I - ជួប ឋិតឋេរប្ញទ្ធិ · PDF file28.07.2010 · Strategic Management CHUOP Theot Therith: Southwest Airlines (2010) 1 1. CASE ABSTRACT Southwest is

2010

CHUOP Theot Therith

CASE STUDY ON SOUTHWEST AIRLINE

TABLE OF CONTENT

Table of Content

1. Case Abstract .......................................................................................................................................................... 1

2. Propose a Vision Statement ............................................................................................................................ 2

3. The company mission statement and mission statement proposed .................................................. 2

4. List the corresponding Mission Statement components ......................................................................... 2

5. Perform an External Audit.............................................................................................................................. 3

6. Competitive Profile Matrix (CPM) ............................................................................................................... 5

7. The EFE Matrix .................................................................................................................................................... 5

8. Perform an Internal Audit ............................................................................................................................... 7

9. The IFE Matrix ..................................................................................................................................................... 8

10. TOWS Analysis ................................................................................................................................................. 10

11. The SPACE Matrix ............................................................................................................................................ 11

12. The Grand Strategy Matrix ........................................................................................................................... 12

13. The IE Matrix ...................................................................................................................................................... 13

14. The Matrix Analysis and TOWS summary ............................................................................................... 14

15. The QSPM ........................................................................................................................................................... 14

16. The EBIT/EPS Analysis .................................................................................................................................... 18

17. The Recommendation .................................................................................................................................. 20

REFERENCES

REFERENCES

1. Fred R. David, Strategic Management, 9/e, © 2003 by Prentice-Hall, Inc., A Pearson

Education Company, Upper Saddle River, New Jersey 07458

2. Dr. V.V.R. Seshu Babu, Strategic Management hand out, 2010, BBU, Phnom Penh

3. Strategic Management Club Online www.strategyclub.com

4. Shahzad Trading & Consulting FZE: www.shahzadtc.com

5. MindTools: www.Mindtools.com/subscribe.htm

6. Web site: www.maxi-pedia.com

7. Southwest Airlines: http://www.southwest.com/

8. Web site: www.iflyswa.com

9. Wikinvest: www.wikinvest.com/stock/Southwest_Airlines_Company_ (LUV)/Data/EBIT

http://www.prenhall.com/

http://www.prenhall.com/

http://www.strategyclub.com/

http://www.shahzadtc.com/

http://www.mindtools.com/subscribe.htm

http://www.maxi-pedia.com/

http://www.southwest.com/

http://www.iflyswa.com/

http://www.wikinvest.com/stock/Southwest_Airlines_Company_%20(LUV)/Data/EBIT

Strategic Management

CHUOP Theot Therith: Southwest Airlines (2010) 1

1. CASE ABSTRACT

Southwest is an Airline Company, based in Dallas, Texas

Herbert D. Kelleher, Chairman, President, and CEO

Since 1987, when the Department of Transportation began tracking Customer Satisfaction

statistics, Southwest has consistently led the entire airline industry with the lowest ratio of

complaints per passengers boarded. Many airlines have tried to copy Southwest’s business model,

and the Culture of Southwest is admired and emulated by corporations and organizations in all

walks of life. Always the innovator, Southwest pioneered Senior Fares, a same-day air freight

delivery service, and Ticketless Travel. Southwest led the way with the first airline web page—

southwest.com, DING! the first-ever direct link to Customer’s computer desktops that delivers live

updates on the hottest deals, and the first airline corporate blog, Nuts About Southwest. Our

Share the Spirit community programs make Southwest the hometown airline of every city we

serve.

In 2007, Southwest Airlines signs a ten-year contract with Galileo to make low fares

available to all Galileo-connected travel agencies in North America. We returned to San

Francisco International Airport in the Summer and expanded to have an eighth crew base

located in Las Vegas. In keeping with customer demands, we kept our open seating policy but

adopted a new boarding procedure to make the process quicker. Our gate areas are also

undergoing makeovers and we’ve added a new Business Select fare for our most frequent

business fliers.

Southwest's current strategy is to position itself as a cost leader with a focus strategy. The

company’s management and employees aim to cost-effectively and reliably fly large number of

customers on short, non-stop flights, and to have fun doing it. They are devoted to making flying

available to everyone. The company has been successful in implementing this strategy, having

experienced strong growth and profitability. Southwest is now the largest carrier in the U.S. in

total customers. It has operated profitably for 32 consecutive years in an industry with a volatile

earnings history. The main strategic issue facing Southwest at this time is to evaluate this strategy

and determine its future course of action.



2. PROPOSE A VISION STATEMENT FOR SOUTHWEST AIRLINES

Southwest Airlines’ Vision (proposed) is to be the famous mature and new generation

Airlines Company that provides the most affordable, reliable and comfortable flight

transportation in both domestic and oversees.

3. THE COMPANY’S MISSION STATEMENT

. The currently mission statement

The mission (existing) of Southwest Airlines is dedication to the highest quality of Customer

Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

. The mission statement proposed

A better Mission Statement proposed is ―to provide quality service for the everyday person.

Southwest services air travel to cities all around the U.S with the latest technology and the most

luxurious planes. Through the search for the greatest advantage in today’s busy world, we

competitively provide the lowest air-fare price with ensuring high company sprit and long term

financial prosperity. Southwest is committed to offers the highest standards of safety/integrity for

all our customers at an affordable/reasonable price. We ensure all processing is respect to the

governmental regulations and we also have the policy for annual donation regularly to various

charities throughout the United States. Since the first flight of Southwest in 1971, our employees

have been the vital asset in making Southwest the most recognized airline today.

4. LIST THE CORRESPONDING MISSION STATEMENT COMPONENTS

The mission statement is the most public and visible part of the strategy management

process, it must include the 9 elements: Customers, Products or Services, Markets, Technology,

Survival growth and Profitability, Philosophy, Self-concept, Concern for public image and

Concern for employees. Therefore, the corresponding mission statement components to the mission

statement proposed for Southwest are shown below:

1. Customer: the Southwest’s customer is the everyday person, ―to provide quality

service for the everyday person…‖

2. Products or Services: the major service of the Southwest is air travel, ―…Southwest

services air travel…‖

3. Markets: the geographically where the Southwest compete is cities all around the

U.S, ―…Southwest services air travel to cities all around the U.S…‖

4. Technology: the technologically current of Southwest is the latest technology,

―…with the latest technology and the most luxurious planes…‖



5. Concern for survival, growth, profitability: the Southwest committed to growth

and financial soundness is the lowest air-fare price, ―…we competitively provide the

lowest air-fare price with ensuring high company sprit and long term financial

prosperity…‖

6. Philosophy: it is, ―…Southwest is committed to offers the highest standards of

safety/integrity for all our customers…‖

7. Self-concept: the distinctive competence or major competitive advantage is

reasonable price, ―…all our customers at an affordable/reasonable price…‖

8. Concern for public image: the Southwest responsive to social is governmental

regulation and annual donation, ―…We ensure all processing is respect to the

governmental regulations and we also have the policy for annual donation regularly

to various charities throughout the United States…‖

9. Concern for employees: it is, ―…our employees have been the vital asset in making

Southwest the most recognized airline today…‖

5. PERFORMANCE OF AN EXTERNAL AUDIT (RESULT)

An evaluation of the external opportunities and threats – based on the case study

(Southwest Airlines, 2002) and additional references (by 2009) is as follows:

Opportunities:

There are opportunities for growth markets share, and expansion to new markets

1. More than 100 new cities have encouraged Southwest to offer flight service (2003)

2. There is an increased demand for international travel

3. Increased demand for cities that are currently (by 2009) without Southwest airline

flights such as New York, Atlanta

4. With an increase of nearly 3 million people in the US there is an expansion of

developing cities across the United States

5. Increased amount of upper level business travelers has led to greater demand for

better seats.

Technological competency and its popularity of Southwest

6. First airline on the web

7. Booked online 13.6% more than American Airlines (in 2004)

8. Top-ranked web site in customer satisfaction among travel sites (by 2004)

9. Increase popularity of internet leads to an expected rise of 22 percent from 2006 in

flight booked online



There are barriers to entry for other competitors in the airline industry, the bankruptcy,

and decline.

10. There is a decline of 11 percent in airline companies with funding leading to used

planes being able to be purchased

11. Each year, airline companies (such as Delta and Northwest in 2006) are declaring

bankruptcy leaving more cities existing allowing more airlines to fly to

12. Decline of 11 percent in airline companies with funding leading to experienced

workers being laid off.

Threats:

Jet Blue Airline

1. Specialization expertise of Jet Blue using one plane model allows them to provide less

expensive mechanics to maintain planes.

2. Jet Blue is the only airline to carry satellite televisions on planes.

Southwest's ability to hold the line on costs will impact its cost leadership position.

3. The largest cost component (36.9% of expenses) is labor. This cost could be impacted

by union actions, which cover 84% of Southwest's workforce.

4. The second largest cost component is fuel (11.2%), which could be negatively

impacted by economic or political events, high cost of fuel leads to increase in ticket

prices

Other threats

5. New tax system, higher ticket taxes.

6. Increase in airport security due to possible terrorism, terrorists’ attacks

7. Many companies such as AirTran Airways are offering a business class in their B717

jet.

8. Competing airlines offer satellite radio in their passenger jets, newer and more

technologically advanced jets with luxury items and some of competitors offer in-

flight meals adding luxury

9. Alternative forms of transportation, such as a high-speed railway, could weaken

demand for air travel. Also, if the economy weakens, people may choose to drive

rather than fly

10. Southwest would be hurt if the public perception were that low price equates to

low quality. An incident like the ValuJet crash could reinforce this perception.



6. COMPETITIVE PROFILE MATRIX (CPM)

Based on the case study and some extra information, it enables to prepare a Competitive

Profile Matrix (CPM) as following:

South West American United

Critical Success Factors Weight Rating Weighted

Score Rating

Weighted

Score Rating

Weighted

Score

Advertising

Global Expansion

Market Share

Price competitiveness

Financial Position

Consumer Loyalty

Management

Security Precautions

Customer Service

Organizational Structure

0.14

0.07

0.12

0.09

0.11

0.09

0.09

0.09

0.14

0.06

3

1

2

4

3

4

4

3

4

3

0.42

0.07

0.24

0.36

0.33

0.36

0.36

0.27

0.48

0.18

3

3

4

3

1

2

3

3

2

3

0.42

0.21

0.48

0.27

0.11

0.18

0.27

0.27

0.28

0.18

2

3

3

3

1

2

3

2

1

2

0.28

0.21

0.36

0.27

0.11

0.18

0.27

0.18

0.14

0.12

Total 1.00 3.07 2.67 2.12

7. EXTERNAL FACTOR EVALUATION (EFE) MATRIX

According to the result of performance an external audit above, the EFE matrix is

presented as below:

Key External Factors (KEF) Weights

0.0 to 1.0

Rating

1 to 4

Weighted

Score

Opportunities

1. More than 100 new cities have encouraged Southwest

to offer flight service (2003) 0.04 4 0.16

2. There is an increased demand for international travel 0.09 1 0.09

3. Increased demand for cities that are currently (by

2009) without Southwest airline flights such as New

York, Atlanta

0.09 1 0.09

4. With an increase of nearly 3 million people in the US

there is an expansion of developing cities across the 0.01 2 0.02



United States

5. Increased amount of upper level business travelers has

led to greater demand for better seats. 0.01 1 0.01

6. First airline on the web 0.02 1 0.02

7. Booked online 13.6% more than American Airlines (in

2004) 0.03 1 0.03

8. Top-ranked web site in customer satisfaction among

travel sites (by 2004) 0.03 2 0.06

9. Increase popularity of internet leads to an expected rise

of 22 percent from 2006 in flight booked online 0.03 3 0.09

10. There is a decline of 11 percent in airline companies

with funding leading to used planes being able to be

purchased

0.01 1 0.01

11. Each year, airline companies (such as Delta and

Northwest in 2006) are declaring bankruptcy leaving

more cities existing allowing more airlines to fly to

0.04 2 0.08

12. Decline of 11 percent in airline companies with funding

leading to experienced workers being laid off. 0.03 3 0.09

Threats

1. Specialization expertise of Jet Blue using one plane

model allows them to provide less expensive mechanics

to maintain planes.

0.10 3 0.30

2. Jet Blue is the only airline to carry satellite televisions on

planes. 0.05 2 0.10

3. The largest cost component (36.9% of expenses) is

labor. This cost could be impacted by union actions,

which cover 84% of Southwest's workforce.

0.03 1 0.03

4. The second largest cost component is fuel (11.2%), which

could be negatively impacted by economic or political

events, high cost of fuel leads to increase in ticket prices

0.10 3 0.30

5. New tax system, higher ticket taxes. 0.04 2 0.08

6. Increase in airport security due to possible terrorism,

terrorists’ attacks 0.09 3 0.27



7. Many companies such as AirTran Airways are offering a

business class in their B717 jet. 0.04 1 0.04

8. Competing airlines offer satellite radio in their

passenger jets, newer and more technologically

advanced jets with luxury items and some of

competitors offer in-flight meals adding luxury

0.04 2 0.08

9. Alternative forms of transportation, such as a high-

speed railway, could weaken demand for air travel.

Also, if the economy weakens, people may choose to

drive rather than fly

0.04 1 0.04

10. Southwest would be hurt if the public perception were

that low price equates to low quality. An incident like

the ValuJet crash could reinforce this perception.

0.04 1 0.04

TOTAL 1.00 2.03

8. PERFORMANCE OF AN INTERNAL AUDIT (RESULT)

An assessment of the internal strengths and weaknesses – based on the case study

(Southwest Airlines, 2002) and additional references (by 2009) is as follows:

Strengths

1. Southwest has successfully adopted a cost leadership strategy

2. Southwest has a reputation for great customer service: Southwest won the

Department of Transportation’s Triple Crown 5 years consecutively for ontime service,

baggage handling, and least number of customer complaints. The company has

topped the National Airline Quality Rating three years consecutively.

3. Employee loyalty: the company has a strong, fun-loving, employee-oriented culture.

The company's mission statement focuses on these aspects of the business. The result is a

loyal employee base that is willing to work hard to achieve the company's goals.

4. Thirty-seven consecutive years of profitability – 1972 till 2009 (31 consecutive years of

profitability by 2003)

5. Eighty-five percent hedge position on fuel.

6. RPM’s for 42.2 billion

7. Excellent public image.

8. Strong management team.

9. Thirteen billion in market value.



10. In 2009 Southwest has three hundred and eighty-eight new jets (30 new jets in 2003)

11. Average age of jets is least than 10 years – around 8 years

12. Fourth largest domestic airline.

13. Growth rate higher than industry.

14. 54 % of revenues from online booking via SW Website (25% in 2003, 50% in 2004).

15. Seventy-five percent of flights are E-tickets.

Weaknesses

1. The company's mission statement is weak. Although there appears to be clear

communication of the company's goals, the mission statement doesn't even mention

what industry Southwest is in.

2. Depend on single producer,

3. SW has highest percentage of full-time employees leading to increased overhead.

4. Southwest only flies one plane, the Boeing 737.

5. They will not fly outside the continental United States, 63 cities and 32 states.

6. Difficult to convince customers SW offers benefits other airlines do not.

7. Flying only 737s could lead to negative press if problems with that plane arise.

8. Does not accommodate for severely handicapped.

9. Large cities (Atlanta, Charlotte, etc) are without SW service.

10. No business section on plane, do not provide a first class for passengers, do not provide

assigned seating.

11. Southwest does not offer any type of in-flight meals.

12. Southwest offers in domestic only, no international flights.

9. INTERNAL FACTOR EVALUATION (IFE) MATRIX

By the performance an internal audit above, the IFE matrix is presented as below:

Key External Factors (KEF) Weights

0.0 to 1.0

Rating

1 to 4

Weighted

Score

Strengths

1. Southwest has successfully adopted a cost leadership

strategy 0.07 3 0.21

2. Southwest has a reputation for great customer service 0.07 3 0.21

3. Employee loyalty 0.07 4 0.28

4. Thirty-seven consecutive years of profitability – 1972 till

2009 (31 consecutive years of profitability by 2003) 0.04 4 0.16



5. Eighty-five percent hedge position on fuel. 0.07 4 0.28

6. RPM’s for 42.2 billion 0.04 3 0.12

7. Excellent public image. 0.07 4 0.28

8. Strong management team. 0.07 4 0.28

9. Thirteen billion in market value. 0.04 3 0.12

10. In 2009 Southwest has three hundred and eighty-

eight new jets (30 new jets in 2003) 0.04 3 0.12

11. Average age of jets is least than 10 years ~ 8.4 years 0.04 4 0.16

12. Fourth largest domestic airline. 0.03 4 0.12

13. Growth rate higher than industry. 0.07 3 0.21

14. 54 % of revenues from online booking via SW Website

(25% in 2003, 50% in 2004). 0.02 3 0.06

15. Seventy-five percent of flights are E-tickets. 0.03 4 0.12

Weaknesses

1. The company's mission statement is weak 0.02 1 0.02

2. Depend on single producer 0.01 1 0.01

3. SW has highest percentage of full-time employees

leading to increased overhead. 0.03 2 0.06

4. Southwest only flies one plane, the Boeing 737. 0.01 1 0.01

5. They will not fly outside the continental United States,

63 cities and 32 states. 0.04 2 0.08

6. Difficult to convince customers SW offers benefits other

airlines do not. 0.01 2 0.02

7. Flying only 737s could lead to negative press if

problems with that plane arise. 0.01 1 0.01

8. Does not accommodate for severely handicapped. 0.01 1 0.01

9. Large cities (Atlanta, Charlotte, etc) are without SW

service. 0.05 1 0.05

10. No business section on plane, do not provide a first

class for passengers, do not provide assigned seating. 0.01 1 0.01

11. Southwest does not offer any type of in-flight meals. 0.01 2 0.02

12. Southwest offers in domestic only, no international flights. 0.02 1 0.02

TOTAL 1.00 3.05



10. THE TOWS ANALYSIS

Here, the TOWS matrix – an effective way of combining internal strengths with external

opportunities and threats, and internal weaknesses with external opportunities and threats.

(Base on the external audit at point 5 and internal audit at point 8)

External Opportunities (O)

1. O1

2. O2

3. O3

………….

12. O12

External Threats (T)

1. T1

2. T2

3. T3

………….

10. T10

Internal Strength (S)

1. S1

2. S2

3. S3

………….

15. S15

SO Strategy (maxi-maxi )

1. Use the reputation for great

customer service to penetrate

& attract customers from

other 100 new cities (S2-O1)

2. Through market value, offer

flight service in the cities

currently without SW (S9-O3)

3. Base on increasing of revenue

from online, continue to satisfy

customer via internet

(S14S15 – O6O7O9)

ST Strategy (maxi-mini)

1. Expand the rapid rewards

program to offer one reward

point for every three

purchases made on the

Southwest website at least

one month in advance.

2. Upgrade our fleet by adding

12 of the similar Boeing 717 jets

in order to accommodate to

the travelers desiring the

luxury of a business class.

Internal Weaknesses (W)

1. W1

2. W2

3. W3

………….

12. W12

WO Strategy (mini-maxi)

1. Hire more part time worker

(W3-O12)

2. With airline companies

selling planes SW can

purchase models similar to

the 737, which could lead to

better press if a problem with

the 737 arises (W7-O10)

WT Strategy (mini-mini)

1. Add new cities not flown to

by Southwest such as

Atlanta, Charlotte, Chicago,

and New York

2. Shorten the flight life span

of the B737’s in order

maintain planes that are

consistently up to date with

technology



11. THE SPACE MATRIX

Internal Strategic Position External Strategic Position

Financial Strength (FS) Rating Environmental Stability (ES) Rating

ROI 3 Technological changes -2 ROA 3 Risk involved in business -3 Leverage 2 Rate of inflation -3 Net income 3 Competitive pressure -5 Inventor Turnover 2 Price of elasticity of demand -2 FS average 2.6 ES average -3.0

Competitive Advantage (CA) Rating Industry Strength (IS) Rating

Market Share -2 Profit potential 6 Product/service quality -1 Growth potential 5 Customer loyalty -1 Financial policy 4 Competition’s capacity utilization -2 Resource utilization 5 Technological know-how -1 CA average -1.4 IS average 5.0

Conclusion

Directional vector coordinates: X-axis -1.4 + 5.0 = 3.6 Y-axis 2.6 + (-3.0) = -1.4 Therefore, the Southwest Airline should pursue Competitive Strategy

+6

-6

Conservative Aggressive

Defensive Competitive

CA

FS

ES

IS

(3.6,-1.4)

-6 +6



The directional vector locates in the competitive quadrant of the SPACE Matrix, indicating

competitive strategies. So Southwest should take backward, forward, and horizontal integration;

market penetration; market development; product development; and joint venture.

12. THE GRAND STRATEGY MATRIX

According to the Market Growth and Competitive Position of Southwest (via the case),

therefore Southwest is in the Quadrant I (please see the matrix below).

.

Southwest

Quadrant IV 1. Horizontal integration 2. Concentric diversification 3. Conglomerate diversification 4. Joint ventures

Weak

Competitive

Position

Quadrant II 1. Market development 2. Market penetration 3. Product development 4. Horizontal integration 5. Divesture 6. Liquidation

Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Concentric diversification

Rapid Market Growth

Slow Market Growth

Strong

Competitive

Position

Quadrant III 1. Retrenchment 2. Concentric diversification 3. Conglomerate diversification 4. Horizontal integration 5. Divesture 6. Liquidation



13. THE INTERNAL-EXTERNAL (IE) MATRIX

Use the finding’s score of EFE (at point 7) and IFE matrix (at point 9), we get the IE matrix

based on the following two criteria:

1. The total weighted score from the EFE matrix: 2.03 – this score is plotted on the y-axis

2. The total weighted score from the IFE matrix: 3.05 – this score is plotted on the x-axis

Now we plot these values on axes in the IE matrix.

As the matrix, Southwest is in cell VI that suggests the hold and maintains strategy. In this

case, Southwest’s tactical strategies should focus on market penetration and product

development.

4.0 3.0 2.0 IFE total weighted score

4.0

3.0

2.0

1.0

Strong

3.0 to 4.0

Average

2.0 to 3.0

Weak

1.0 to 1.99

High

3.0 to 4.0

Medium

2.0 to 3.0

Low

1.0 to 1.99

I II III

IV V VI

VII VIII IX

EFE total weighted score

Here, Southwest

is in cell VI

(2.03,3.05)



14. MATRIX ANALYSIS AND TOWS SUMMARY

As the result of IE matrix (at point 13), SPACE matrix (at point 11), Grand Strategy Matrix

(at point 12) and TOWS analysis (at point 10), we find out the Alternative Strategies such the

table below:

Nº Alternative Strategies IE SPACE GRAND TOWS Count 01 Forward Integration √ √ √ 3 02 Backward Integration √ √ 2 03 Horizontal Integration √ √ 2 04 Market Penetration √ √ √ 3 05 Market Development √ √ 2 06 Product Development √ √ √ 3 07 Concentric Diversification √ √ 2 08 Conglomerate Diversification 0 09 Horizontal Diversification 0 10 Joint Venture √ 1 11 Retrenchment 0 12 Divestiture 0 13 Liquidation 0

15. THE QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

This QSPM compares two alternatives. Based on strategies in the stage 1: the input stage

(EFE, CPM, IFE) and stage 2: the matching stage (TOWS analysis, SPACE matrix, IE matrix, GSM),

company executives determined that Southwest needs to pursue an competitive strategy aimed

development of new product and further penetration of the market.

It means the possible strategies for Southwest Airlines are (1) market penetration strategy:

Expand into more cities that are currently without SW airline flights (such as Atlanta, New York)

and (2) product development strategy: Add 12 B17s to Fleet.

Key External Factors (KEF) Weight

0.0 to 1.0

Expand into

more cities such

as Atlanta, New

York

Add 12 B17s to

Fleet

AS TAS AS TAS

Opportunities

1. More than 100 new cities have encouraged

Southwest to offer flight service (2003) 0.04 4 0.16 2 0.08



2. There is an increased demand for

international travel 0.09 4 0.36 3 0.27

3. Increased demand for cities that are currently

(by 2009) without Southwest airline flights

such as New York, Atlanta

0.09 4 0.36 3 0.27

4. With an increase of nearly 3 million people in

the US there is an expansion of developing

cities across the United States

0.01 3 0.03 2 0.02

5. Increased amount of upper level business

travelers has led to greater demand for better

seats.

0.01 2 0.02 4 0.04

6. First airline on the web 0.02 - - - -

7. Booked online 13.6% more than American

Airlines (in 2004) 0.03 - - - -

8. Top-ranked web site in customer satisfaction

among travel sites (by 2004) 0.03 - - - -

9. Increase popularity of internet leads to an

expected rise of 22 percent from 2006 in flight

booked online

0.03 - - - -

10. There is a decline of 11 percent in airline

companies with funding leading to used

planes being able to be purchased

0.01 2 0.02 2 0.02

11. Each year, airline companies (such as Delta

and Northwest in 2006) are declaring

bankruptcy leaving more cities existing

allowing more airlines to fly to

0.04 2 0.08 1 0.04

12. Decline of 11 percent in airline companies with

funding leading to experienced workers being

laid off.

0.03 1 0.03 1 0.03

Threats

1. Specialization expertise of Jet Blue using one

plane model allows them to provide less

expensive mechanics to maintain planes.

0.10 1 0.10 2 0.20



2. Jet Blue is the only airline to carry satellite

televisions on planes. 0.05 1 0.05 2 0.10

3. The largest cost component (36.9% of

expenses) is labor. This cost could be impacted

by union actions, which cover 84% of

Southwest's workforce.

0.03 - - - -

4. The second largest cost component is fuel

(11.2%), which could be negatively impacted

by economic or political events, high cost of

fuel leads to increase in ticket prices

0.10 - - - -

5. New tax system, higher ticket taxes. 0.04 - - - -

6. Increase in airport security due to possible

terrorism, terrorists’ attacks 0.09 1 0.09 1 0.09

7. Many companies such as AirTran Airways are

offering a business class in their B717 jet. 0.04 1 0.04 3 0.12

8. Competing airlines offer satellite radio in their

passenger jets, newer and more

technologically advanced jets with luxury

items and some of competitors offer in-flight

meals adding luxury

0.04 1 0.04 2 0.08

9. Alternative forms of transportation, such as a

high-speed railway, could weaken demand

for air travel. Also, if the economy weakens,

people may choose to drive rather than fly

0.04 1 0.04 1 0.04

10. Southwest would be hurt if the public

perception were that low price equates to low

quality. An incident like the ValuJet crash

could reinforce this perception.

0.04 - - - -

Sub total of weight and TAS 1.00 1.42 1.40

Strengths

1. Southwest has successfully adopted a cost

leadership strategy 0.07 - - - -

2. Southwest has a reputation for great 0.07 2 0.14 1 0.07



customer service

3. Employee loyalty 0.07 - - - -

4. Thirty-seven consecutive years of profitability

– 1972 till 2009 (31 consecutive years of

profitability by 2003)

0.04 - - - -

5. Eighty-five percent hedge position on fuel. 0.07 - - - -

6. RPM’s for 42.2 billion 0.04 2 0.08 2 0.08

7. Excellent public image. 0.07 2 0.14 1 0.07

8. Strong management team. 0.07 1 0.07 1 0.07

9. Thirteen billion in market value. 0.04 4 0.16 2 0.08

10. In 2009 Southwest has three hundred and

eighty-eight new jets (30 new jets in 2003) 0.04 2 0.08 3 0.12

11. Average age of jets is least than 10 years ~ 8.4

years 0.04 2 0.08 3 0.12

12. Fourth largest domestic airline. 0.03 2 0.06 1 0.03

13. Growth rate higher than industry. 0.07 2 0.14 1 0.07

14. 54 % of revenues from online booking via SW

Website (25% in 2003, 50% in 2004). 0.02 - - - -

15. Seventy-five percent of flights are E-tickets. 0.03 - - - -

Weaknesses

1. The company's mission statement is weak 0.02 2 0.04 2 0.04

2. Depend on single producer 0.01 1 0.01 2 0.02

3. SW has highest percentage of full-time

employees leading to increased overhead. 0.03 2 0.06 1 0.03

4. Southwest only flies one plane, the Boeing

737. 0.01 1 0.01 4 0.04

5. They will not fly outside the continental

United States, 63 cities and 32 states. 0.04 3 0.12 1 0.04

6. Difficult to convince customers SW offers

benefits other airlines do not. 0.01 2 0.02 1 0.01

7. Flying only 737s could lead to negative press

if problems with that plane arise. 0.01 1 0.01 2 0.02

8. Does not accommodate for severely 0.01 - - - -



handicapped.

9. Large cities (Atlanta, Charlotte, etc) are

without SW service. 0.05 4 0.20 1 0.05

10. No business section on plane, do not provide

a first class for passengers, do not provide

assigned seating.

0.01 - - - -

11. Southwest does not offer any type of in-

flight meals. 0.01 - - - -

12. Southwest offers in domestic only, no

international flights. 0.02 4 0.08 1 0.02

Sub total of weight and TAS 1.00 1.5 0.98

SUM TOTAL ATTRACTIVENESS SCORE 2.92 > 2.38

Note: . AS = Attractiveness Score, TAS = Total Attractiveness Score

. Attractiveness Score: 1 = not attractive; 2 = somewhat attractive; 3 = reasonable attractive;

4 = highly attractive.

Doing calculation in the QPSM, we conclusion that market penetration strategy: Expand

into more cities that are currently without a SW airline flight (such as Atlanta, New York) is a

better option. This is given by the Sum Total Attractiveness Score figure. The market penetration

strategy yields higher score than the product development strategy: Add 12 B17s to Fleet. The

market penetration strategy has a score of 2.92 in the QSPM shown above whereas the Add 12

B17s to Fleet strategy has a smaller score of 2.38.

16. CONDUCTION AND PRESENTATION THE EBIT/EPS ANAYLYSIS

(Assume $500 million needed; in millions)

Amount needed $500 millions

Interest 5%

Tax rate 38%

Share price $7.2

Shares outstanding 770 millions



EPS

EPS/EBIT Analysis for the Southewest Airlines (in millions except)

Common Stock

Financing Debt Financing

Combination Financing

(70% Stock – 30% Debt)

Recession Normal Boom Recession Normal Boom Recession Normal Boom

EBIT 300 500 800 300 500 800 300 500 800

Interest 0 0 0 50 50 50 15 15 15

EBT 300 500 800 250 450 750 285 485 785

Taxes 114 190 304 95 171 285 108.3 184.3 298.3

EAT 186 310 496 155 279 465 176.7 300.7 486.7

#Share 839.51 839.5 839.5 770 770 770 818.65 818.65 818.65

EPS 0.22 0.37 0.59 0.20 0.36 0.60 0.22 0.37 0.59

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0 200 400 600 800 1000

Series1

Series2

Series3

Note: Series1 is Common Stock line

Series2 is Debt line

Series3 is Combination (70% Common Stock, 30% Debt)

1 839.5 = 770 + (500/7.2)

EBIT



17. RECOMMENDATION TO SOUTHWEST AIRLINES

Based on QSPM, the best looking strategy would be the market penetration expanding

geographically market to mare cities that are currently with out Southwest Airline flight such as

Atlanta and New York. It is recommended Southwest penetrates its flights to more cities both in

domestic and internationally.

Last modified: July 28, 2010

Submitted Date: July 31, 2010

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I - ជួប ឋិតឋេរប្ញទ្ធិ · PDF file28.07.2010 · Strategic Management CHUOP Theot Therith: Southwest Airlines (2010) 1 1. CASE ABSTRACT Southwest is