Write a 4–6-paragraph analysis of SOUTHWEST AIRLINES internal environments, as w

Question

Write a 4–6-paragraph analysis of SOUTHWEST AIRLINES internal environments, as well as the interrelationships among its internal businesses.

Internal Environment: analyze SOUTHWEST AIRLINES internal environment for the conditions and factors that influence its activities and choices, including its business strategies. The internal environment includes:

Human resources—staff, volunteers, board members, target population.

Physical resources—location, building, equipment, funding for resources (grants, funding agencies, other sources of income).

Activities and processes—programs run, systems employed.

Past experiences—building blocks for learning and success, reputation in the community.

Explanation / Answer

Internal Environment Analysis: Southwest Airlines

Southwest’s Income Statement

            This portion highlights Southwest Airlines’ profitability based on the firm’s income statements and balance sheets. The income statements are from years 2008-2010 (Southwest, Income Statement, 2011). The airlines saw a slight drop in total revenue and gross profit from 2008 to 2009 due to the U.S. recession. Then in 2010, Southwest rebounded exponentially with an increase of $1,754 mill. in total revenue and $677 mill. in gross profit. This increase in overall profit can be attributed to the way Southwest manages its strengths and improves on its weaknesses. One strength that Southwest used is the firm’s superior customer service.

            The value of customer service is an important part of Southwest’s mission and vision. According to the airline’s customer service manual, ““The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” (Ruppel, 2009). Southwest used its value of high quality customer service to regain competitive footing in the airline industry after the recession. By putting the focus back on customers, Southwest was able to lure new customers and maintain current customers by building customer loyalty. Also, with the increase in profits from 2009, the airline was able to expand on the competitive low-cost airfare that the company already offers.

Southwest’s Internal Environment

            This sections outlines the strengths and weaknesses that exist in Southwest Airlines’ Internal Environment. Southwest faced many of the same obstacles that outer companies in the airline industry are dealing with. The internal strengths and weaknesses of the airline are what have made the difference in dealing with these issues. Based on increased profit information from the firm’s balance sheet and income statements, it is evident that Southwest has employed a strategy founded on exploiting internal strengths and reducing internal weaknesses. This was important to accomplish because according to David’s article, “ a strategic-management audit of a firm’s internal operations is vital to organizational health” (David, 2009, pg. 136). The Internal Factor Evaluation (IFE) is one of the best methods used to perform strength-weakness evaluations.

Southwest’s IFE Strength Results

            The following section highlights Southwest’s strengths found on the IFE and how the firm has capitalized on those strengths. The top strengths for Southwest are the firm’s superior customer service, firm operating strategy, and ability to offer the lowest cost fares. Emphasis n theses strengths are what aided Southwest in a fast and sound rebound form the 2009 recession. The operating strategy allowed the airline to weather the recession with minimal loss. Southwest does not invest an exuberant amount of the firms revenue in “extras” that other airlines offer. When the recession occurred, many airlines had to cut services or offer them for a fee. Because Southwest does not operate by offering customers free extras, such as blankets, baggage check, and snacks, the company did not have to change much I the way of service to reduce operating cost. This allowed Southwest to maintain the low-cost airfare that benefited customers also struggling financially in the economic recession.

            Southwest’s customer service is another strong point the firm focused on to maintain a competitive edge. Southwest has had unparalleled customer service in the low-cost airfare market for years. During the recession when many airlines were cutting back and offering customers less, Southwest strived to maintain a customer focused service model where the customers still received excellent service and benefits form the airline. The firm was successful at maintaining its customer base and increasing loyalty at a time when most airline prices were low due to the economy. Although the airline offered similar airfare as other low-cost airlines, Southwest offered customers a higher level of service and appreciation.

Southwest’s IFE Weakness Results

            This portion outlines the airline’s weaknesses and how Southwest minimized them so the firm could remain competitive. The top two weaknesses facing Southwest are the firm’s heavy reliance on passenger revenue and low employee productivity.

            According to Datamonitor’s 2009 SWOT analysis, “The company is highly dependent on passenger revenues. The company derived 1.3% and 3.2% of its revenues from freight and other operations and 95.5% from passenger transport during FY2008” (Datamonitor, 2009, pg.6).   This reliance on passenger-generated revenue was the main cause of Southwest’s profit decline in 2009 during the recession when people were spending significantly less on travel.

            Southwest also faces the issue of low employee productivity. The corporate culture at Southwest is based on fun, loyalty, and employee appreciation. This often leads to less time focused on business operations and more time spent cultivating the corporate environment. Celebrations for birthdays, graduations, marriages, and holidays often take place during company time to show appreciation and foster bonding among the employees. This loss of company time to non-business related activities decreases profits.

Southwest’s Total IFE Score

            The remaining section explains the results of Southwest’s IFE analysis and what they mean for the airline’s financial future. Southwest’s total weighted IFE score is 2.16. The score is slightly below average, yet still comparable with scores of other airlines in the industry. The drop in the total weighted IFE score can be attributed to how greatly Southwest’s weaknesses have affected the firm during the recession. The heavy reliance on customer revenue during a time when customers were spending less had a significant effect on the firm profits. Although the airline rebounded by building on its strengths, to remain competitive Southwest should look at expanding services in to other areas of the airline industry. Instead of having 95.5% revenue from customer transport, Southwest should expand on the growing airfreight business to garner a more balanced profit generating strategy. In general, Southwest has done a commendable job in recovering from the recession and balancing its internal strengths and weaknesses.

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