Please read the attached article "Southwest Airlines" and answer the following questions in a single Word document.
- Please use the information provided in the article to describe the business model used by Southwest Airlines. (5 points)
- Identify Southwest's internal strengths and weaknesses. (5 points)
- How sustainable is the airline's competitive advantage? Why?(5 points)
CLOSING CASE Southwest Airlines Southwest Airlines has long been one of the stand Southwest devotes enormous attention to the peo- out performers in the U.S. airline industry. It is ple it hires. On average, the company hires only 3% famous for its low fares, which are often some 30% of those interviewed in a year. When hiring, it empha- lower than those of its major rivals. These are bal sizes teamwork and a positive attitude. Southwest anced by an even lower cost structure, enabling it rationalizes that skills can be taught, but a positive to record superior profitability even in bad years attitude and a willingness to pitch in cannot. South- such as 2002, when the industry faced slumping west also creates incentives for its employees to work demand in the wake of the September 11 terror hard. All employees are covered by a profit-sharing ist attacks. Indeed, from 2001 to 2005, quite possi- plan, and at least 25% of an employee's share of the bly the worst four years in the history of the airline profit-sharing plan has to be invested in Southwest industry, while every other major airline lost money, Airlines stock. This gives rise to a simple formula: Southwest made money every year and earned an the harder employees work, the more profitable ROIC of 5.8%. Ev 2008, an awful year for Southwest becomes, and the richer the employees most airlines, Southwest made a profit and earned get. The results are clear. At other airlines, one would an ROIC of 4%. never see a pilot helping to check passengers onto Southwest operates somewhat differently from the plane. At Southwest, pilots and flight attendants many of its competitors. While operators like Ameri have been known to help clean the aircraft and check can Airlines and United Airlines route passengers in passengers at the gate. They do this to turn around through hubs, Southwest Airlines flies point-to an aircraft as quickly as possible and get it into the point, often through smaller airports. By competing air again because an aircraft does not make money in a way that other airlines do not, Southwest has while it is on the ground. This flexible and motivated found that it can capture enough demand to keep workforce leads to higher productivity and reduces its planes full. Moreover, because it avoids many the company's need for more employees. hubs, Southwest has experienced fewer delays. In the Because Southwest flies point-to-point rather first cight months of 2008, Southwest planes arrived than through congested airport hubs, there is no on schedule 80% of the time, compared to 76% at need for dozens of gates and thousands of employ- United and 74% at Continental. ees to handle banks of flights that come in and then Southwest flies only one type of plane, the Boeing disperse within a two-hour window, leaving the hub 737. This reduces training costs, maintenance costs, empty until the next flights a few hours later. The and inventory costs while increasing efficiency in result: Southwest can operate with far fewer employ- crew and flight scheduling. The operation is nearly ces than airlines that fly thro A hubs.78 ticketless, with no seat assignments, which reduces cost and back-office accounting functions. There are Case Discussion Que los no meals or movies in flight, and the airline will not How you cho lze business mg transfer baggage to other airlines, reducing the need bfiles wes this ser fin for baggage handlers. the melany or Southwest also has high employee productivity. such and medic Aires One-way airlines measure employee productivity dent syncours, lles, and dis is by the ratio of employees to passengers carried. Apetenlless! Vest Aiynes According to figures from company 10-K statements, Southyrces, paties in 2008 Southwest had an employee-to-passenger stve trans te su o ratio of 1 to 2,400, the best in the industry. By com final.c! form ncg parison, the ratio at United Airlines was 1 to 1,175 Howare is advan and, at Continental, it was 1 to 1,125. tage? What are tanto tatio .ere
