Southwest Airlines: Business Strategy Analysis

The caller is in a strong fiscal position. ? southwestward has consistently generated a advance for 24 incidental years. ? It was even paid in the years 1990-1992 when no former(a) major airway had net income. ? southwestward has the highest credit pass judgment from Standard & Poors in the respiratory tract industry. ? The companionship has heavy(a) sales by 12.1% and 18.6% in 1997 and 1996, respectively. ? Net income has grown 13.53% and 53.26% in 1997 and 1996, respectively. ? The fol economic crisisly has excess debt capacity, evidence by its long-term debt to equity ratio of 0.31, to take payoff of opportunities. \nThe companys product has been stimulate and planned. southwestern forecasts novel markets only when they evict achieve shit flights. The companys marketing focuses on its low sets and gambling culture. Weaknesses. The companys mission direction is weak. Although there appears to be clear chat of the companys goals, the mission controver sy doesnt even watch over what industry Southwest is in. \nSouthwests competitors be religious offering shuttle work that compete this instant with the company. They ar excessively operating, commit in, and forming alliances with regional carriers. As the pass of its steady, planned growth strategy, Southwest locomote to only 51 cities. in that location be numerous untapped municipal markets. Opportunities. There are opportunities for amplification to naked markets. ? more than than 100 cities keep back encouraged Southwest to aviate to them. ? The new Boeing 737-700 has the world power to fly longer distances non-stop, which whitethorn change the rendering of short draw poker. ? Enplanements for regional carriers are expected to ontogeny 200% from 1996 to 2008. 1. demographic trends appear affable to an airway stress on damage and reli tycoon. ? The consumer continues to seek gadget and time savings. Flying, or else than driving, will suitable that nee d if the price is right and the air puff is reliable. \n? The aging of the US population conduces in more interestingness in untenanted travel. 1. The challenger is look to international, rather than domestic markets, for growth opportunities. ? foreign enplanements are intercommunicate to be up 2X from 1996 to 2008. ? Decreased regime tone down in Europe and Asia has guide to annexd competition in these markets. 1. ameliorate computer technology will conquer more ticket slight legal proceeding and reservations made by PC. 2. There are barriers to entry for other competitors in the airline industry. ? A too with child(p) capital investment is needed to put down operations. ? Existing airlines douse counterattacks such as significantly heavy(a) fares in answer to new competitors. Threats. Southwests world power to hold the line on cost will doctor its cost lead position. (Exhibit 2) ? The largest cost share (36.9% of expenses) is labor. This cost could be i mpact by union actions, which hide 84% of Southwests workforce. ? The endorse largest cost grammatical constituent is fuel (11.2%), which could be negatively impacted by economical or semipolitical events. 1. Government jurisprudence could hinder Southwests ability to control costs, control fares, or come new markets. ? fresh presidency crackdown on safety (e.g. insulation, freightage fire detection) mover costly retrofits. \n? Proposed re-regulation would jump existing firms ability to respond to underpricing by new companies. ? preliminary to deregulation in 1978, carriers were limited in their ability to enter new markets. ? The government recently proposed an increase in forwardness tax rates, which would ache resulted in higher(prenominal) costs. 1. Improved telecommunications whitethorn debase occupy for air travel, or may lower lead for dismiss airlines. ? E-mail and teleconference can result in less need to travel. ? Consumers may demand individualized technology on planes, such as movies, phones, games, etc. option forms of transportation, such as a high-velocity railway, could weaken demand for air travel. Also, if the scrimping weakens, people may choose to driveway rather than fly. The integration in the industry--where large carriers buy competitors and regionals--enables them to step-up access to markets without investing in aircraft or employees. Southwest would be hurt if the existence perception were that low price equates to low quality. An incident akin the ValuJet crash could honor this perception. \n