Respond to the following: Describe three strategies for expanding capacity. What

Question

Respond to the following: Describe three strategies for expanding capacity. What are the advantages and disadvantages of incremental versus one-step expansion? Review the case study Southwest Airlines 2011 (2011). Describe Southwest Airlines' strategy and process, and then respond to the following questions in view of your knowledge about expanding capacity: Is the United States airline industry attractive? Why is Southwest successful? How easy would it be to imitate this strategy? Is the strategy sustainable? Should Southwest become an international airline?

Explanation / Answer

Southwest was set up for success from the beginning because of its unique upside-down organizational structure. Upper management is at the bottom and supports the front line employees, who are the real experts. Kelleher’s unorthodox leadership style, in which everyone in the company makes management decisions, is largely unheard of these days. The company doesn’t place much emphasis on structure; rather employees are encouraged to think freely without constraints such as titles. This, in addition to a profit-sharing program (first in the airline industry), higher salaries than any other airline, and a fun atmosphere, creates a very strong and loyal workforce.

Southwest also leads the industry in customer service. They were the first airline to win the coveted Triple Crown - Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints. They have won this award several times since (www.southwest.com). The airline has an average turn-around time of 15 minutes versus the industry average of 45 minutes.

The biggest strength of Southwest is its low fares. No other Airline can even come close to beating their low-cost ticket price. Customers are highly attracted to the low cost (average one-way ticket price $89) fares. The airline is able to keep its costs low because it offers no frills. All seats are coach class, there are no in-flight meals, and it only flies one type of airplane, the Boeing 737. This low-cost model is what helped Southwest endure the attacks on September 11, 2001, keeping it in much better shape than its closest competitors.

Southwest's airline operations have varied dramatically from other airlines and helped contribute to the company's success. Brelis (2000) reports that Southwest's primary aim has never been to capture market share like the other major airlines, but instead the continued pursuit of maintaining low operating costs which in turn provides passengers with cheaper ticket prices. Southwest's history of profitability and general success has recently been termed as the "Southwest effect," based on the airline's ability to enter markets with rates that maintain profitability yet centered around cost conscious operations and high aircraft use. The underlying notion of the Southwest effect is that markets will vastly change when a low fare carrier enters them, resulting in historically large surges of market activity.

By capitalizing on its achievements and maintaining its pricing strategy, the airline should continue to succeed and profit. I would suggest that it takes advantage of its profitability by improving its route system (add more cities, create a hub), enhance its accessibility, further cut prices to eliminate the weakest competitors from the market (opening up a larger share for itself), and perhaps upgrading its planes (more planes, other classes of seating). Following these suggestions would help the company compete on more than just price. Fortunately Southwest Executives are adopting a CRM model of leadership (even more than before) in an attempt to get to know their customers more personally so they can better serve them than ever before. The result of this effort remains to be seen but I feel that Southwest is definitely on the right track. They have a long history of high achievement, excellence in customer service, high morale among its employees, and an effective, albeit unorthodox, leadership structure. This is an enviable position to be in, especially considering the airline industry as a whole.

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