a closer look at Southwest Airlines’ competitive advantages:
Southwest Airlines focuses on offering the lowest prices for the most popular routes, being the only large American airline that can actually compete on price, even matching prices if a customer finds a lower one is another airline. To achieve this unique advantage, the whole Southwest Airlines Business Model has been built around low operating costs. The company owns a few aircraft types, services in small and secondary airports (with lower charges), and a high airplane utilization, with short-haul flights and quick turnarounds.
Besides good-pricing tickets, Southwest Airlines provides one of the best rewards programs in the industry, by giving points to customers, that can be used to buy the next flights. It also offers a credit card (in partnership with Chase Bank), that permits the users to accumulate points from purchases other than tickets.
Other strategies to guarantee passengers’ engagement are Southwest Airlines’ simple and flexible policies and procedures. For example, the company allows the passenger to cancel a reservation up to 30 minutes before departure — and the customer keeps the funds from cancellation for a future trip.
Southwest Airlines is also known for its friendly, helpful, and motivated employees. In order to make that true, the company invests in practices and policies, and focused on hiring members who really embody the brand’s message and are truly passionate about helping people.
Southwest Airlines is oriented to a flexible business model, which is adaptable and suitable for quick changes. They are always looking for lower-cost and disruptive solutions, which helps them grow even into critical periods.
This “proven strategy” is stated on Southwest Airlines’ website, through some outstanding such as:
Founded in 1967 by the businessman Herb Kelleher with the name “Air Southwest”, it was first planned to fly among Texas cities, especially San Antonio between San Antonio, Dallas, and Houston. In fact, its first model draw was a triangle, connecting the three cities. Later in 1971, it was rebranded as Southwest Airlines.
Back then, the company could set its plane tickets at much lower prices when compared to potential competitors. This happened because Civil Aeronautics Board (CAB)’s control regulations did not apply to Southwest Airlines, as it operated exclusively in the State of Texas.
Ten years after its foundation, in 1977, the company had ten aircraft in its fleet — all of them Boeing 737s — and started operating in other Texas cities, such as Austin, El Paso, Lubbock, Midland, and more. By 1982, Southwest Airlines had grown its fleet to 37 jets and operated interstate flights, including several cities and states, such as Las Vegas (Nevada), Oklahoma City (Oklahoma), Albuquerque (New Mexico), Phoenix (Arizona), Kansas City (Kansas), and California major cities, such as Los Angeles, San Francisco, and San Diego. By the end of 1983, there were already 46 aircraft in the fleet.
In 1985, it started operating in Chicago (Illinois), Jackson Hole, Wyoming, and St. Louis (Missouri), and by the 90s, with over 220 jets, Southwest Airlines would reach Baltimore (Maryland), the states of Mississippi, Kansas, and Alabama, as well as Florida major cities, such as Tampa, Fort Lauderdale, and Orlando. By the end of 1999, Southwest Airlines had over 310 aircraft in its fleet and expanded through the East Coast cities and states, operating in Connecticut and North Caroline.
In the next decade, after 9/11, naturally, the whole aviation market suffered a brand-new regulatory process, but Southwest Airlines continued to expand. In 2003, it started operating in Philadelphia (Pennsylvania) and had around 388 jets in its fleet — rising to 400 in the following year.
After operations started in Denver (Colorado) in 2006 and New York (New York) in 2009, it was only in 2011 that Southwest Airlines would go abroad. With the permission of the Department of Transportation (DOT), it had about 698 aircraft in its fleet and started operating in Mexico, with flights to Cabo San Lucas, Cancun, and Mexico City, coming from Orange County (California) and San Antonio (Texas).
As for the Caribbean and Central American countries, Southwest Airlines launched its services in 2014, with flights from Baltimore heading to Aruba. In 2019, it was Hawaii that was added to the company’s airline service.
Although some people believe, Southwest Airlines is not owned by American Airlines, it is only an American airline company that happens to be based in Texas State as well. While AA’s headquarters are in Fort Worth, Southwest Airlines is based in Dallas. The company has Bob Jordan as the CEO, Gary Kelly as the Chairman, and Mike Van de Ven as the President and COO.
As already mentioned, Southwest Airlines’ revenue streams are based on domestic and international airline services. Its revenue is divided in:
It’s important to highlight that this “Other revenue” doesn’t include some fees that are common for their competitors, such as bag fees, simple onboard snacks (like peanuts and crackers), seat classes, and premium seating (the company doesn’t offer this kind of seat assignments).
Now, let’s analyze the Southwest Airlines Business Model Canvas in a nutshell:
Its customer segments: General customers, both professional and personal, especially aiming to attract low-budget users. The company also serves shipping to corporate clients, mainly importers, and exporters.
Low-cost airfares, free-fee baggage (up to two pieces of luggage at no additional cost), a broad network of destinations, qualified customer service, beneficial rewards program, and additional services at small costs.
Its own website, its own mobile, and a network of affiliate sites, such as Booking Builder, Sabre, and Apollo. Its own website provides all the information about destinations, fees, and schedules, and contains the booking portal, by which customers can make and manage reservations. Moreover, the company has a network of offices that provide direct sales.
Regarding sales, Southwest Airlines makes them on a self-service primarily basis. Customers can book flights and manage their reservations online, without having to interact with anyone. Its personal service is offered, indeed, in-flight and by its airport staff, by assisting and informing. Besides, there is customer support during and after booking, by phone, e-mail, posts, FAQs, and, additionally, through social media (Twitter, Facebook, Instagram, and YouTube).
They have been analyzed above, but it’s worthy to highlight that 98% of Southwest Airlines’ revenue streams come from domestic flights.
Fleet, maintenance, physical and IT infrastructure, customer support, sales channels, partnerships network, and human resources.
Low-cost passenger airline service in the United States and near markets; corporate and group travel services, and cargo and shipping solutions.
Affiliate partners (a network of websites and travel agencies), rewards partners (businesses that provide products and services as part of the rewards program), and service partners (such as car rental providers and hotels).
Fleet’s, physical, and IT infrastructures’ operation and maintenance, fuel, personnel, marketing and sales, and general and administrative expenses.
Below, there is a detailed swot analysis of Southwest Airlines:
-> Read More About Southwest Airlines’s SWOT Analysis.
Rebecca Goldberg and Elliott Weiss wrote an article for the Washington Post, stating that Southwest Airlines’ business model may be based on the competitive advantage of saying ‘no’, in order to keep its cost structure cheap to maintain its main value proposition working: low-cost air transportation.
They explain: “Southwest has a winning formula that aligns process, people, and purpose. But the real coup in responding to a changing competitive landscape lies in learning to say ‘no’. Operations are all about customer service, which means delivering on a promise that a customer wants to keep. Deciding what promises to keep always means saying ‘no’”.
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