Southwest Airlines SWOT Analysis by acemyhomework

1 Southwest Airlines SWOT Analysis Company Overview Southwest Airlines (SWA) has been operational since 1967 but adopted its current name in 1971. It has headquarters in Dallas and is recognized for the low-cost services that it offers. Statistics estimate that the firm had 46, 000 workers by 2014 (Charter Flight Group, 2016). Moreover, it also operated in 97 destinations making more than 3, 800 flights daily. The firm clinched position three as the most admired enterprise in the US in the year 2004. Therefore, the firm has served as a role model for several upcoming airline industries. It illustrates the strategies of creating a brand name void of charging exorbitant prices. Regarding the financial analysis, it is evident that the firm is performing better than its competitors. For instance, the Price earnings ratio in the year 2018 for the industry was 10.80. However, the firm has an earnings ratio of 17.85 (Reuters, n.d). The firm's profit margin was 68.63 while that of the industry was 27.08. the analysis also discovered that SWA had a high return on assets ratio (8.66) which was almost double that of the industry (4.69). The same holds for return on equity with the firm having a ratio of 24.57 and the industry average are 19.19. Nevertheless, the beta factor is lower in the industry (1.07) than that of SWA (1.34). Therefore, it is highly risky to invest in SWA (Reuters, n.d). The assessment shows that the firm has the capacity to increase its market share in the industry. Internal Environment Strengths One of the factors that boost SWA competitive advantage is the convenience in its transportation. The firm applies point-to-point services to its creates. Therefore, unlike hub and spoke approach, the customers do not have to rely on the firm's hubs (Bhasin, 2019). SWA arranges direct flights for its customers which is highly fast. Moreover, the approach assists the firm to utilize its assets effectively. The second advantage lies in the strong fleet

SWOT ANALYSIS OF AIRLNE COMPANY

base which covers most of the US. The fleet mostly comes from the merger with Air Tran which increase the number of Boeing aircraft fleets (Bhasin, 2019). The fact that the aircraft are large ensures that the firm offers effective services and also receives high returns from the business as a result of the economies of scale. Third, the firm has a very low turnaround time. Therefore, the 25 minutes assists the firm increase the number of flights possible in a day. Consequently, the firm does not have to purchase new airplanes to cater to its large customer base (CAPA, 2014). Fourth, the analysis discovered that the firm is a price leader. Therefore, the firm is highly profitable and targets on the price-sensitive customers who are very many. The firm also boasts of high profitability over its competitors. The firm has received consistent profitability. The analysis also discovered that the firm was able to survive the 2008-2009 period (CAPA, 2014). Therefore, the firm is highly sustainable which can attract investors into the organization. Weaknesses Several factors in SWA’s performance significantly affects its performance. First, the firm lacks other significant sources of revenues apart from the passengers (Bhasin, 2019). Therefore, the passengers account for 93 % of the firm's revenue. On the contrary, freight contributes 1 % (Bhasin, 2019). The approach is highly risky since it is responsive to fuel pricing. The inference explains the high beta factor for the enterprise. Second, the firm is facing several lawsuits and litigation cases. The incidents outcome will determine the fate of the institutions. A bad outcome will significantly influence the customers' loyalty on the enterprise (Bhasin, 2019). Third, the study also discovered that the firm heavily depends on Boeing. The dependence may affect the firm's performance if the regulators ban the use of the aircraft in ferrying passengers. Fourth, previous studies claim that the firm deals with outdated products. The management has failed to leverage the firm’s revenue with new products. The new products have a high probability of raising profitability.

SWOT ANALYSIS OF AIRLNE COMPANY

For example, the firm has only introduced Wi-Fi in its carriers (CAPA, 2014). The failure to intensively invest in the technology could be denying SWA huge sums of money.n External Environment Opportunities SWA has been performing very well over the last five year. However, it needs to exploit some of the opportunities available in the market (Bhasin, 2019). For instance, it is advisable to venture into the international market where its services might be acceptable. The strategy can improve its revenues and number of customers. Moreover, the strategy would lead to diversification of risks; under the current model, an economic crisis in the US can severely affect the firm’s performance. The management at SWA also needs to consider the expanding global tourism sector. Statistics estimate that the CAGR will be 4 % globally where the firm can determine the most effective strategy to tap the customers especially through cruise airline services (Bhasin, 2019). Moreover, the tourism sector might grow by 5 % in the USA alone in five years where the firm operates in almost all destination but only offers commercial flights. SWA income from freight is only 1 % of its total returns. Therefore, the SWOT analysis discovers that the firm needs to consider investing in the freight business. The business is expected to expand by 7 % in five years, not only in the US but also globally. The growth is associated with the increase in e-commerce where entrepreneurs sell goods to all parts of the world (Bhasin, 2019). The fact that the firm offer low-cost services can significantly appeal to the parties in the business where the firm can transport the goods. Threats Several factors threaten the survival of the firm in the industry. The firm receives intense competition from its rivals like JetBlue and SkyWest. Therefore, the price wars are very stiff and this lowers the performance of the firm (CAPA, 2014). Previous records have it

SWOT ANALYSIS OF AIRLNE COMPANY

that the firm charges higher fares than Spirit Airlines and Allegiant. The firm may not be able to continue offering low prices since its costs are considerably high. Therefore, pricesensitive consumers are likely to shift consumption to the firm's competitors. The firm also has to comply with several stringent government regulations (CAPA, 2014). It has to pay high taxes which reduces the firm’s profits. The firm has been experiencing high demand in the US. Therefore, it had to raise costs where the year 2014 saw a 2 % increase. Moreover, the firm is under several labor negotiations with its employees (CAPA, 2014). Therefore, given the employees win, the firm will have to pay them high salaries where the cost will be transferred to the customers. the 2013 financial analysis illustrated that the firm spends up to 31 % of its revenue on its employees. Nevertheless, there are new contracts to be signed regarding the salaries, wages and benefits (CAPA, 2014). Eventually, regardless of the competition, the culture of the organization (charging low prices) is likely to change. Moreover, the analysis shows that SWA has deteriorating employee relations and culture. The rift started after the firm requested its employees to feign sickness in 2014 to evade transporting clients in the winter storm (CAPA, 2014). Moreover, the firm has been sued for refusing to offer its employees the recommended rewards based on their contribution. The firm has also experienced disagreements between the employees. The source of the rift is the presence of employees who stick to their roles while others have selfish interests (CAPA, 2014). The issue is likely to lower the firm’s reputation and loyalty from its customers. Recommendations The SWOT analysis has shown some of the factors facilitating and those inhibiting SWA's performance. The management needs to put more emphasis on strengths and opportunities. However, it is advisable to implement strategies to mitigate threats and

SWOT ANALYSIS OF AIRLNE COMPANY

weaknesses. For instance, the firm needs to remedy the rift existing between it and the employees. The approach will help improve the customers' mindset. The most effective strategies are increasing their benefits and engagement in the firm's operations. Moreover, the firm should implement long term strategies to overcome the competition from the firms charging low prices. The firm can improve its services to help customers value them more than those of the competitors. The argument being, the analysis has discovered that SWA has not significantly invested in technology. Solutions to the Weaknesses Since its inception Southwest Airlines low fares has been its major selling point. At forty-eight years of age, it is now at maturity stage and risks going into decline stage if it does not address its weaknesses promptly. To rejuvenate its growth, the corporation should focus on eliminating its weaknesses or turning them into strengths. Overreliance on Passenger Travel The airline industry is fast-changing and competitive. When Southwest began its operations, it was one of the first domestic airlines in the United States and therefore commanded a large market share. Over the years, several new airlines have entered the market and increased competition for passenger travel. This has reduced the airline’s market share significantly. Therefore to generate higher revenues, Southwest Airlines has to work on developing a wider range of products and services as opposed to over-relying on passenger travel. There are several other products and services which Southwest Airlines can offer, these include, insurance, in-flight entertainment, a wider variety of food and beverage options at an extra charge, facilities that provide extra comfort and travel packages. Since its establishment, Southwest Airlines has focused only on cost leadership, however, it can earn higher revenues by offering ancilliary products and services that complement its core product, passenger travel. Passenger travel generates over 90% of the

SWOT ANALYSIS OF AIRLNE COMPANY airline’s revenues while cargo ferriage comprises only 7% of Southwest Airlines’ current revenues (Nuruzzaman, 2019). This is a major weakness because it indicates that if a risk were to occur that would cause a decline in the number of passengers it carries, the airline would be at risk of collapse. The airline should diversify its revenue streams by intensifying its focus on offering cargo services and ancilliary products and services to its core product. Several Lawsuits In recent years, several lawsuits have been filed against Southwest Airlines by aggrieved customers and employees. This has the potential to severely affect the company’s reputation and revenues, therefore it needs to be careful in considering the remedial strategies. Being a renowned corporation, Southwest Airlines should manage its lawsuits with as much tact and diplomacy as possible to ensure that it retains or even improves its reputation. To prevent excess public scrutiny, Southwest Airlines should attempt to settle these lawsuits amicably out of court. An out of court settlement is ideal because it also saves the company from dragging on the case and in the process incurring higher litigation costs and further tainting its reputation. The firm should also ensure that it hires competent attorneys to represent it. Additionally, due to the risk of gaining a negative standing with the public, Southwest should involve a public relations firm to help manage its reputation despite the legal turmoil. To minimize the incidences of lawsuits, the airline should continuously work on building a positive relationship with all its stakeholders by determining what they need and providing it at the right time, place and manner (Kotler, & Keller, 2016). 3. Overreliance on Boeing Southwest Airlines sources its aircraft from a single supplier, The Boeing Company. Single sourcing is a major weakness because it lowers competition, therefore

SWOT ANALYSIS OF AIRLNE COMPANY encouraging corruption in the procurement process, and also increases the company’s exposure to quality issues. The Boeing Company has of late faced claims of manufacturing aircraft that has significant safety issues, and faulty parts. It is therefore prudent for Southwest Airlines to source for aircraft through competitive bidding from a wide variety of suppliers, on the basis of factors such as aircraft features, safety, technology and cost. Sourcing for aircraft the right way also assures the company’s stakeholders that the airline is focused on offering the best quality travel experience to its customers. Slow Technology Adoption For a majority of the duration of its existence, Southwest Airlines key focus has been on being a cost leader in the airline industry. While this has helped it to attract customers, it has made its aircraft lag behind most of its competitors with regard to technological advancement (Lawrence, & Weber, 2014). The failure to modernize its products and advance technologically limits the airlines ability to increase its revenues, and also locks out the market segments that are willing to purchase more expensive tickets for a more comfortable and entertaining travel experience. The airline should implement changes such as in-flight entertainment for both adults and children, extra leg room, WiFi, a more attractive ambience for travelers and travel packages. Conclusion The airline industry has changed considerably over the years. It is no longer viable for Southwest Airlines to use cost leadership as its only competitive advantage. The cost of fuel is contniously fluctuation, therefore the airline has to consider offering its products to various market segment, to shift its focus on the price-sensitive market segment. This can be achieved through increasing its focus on cargo services, offering a more diverse product portfolio, increasing its adoption of technological advancements and opening up

SWOT ANALYSIS OF AIRLNE COMPANY its aircraft procurement process to other aircraft suppliers besides The Boeing Company. Therefore, to survive in the hyper-competitive industry, the airline should eliminate some of its weaknesses, and convert others into strengths.

SWOT ANALYSIS OF AIRLNE COMPANY References Bhasin, H. (2019, February 13). SWOT Analysis of Southwest Airlines. Marketing 91 CAPA Center for Aviation. (2014, September 21). Southwest Airlines SWOT: Financial strength is a mainstay, but cost and culture challenges loom large. Retrieved from https://centreforaviation.com/analysis/reports/southwest-airlines-swot-financialstrength-is-mainstay-but-cost-and-culture-challenges-loom-large-187714 CAPA Center for Aviation. (2014, September 21). Southwest Airlines SWOT: Financial strength is a mainstay, but cost and culture challenges loom large. Retrieved from https://centreforaviation.com/analysis/reports/southwest-airlines-swot-financialstrength-is-mainstay-but-cost-and-culture-challenges-loom-large-187714 Charter Flight Group. (2016, August 6). Brief History of Southwest Airlines. Retrieved from https://charterflightgroup.com/brief-history-of-the-southwest-airlines/ Kotler, P., & Keller, K. L. (2016).Marketing management (15th ed.). Upper Saddle River, NJ: Pearson. Lawrence, A. T., & Weber, J. (2014). Business and Society: Stakeholders, ethics, public policy. McGraw-Hill Education: New York. Nuruzzaman, Nuruzzaman. (2019). Southwest Airlnes. Retrieved From Stanford Graduate School Of Business. p. 2. Reuters. (n.d). Southwest Airlines Co (LUV.N). retrieved from https://www.reuters.com/finance/stocks/financial-highlights/LUV.N