Southwest Airlines: The External Environment Of The Airline Industry

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Southwest Airlines

External Environment
The external environment causes sustaining fierce business competition among different companies. The external environment of the Airline Industry can be subdivided into customer segments, competitor groups, route structures, and passenger service segments. Each plays an important part in the strategy of most airlines.
As for customer segments, the two major categories of passengers are leisure travelers and business travelers. Leisure travelers tend to be quite price-sensitive and business travelers are more concerned with convenience.
As for competitor groups, based on geographical coverage, the three major competitor groups are national airlines, regionals and the commuter or feeder carriers. The third one can be further categorized into traditional carriers, with business and coach classes, and low-fare/low-frills, single-class carriers.
As for route structures, the two extremes structures are point-to-point and hub-and-spoke. The former is characterized by direct service between two points. The latter is characterized by complex and coordinated route and by schedule structures that channel passengers form numerous, far-flung airports (the spoke) through a central airport (the hub), which has many costly infrastructure requirements. Economies of scope are often achieved at the expense of economies of scale, and vice versa. Also, either strategy hub-and-spoke or point-to-point has its own inherent costs and organizational implications.
As for passenger service, it can also be characterized in terms of breadth service. The airline may choose to provide a broad gamut of services or it can offer only Spartan services. The number of services classes offered can also divide it.
Outlook
Generally the outlook is currently positive compared to the few years caused by the 911 event. Most carriers have brought costs under control and the number of passengers has returned to prerecession levels. While it still has something need to be considered. First, a number of external factors could raise costs industry wide. Further increases in gas prices, labor unions wanting back the concessions they gave during the lean times, rising interest rates, or additional changes in government regulations could substantially increase costs. Second, economic environment, unsuccessful technology and increasing perceived safety issues also leads to fewer customer demand.
SWA Strategy
Southwest operates as the lowest-cost major airline in the industry; their goal is “providing safe, low-price transportation in conjunction with maximum customer convenience”. Its business-level strategy is to be the cheapest and most efficient operator in specific domestic regional markets while continuing to provide its customers with a high level of convenience and service leveraged from its highly motivated employees. Southwest operates as the lowest-cost major airline in the industry; their goal is “providing safe, low-price transportation in conjunction with maximum customer convenience”. To achieve these goals, they have four basic strategies: cost leadership strategy, high quality customer service strategy, constant growth strategy and social responsibility strategy. The cost leadership strategy helps Southwest Airline to be the lowest-cost major airline in the domestic airline industry. Southwest Airline dedicate in fleet composition, route structure, turnaround time, gates, fare structure and labor. SWA chooses fuel-efficient Boeing 737 as its only planes, so that they can receive low price, close relationship with the only supplier Boeing and to make the promise of “any pilot can fly any plane, and any plane can be deployed on any route”. Also, SWA focuses on short-haul flights. Short-haul flights help it reduce frill but costly services. Its special route structure also helps it get the fastest aircraft turnaround time. SWA chose less crowed secondary airport as its landing gates. This method solved
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