Southwest Airlines

 King of the Skies

From just a small regional airline, Southwest has grown to become the 4^th largest US carrier. It has sales of more than $4.7 billion and 29,000 employees. The business model is simple, short haul at low price with an emphasis on placing the customer and employees at the forefront of all considerations. A lot can be learnt from Southwest about market positioning and customer service.

Before Southwest the airline industry had segmented the market into two groups, those who could and could not afford air travel. Southwest attempted to make it affordable for everyone to fly and thus significantly increased the market. Southwest realised positioning itself as the “low cost” airline would endear itself to customers who would rather not pay for all the fancy “extras.” For example, whereas other airlines would provide a full meal to customers at a cost of around $7, southwest would provide peanuts at a cost of 20 cents. Eliminating additional services, such as assigned seating, allows a quicker turnaround for planes at airports thus increasing amount of time planes are in the air, thus reducing the cost for the customer. The average Southwest plane is in the air for 11.5 hours per day as opposed to 8.6 hours for competitors.

 

Aside from increasing the market Southwest revolutionized the airline industry pricing model. By considering supply and demand, Southwest decided to make it more expensive for people to fly during peak times and less expensive during off-peak hours. This little innovation is now an industry standard to efficiently fill planes.

Another innovation of Southwest was the introduction of ticketless travel. After Southwest was taken off the main airline reservation system for undercutting competitors prices so considerably, travel agents could no longer automatically produce Southwest tickets and had to write them up manually. Southwest realised this would inconvenience the customer and thus introduced the ticketless concept. This encouraged customers to deal directly with the airline, who would issue a confirmation number which could be presented at the airport before flight departure. Of course, with the introduction of the internet Southwest was one of the first to realise its potential for allowing bookings online. This is in keeping with its credo of putting the customer first. 

Southwest keeps it simple and above all keeps it simple for the customer. The airline is true to its niche and refuses to buy bigger planes, enter larger markets and raise ticket prices. This endears the company to customers and explains why it is one of the most profitable airlines in the industry.

References

“Aim low lefty, they’re ridin’ Shetlands” Cliff McGoon, Communication World, 1999

“So much work, so little time,” Shelly Branch, Fortune 1997

“Management ideas through time,” Management review, Jan 1998