Southwest Airlines 2007

Southwest Airlines: A History of Success

Southwest Airlines is an American airline that originally flew out of Texas in 1967. Southwest Airlines has had significant development over the years in part because of the business tactics they have used to guarantee that their clients are satisfied with the service they receive. A low-cost fare is one of these techniques, and it’s the basic idea behind why so many new customers have been drawn in. The airline takes pleasure in offering affordable fares and top-notch customer support. Since its founding, the business has expanded to become the nation’s largest airline (Muduli & Kaura, 2011). The airline also has plans to expand its operations outside the US to include new routes to Canada, Mexico, and the Caribbean. Despite its success, the future of Southwest airline is dependent on more than just cheap fare, there is need to consider more opportunities for continual survival.

Strengths and Opportunities

A SWOT analysis of the airline reveals that the airline has numerous strength and opportunities. One of the basic strength of the company is the brand name. The airline has created a brand that customers associate with low cost, therefore, has a good customer reputation and well known of its 35 years existence. Customers also associate the brand with the love, as the company’s theme is love. This is an advantage to the airline as it has the ability to attract new customers and maintain existing ones. The culture of the airline is another strength. The airline has a culture of putting its employee’s needs first; these factors make employees provide better service to their customers (Muduli & Kaura, 2011). The airline encouraging teamwork is strength. The employees develop a sense of belonging and this is essential in maintaining a good working environment. In spite of the airline emphasis on the freedom of employees, too much freedom may resort to a weakness. The airline insists on the employees being in charge of their airplane and running it as they see best. This factor can attribute the lack of professionalism in the airline. Pilots handling customer luggage though is a good portrayal of teamwork is questionable behavior in relation to professionalism. The opportunity of the airline relates to its plans for expansion. The airline is planning to expand its business overseas. This is an opportunity for the airline to increase its market share and generate profits. As for threats, the only threat that the company faces is its competitors and possibly obstacles of venturing into new markets.

Working Capital Management and Current Ratio

Although Southwest airline has registered a decrease in its current ratio from 0.94 in 2005 to 0.90 in 2006, this does not mean that the airline has a serious problem of managing working capital (Box, 2009). A current ratio or working capital refers to the ability of a business to finance its current liabilities using the available current assets (Gallo, 2017). If a firm has a higher working capital, this means it is better off as the firm has the ability to meet its immediate obligations as paying debts. A ratio less than one means liabilities of the firm are greater than its assets. A less than one current ratio does not mean that Southwest airline has a serious problem of capital management. Various factors can make the current ratio be less than one. One of the most common reason is when a firm expects returns from an investment that is yet to pay off. This may cause the current liabilities to exceed the current assets as the firm waits for the revenue from investments to meet its obligations (Gallo, 2017). In addition, the substantial change in Southwest airline current ratio is small a 0.04 change. This change is not significant to cause alarm since the airline is still making profits.

Revised Boarding Policy

Boarding policy is an important component in the airline business. Southwest airline has maintained a boarding policy for a number of years and the company is considering a policy change due to customer complaints. The airline divides its passengers into groups of thirty. The first group of thirty passengers aboard the plane first and have the luxury of picking a seat that suits them. This system works based on plastic cards numbered 1 to 30, where first arriving passengers pick a card that associates to a seat (Box, 2009). The airline is developing a new boarding policy where individuals willing to pay more per ticket will board first. The revised 2007 procedure will generate expected revenue and resolve complaints. Southwest airlines favored the old boarding policy as the policy provided an incentive for passengers to arrive early. The policy was also advantageous in that it eliminated the hustles of assigning seat numbers to passengers (Muduli & Kaura, 2011). The overall advantage was that the policy saved time hence more flights thus more revenue. The 2007 policy aims to achieve more that the old policy. In the policy, people who pay more will board the plane first. The advantage of this policy is that it will address complaints of customers. In addition, the new policy will cater for the passengers who are not able to arrive at the airport early and have seat preference. The airline will also benefit from the additional revenue generated as tickets prices will increase.

Expanding Routes: Benefits and Challenges

Growth is an important part of any business. Growth ensures the survival of the business and more profit generation. In addition, growth ensures exploitation of new markets and new potentials. Despite its importance, growth has numerous challenges that can cause a business to collapse. Southwest airline is considering growth by expanding its routes to Canada, Mexico, and Caribbean (Box, 2009). Southwest airline adding routes to Canada, Mexico and Caribbean makes sense and it is a plus. One of the advantages of Southwest airline expanding its routes to Canada, Mexico and Caribbean is the possibility of gaining new customers. In addition, the airline will be able to facilitate travels to those regions to its current customers. This new development will lead to the generation of revenue hence more profits. The revenue of the airline is also likely to increase as it expands. Its expansion will increase the airline footprint on overseas market hence increase in market share. Finally, expansion can act as an investment plan for the airline that will pay off in future. One of the biggest disadvantages of expanding is the cost associated with the process. Southwest airline has to buy a new plane to serve the new routes and hire additional employees. This process will involve massive capital investment meaning the company will have to use the profit it generates for the new venture. Additionally, these are new markets; therefore, there is the possibility of more risks as bad government policies or unstable political climate.

The Profitable Success of Southwest Airlines

Southwest airline is a profitable business entity. Since its establishment, three decades ago, the company has continually made profits. The airline has recorded a profit of over 9 billion dollars (Box, 2009). This is a significant amount of revenue generation considering that other airline record close to half of these earnings. One of the main reasons as to why Southwest airline continues to make a profit is the airline market share. The airline holds significant market share in the US compared to other airlines. This means that it has more customers hence more revenue. The other reason is that the airline has over 35 years’ experience in providing customer service. This record of accomplishment has given the company the experience in dealing with customers and improving its service. Lastly, the airline’s corporate culture that stresses employee motivation has been a major contributor in service delivery.

Conclusion

Survival is an integral part of any business. There is a need for businesses to adapt to changing environments in order to stay relevant. This means perfecting existing policies and exploring new ones if possible. Southwest airline is currently performing well, and there is a strong likelihood that the airline maintains this performance. The airline has an advantage of its numerous strengths, as it is well known, emphasizes teamwork, and provides low-cost fares to customers. The airline has opportunities as it plans to expand its business (Box, 2009). There is always a risk associated with growth. This does not mean that businesses should stagnate. As new markets are risky, they also have great potential associated with them. Southwest airline should exploit these potentials. The benefit of expanding will include an increase in the number of customers, higher market share, and increased investments. In addition, the airline is improving its services by considering the needs of the customers and changing its boarding policy.

References

Box, T. (2009). Southwest Airline 2007. Journal Of The International Academy For Case Studies, 15(2), 7-9.

Gallo, A. (2017). A Refresher on Current Ratio. Harvard Business Review. Retrieved 21 February 2017, from https://hbr.org/2015/09/a-refresher-on-current-ratio

Muduli, A. & Kaura, V. (2011). South Airlines Success: A Case Study Analysis. BVIMR Management Edge, 4(2), 115-118.