swot analysis southwest airlines case study

3. Southwest Airlines SWOT Analysis

Southwest Airlines strategies encompass a comprehensive approach to leverage its core strengths, address the weaknesses, capture available opportunities, and mitigate threats, securing competitive positioning in the global airline sector.

3.1. Southwest airlines strengths

3.1.1. high market share.

Southwest airlines holds second largest market share in U.S airline industry, as shown in following graph:

Source: Zippia.com

3.1.2. High customer satisfaction

Southwest airlines is known for satisfying its customers through superior customer service. Following graph shows how company has maintained high customer satisfaction over time:

Source: Statista

3.1.3. Economical prices

Southwest airlines offers super cheap fares. Customers can get cross-country tickets for as low as $49.

Source: Southwest price comparison

Above chart shows Southwest Airlines charges lower than Hawaiian airlines on all selected routes. However, Southwest’s prices on some routes are higher than Alaska airlines.

3.1.4. Strong financial performance

Southwest Airlines is experiencing strong revenue growth. Although, pandemic hit its revenue hard (2020) alike other airlines, but within two years, South-west has exceeded the pre-pandemic growth pace, as depicted in following graph:

Source: Macrotrends.net

3.1.5. Excellent customer service

For second year in a row, Southwest airlines ranked #1 in customer satisfaction for basic economy and economy.

Based on customer satisfaction index of 827, Southwest airlines is declared North America’s best airline in 2023- CNBC .

3.1.6. Free baggage policy

Southwest airlines offers generous free baggage policy. It accepts first two checked bags for free (provided they do not exceed 62 inches, and 50 lbs).

3.1.7. Best employer 2022

In 2022, Southwest airlines was ranked among the best employers for women in Forbes’ list. It ranked #3 in airline industry, and #23 overall.

3.1.8. Extensive route network

Southwest airlines has an extensive route network with 121 destinations across 11 countries. It is considered among the largest airlines of USA based on its route network.

3.1.9. High customer loyalty

Southwest airlines earns a net promoter score of 62 , which is above than the airline industry average of 43 (net promoter score is a measure of customer loyalty).

3.1.10.Innovation performance

In 2023, Fortune ranked Southwest airlines as one of the USA’s most innovative companies- PR Newswire .

3.1.11. Largest fleet

Southwest airlines has the largest fleet of Boeing in the world. The fleet standardization reduces the training and maintenance costs, and drives operational efficiency.

3.2. Southwest airlines weaknesses

3.2.1. loosing operational premium.

Southwest is losing its operational advantages. It may lose its valuation premium to larger peers, deteriorating the stock price even further.

Source: Seeking Alpha

3.2.2. Holiday season meltdown

Southwest airline flight cancellation rate has tripled in last decade. Southwest airlines is struggling to win back the customers’ trust after holiday season meltdown in December 2022, when 16,700 Southwest flights were cancelled, leaving 2 million stranded. The situation got exacerbated when company did not handle its apology well.

Following chart compares the flight cancellations by all major airlines, with Southwest airlines having highest cancellations:

Source: CNN

3.2.3. Poor on-time performance

Southwest airlines has lowest on-time percentage in nearly a decade, as depicted in following graph:

Source: CNN Business

3.2.4. Tech problems

As per The New-York Times , Southwest airlines’ network failure has raised concerns over system’s strength. After the holiday season meltdown (costing $1 billion), Southwest airlines faced hour long outage, raising concerns over resiliency of IT infrastructure.

3.2.5. Employee union problems

Southwest airlines is facing protests from flight attendants and pilots, and company is struggling to reach a contract agreement with both union groups.

In 2022, Southwest airline pilots lost 35,000 off days , as they were forced to work on their off days.

3.2.6. Limited service options

Southwest airlines offers no inflight entertainment, and offers no premium class, which limits its target market to only budget conscious customers.

3.2.7. Over-reliance on US market

Southwest airlines excessively relies on the domestic market, and has limited presence at international stage. According to Statista , Southwest Airlines’ competitors are more profitable as they have more international destinations.

3.3. Southwest airlines opportunities

3.3.1. growing demand for budget airlines.

Due to prevailing economic uncertainty, demand for low-cost airlines is constantly growing:

Source: Research and Markets

The 8.9% CAGR growth rate paint a positive picture for Singapore airlines.

3.3.2. In-flight entertainment

The in-flight entertainment market will grow from $2.6 billion (2022) to $6.13 billion (2032):

Source: Market Research Future

Southwest airlines may consider offering premium class with in-flight entertainment services to capture this opportunity.

3.3.3. Sustainable aviation

Due to consumers’ growing environmental consciousness, there is constant growth in the sustainable aviation fuel market size:

Source: Precedence Research

Southwest airlines may invest more on the sustainable technologies to position itself as an environment friendly airline.

3.3.4. Expansion of cargo division

The rapid expansion of the global e-commerce industry offers growth prospects for the global air cargo market, as depicted in following graph:

Source: Yahoo Finance

Southwest airlines may expand its cargo division to capture this lucrative opportunity.

3.3.5. Health and wellness initiatives

As customers have become more conscious of their health, wellness and hygiene, Southwest airlines may introduce healthier in-flight meal options and fitness facilities to set differentiation basis.

3.3.6. Revenue diversification

Southwest airlines may diversify the revenue by exploring non-traditional options, like- engaging in travel related partnerships, and offering in-flight advertising etc.

3.3.7. Mobile marketing

Many global airlines have started investing on the mobile marketing to connect with customers through smartphones.

Following graph shows the rising number of active airline mobile app users:

Source: Sensor Tower

Southwest airlines may increase investment on the mobile app marketing to drive the customer engagement.

3.3.8. Personalized experience

Airline consumers’ preferences for a personalized experience have grown with time. Southwest airlines may invest more on the data analytics and other technologies to better understand the consumers’ expectations, and tailor their marketing strategies accordingly.

3.4. Southwest airlines Threats

3.4.1. rising fuel prices.

Rising fuel prices have become a serious cause of concern for airlines. Following graph shows the fuel costs as a percentage of expenditure from 2011 to 2021:

Southwest airlines may consider optimizing routes and investing more on the fuel efficient aircrafts to reduce the influence of rising fuel prices.

3.4.2. Intensifying competition

The competition in the global airline industry is getting intense, shrinking the profit margins of existing players, as they fight for the bigger share in a saturated marketplace. Southwest Airlines competitors mainly include- major carriers like American, Delta, and United Airlines, as well as other low-cost airlines like JetBlue Airways and Spirit Airlines.

3.4.3. Boeing 737 issues

Southwest airlines has the largest fleet of Boeing 737. However, company’s operations have badly affected with grounding of Boeing 737 max. As per Reuters , the manufacturing problems in the Boeing 737 max has become a headache for Southwest airlines.

Click here to know more about Boeing 737 safety issues

3.4.4. Growing video conferencing

Video conferencing trend has hit 21 times higher than pre-pandemic level, as depicted in following graph:

Source: AV Magazine

Growing video conferencing trend is directly threatening the airline industry by reducing the need for business travel. Southwest airlines must timely respond to this threat by diversifying its services, and offering more integrated travel solutions.

4. Recommendations

• Southwest airlines may invest on eco-friendly technologies and sustainable aviation to position itself as an eco-conscious carrier.
• Explore non-traditional revenue diversification opportunities (like in-flight advertising etc.) to reduce the dependence on only ticket sales.
• Expand the cargo division to leverage the expansion of global e-commerce industry.
• Introduce inflight meals and offer wellness amenities in response to growing health and wellness trends.
• Offer premium, and in-flight entertainment opportunities to expand the market reach.
• Invest more on the mobile marketing to drive the customer engagement.
• Use data analytics to better understand customers, and offer personalized experience.
• Optimize the routes and invest on fuel-efficient aircrafts to handle the rising fuel costs.
• Expand the international presence to reduce the dependence on the domestic market.

5. Conclusion

In conclusion, Southwest Airlines has several key strengths that it can leverage to exploit the available opportunities. Its core strengths include a high market share, economical prices, customer satisfaction, and strong financial performance. Its key weaknesses include- tech problems, limited service options, and over-dependence on the U.S market. Southwest airlines needs to address the challenges posed by rising fuel pricing, and intensifying competition to ensure its survival in the global airline market.

Click here to read ‘ Boeing SWOT Analysis 2023’

6. References

Southwest Airlines Co. ’s operating revenue 2022 | Statista . (2023, August 29). Statista.

Statista. (2023, August 31). Net income of Southwest Airlines 2010-2022 .

McMahon, C. (2023, May 12). 20 Southwest Airlines Statistics [2023]: Passengers, revenue, and facts . Zippia.

ACSI : Southwest Airlines U.S. 2023 | Statista . (2023, November 17). Statista.

Price Comparison: Southwest Airlines Hawai ‘i Ticket Prices vs. Competitors | Maui Now . (2019, March 4). |  Price Comparison: Southwest Airlines Hawai‘I Ticket Prices Vs. Competitors.

Fernandez, C. (2023, May 16). The best North American airlines in 2023 for every budget—from first class to economy. CNBC .

Field, J. (2023, March 17). Best Employer in America by Forbes: Southwest Airlines . Aviation Source News.

Company Overview . (n.d.).

Company Overview . (n.d.-b).

Schwartz, H. (2023, August 26). Southwest Airlines : losing its “Operational premium” compared to larger peers. Seeking Alpha .

Southwest Airlines explains its Christmas holiday meltdown to congress . (2023, February 9). ABC7 Los Angeles.

Chokshi, N. (2023, January 26). Southwest lost $220 million because of holiday meltdown. The New York Times

Southwest Airlines passengers by airport 2022 | Statista . (2023, August 31). Statista.

Ltd, R. a. M. (n.d.). Low Cost Airlines Market: Global industry Trends, share, size, growth, opportunity and Forecast 2023-2028 . Research and Markets Ltd 2023.

Market Research Future . (n.d.). In-Flight Entertainment Market By Size, Trends | Share Report 2032 .

Sustainable Aviation Fuel Market Size, Share, Report 2023-2032 . (n.d.).

Yahoo is part of the Yahoo family of brands . (n.d.).

Sensor Tower. (n.d.). Top U.S. airline apps set new record of 9.4 million monthly active users .

Aviation industry – fuel cost 2023 | Statista . (2023, July 17). Statista.

Singh, R., & Insinna, V. (2023, April 17). Boeing’s latest production problem compounds operational headache for US carriers. Reuters .

Redirect notice . (2021, May 8).

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Southwest Airlines SWOT Analysis

Overview of southwest airlines, single type aircraft, constant profits, large capacity, many flights, dominant market share, operational costs affecting net income, lack of commercial alliances, overdependence on boeing 737s, passenger amenities, supply chain, outdated product, limited international operations, increase freight business, grow global tourism, expand globally, offering long distance flights, ultra-low-cost airlines, heavy regulation, competition, negative publicity, question: can i change my flight with southwest airlines, question: what are the cancellation policies at southwest airlines, question: what size should my carry-on be, question: what are travel funds.

The airline industry is tricky, as seen from some of the challenges the major players in this niche face. However, the challenges rock across the industry, but the players still manage to remain afloat and facilitate travel across the globe. In this piece, we will break down a popular domestic carrier in the United States and present a SWOT analysis to see the positive and negative side of it.

Southwest Airlines is one of the leading airline companies in the US. In 2018, it recorded the highest number of enplaned passengers in the US. It operates across all the 40 states and 15 international destinations in 12 countries. In 2018 alone, the airline carried 163.6 million passengers.

Unlike its competitors, who follow a hub and spoke model for their operations, Southwest Airlines follows a point-to-point service mode l. This makes the company stand out not only in customer service but also in its price leadership.

The company was established in 1971 by Rollin King and Herb Kelleher. The current CEO of the airline is Gary Kelly, and its headquarters are in Dallas, Texas. In 2019, the company had employed 60,800 employees and had a net income of $2.3 billion.

The main focus of the company is its operational efficiency which aims to reduce costs. To maintain the operational costs and fuel prices, the company only uses the Boeing 737 aircraft. The airline company has nearly 750 units of this aircraft in its fleet.

Southwest Airlines has been exclusively using Boeing 737s for all its flight operations since its inception. It currently has around 750 Boeing 737s. Using a single type of aircraft for flights is cheap and effective. It makes it easy to train the staff, ground crew, and pilots since their focus is on this model, and they can quickly learn how to operate and maintain them. This unified approach makes them experts on the Boeing 737, which drives efficiency in the long run.

One essential aspect of running a business is generating enough profits to sustain it and drive growth. They are a good foundation for companies that seek to build a considerable capital base for expansion. Southwest Airlines has recorded profits for 47 consecutive years up to 2019. Keeping in mind that airlines are a cutthroat industry, gaining profits for such a long period is recognizable.

In airlines, capacity is measured in terms of Available Seat Miles (ASMs). A successful airline should have a higher ASM. If the ASM is high, it means there are more seats for longer miles. The ASM of Southwest has grown from 120.58 billion in 2011 to 157.25 billion in 2019. The growth has made the company to be one of the few airlines with high capacity.

A large number of loyal customers Southwest Airlines has can be attributed to its low-cost flights . The airline has a low fare calendar. Passengers can book flight tickets for as low as $45 on the calendar for a one-way flight. Southwest has held the title of offering cheap flight costs for a while.

The more an airline flies, the more revenue is generated. Southwest Airlines operates over 4000 flights in a day during the peak season. Such a high number of flights makes Southwest a force to reckon in the airline industry.

Airlines are influenced by intense lobbying, and the dominant ones benefit a lot. By being a dominant player in the market share, an airline can leverage its resources, superiority, and connections to lobby the successful adoption of laws that favor its agenda.

Southwest airlines have a US domestic market share of 16.8%, making it rank third. The first and second are the American and Delta airlines with 17.6% and 17.5%, respectively.

Southwest Airlines has attracted more customers than its rivals by reducing costs. But it has to focus on improving fuel efficiency and other areas where it can reduce costs. In 2020, the operating expenses of the company grew compared to 2019. This airline can improve its profit margin by cutting costs and getting enough resources needed to diversify or improve operations.

Most of Southwest Airlines’ competitors have established commercial relationships. These relationships boost them since they provide more destinations to their patrons than Southwest Airlines. By looking for more commercial alliances, the airline can expand its destination network, which will set it up to further growth.

Southwest airlines have been using Boeing 737s since its inception. In March 2019, the Federal Aviation Administration issued an emergency to ground all Boeing Max aircraft after two fatal accidents. Out of its 750 Boeing planes, Southwest has 31.

This led to fewer operating planes and, in return, lost revenue. This highlights how wrong it is to depend on only one aircraft model.

As we talk of reliance on one craft model, it is also notable that this policy limits passenger amenities to what is available in Boeing 737 alone. Competing airline companies operate aircrafts with better passenger amenities and a larger carrying capacity.

For example, Southwest Airlines does not offer premium seating facilities during flights like business class or first class.

Boeing is the leading company supplying Southwest Airlines with spare parts. With such arrangements, there is always an impending risk of supply chain bottlenecks. It is essential to diversify the supply chain so that any issue affecting Boeing cannot be cascaded to Southwest Airlines. The long delays in restoring the fleet of Boeing Max highlight the problem of Southwest’s total reliance on Boeing.

Southwest Airlines should develop new products for its customers. In recent years, the company densified its aircraft by decreasing the seat pitch. Besides the densification and offering onboard WiFi, the company could be missing out on a chance to leverage its strong brand to come up with new revenue opportunities. This is important to diversify its offering and keep customers happy, which will eventually boost revenues.

Southwest Airlines is a domestic operator in 40 states in the US. It only offers its services to a limited number of international destinations like Caicos, Turks, Cayman Islands, Cuba, Belize, Costa Rica, Dominican Republic, Aruba, and the Bahamas. When compared to Delta Airlines, its competitor, these are just a drop in the ocean.

Delta Airlines is a leading competitor and offers its flight services across 300 destinations in 50 countries. Another close competitor, the American Airlines Group , also serves more than 350 destinations in 50 countries.

Measuring them up against the competition, Southwest Airlines does not come close in matters international and has to expand its destination network across multiple countries to increase the chances of catching up with them.

Opportunities

The advent of e-commerce has fueled globalization. An increase in e-commerce businesses leads to a rise in global freight businesses too. In the next five years, the international freight business is expected to grow at a CAGR of 7%. Southwest Airlines should take advantage of this growth in the industry and increase its freight business.

The global tourism industry should grow at a CAGR of 4% over the next five years. The growth rate is higher in the US and remains at 5%. This high growth trend in the global tourism industry enhances the business of the company. Southwest Airlines can position itself as the desired carrier for tourists and use this to increase the number of people traveling with them.

A while back, Southwest Airlines expanded its local flights to Hawaii. The improved financial situation and globalization should prompt the airline to expand further since air travel increases in emerging economies. South America has an unsaturated market, which is a great stepping stone for the global expansion of Southwest Airlines.

Millennials are taking up job opportunities, and most of them live further from home than preceding generations. This leads to a demand for lengthier flights. To exploit its growing demand, Southwest Airlines can expand from short hauls to long flights.

Ultra-Low-Cost airline routes are gaining popularity day by day. Ultra-Low-Cost Carriers unbundle the fare. They break down the full fare into components. Passengers can choose to eliminate any of the components. Anything beyond the base fare is optional.

Southwest offers low fares and is a low-cost carrier. However, it is not an ultra-low-cost carrier. Exploring opportunities in the ULCC niche will help Southwest breakthrough.

The airline industry has to satisfy many economic and operational regulatory bodies like the DOT and FAA. Also, the company has to comply with many health, operational, and safety regulations. The emergence of online e-commerce means that the company has to address data privacy and informational technology regulations. All these regulations can put this airline at a hard place trying to satisfy them, limiting growth.

There are many players in the US airline industry competing with Southwest Airlines. Some of these companies are Alaska, United, Spirit, American, Delta, and Jet Blue. The players in the airline industry are not the only ones competing with Southwest Airlines. They also face competition from trains, buses, and automobiles.

In an economic turndown, customers forego using flights and opt for less expensive transportation modes.

The US Government revealed that Southwest Airlines had been flying jets without confirming the maintenance records for more than two years. This exposed more than 17 million passengers to safety risks. Such bad publicity can keep customers from traveling with this airline as they opt for the competition.

Answer: Yes. If you are affected by any involuntary change, you can change your flight time by up to 14 days from the original day of travel at no extra cost. Sometimes, Southwest Airlines can change their flights’ schedule, and if your flight is affected, they will email or call you with a new itinerary. If the new trip does not work for you, you can cancel or change it.

You will not be required to pay any fee if you change your flight. But, if there will be a difference in the fare of the new flight, you will have to pay. Likewise, if the new flight costs less, Southwest will refund the difference or hold the difference for future use in the form of a reusable travel fund.

Answer: Southwest has two cancellation policies . You can decide if you want to hold the value of the ticket where it will be converted to a travel fund which you can use to buy a future flight. Alternatively, you can choose to receive a method of payment refund.

Answer: A carry-on bag should be 10 x 16 x 24 inches. If your bag is bigger than these dimensions, you should check it at the ticket counter. If it is larger than the dimensions, you will have to pick it at the baggage claim. Carry-on items are limited to one small bag, a big one, and a personal item. The personal items have to fit in the space under the seat, which is 18.5 x 8.5 x 13.5 inches.

Answer: Travel funds are a credit form of cancelled flights that can be used to buy future flights. The funds are tied to the six-digit confirmation number on the cancelled flight. The travel fund expires on the date the original ticket will expire.

Southwest Airlines is the leading domestic carrier in the US market. For faster growth, the company should invest in international expansion. It will also benefit significantly from forming joint ventures with other successful airlines. Southwest Airlines has major opportunities that will help it gain more profitable growth.

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A unique take on Southwest Airlines Strategy

Anyone who has studied business management either as a degree or as an elective would have definitely studied Michael Porter’s 5 Forces framework. This framework was first published in  Harvard Business Review  in 1979. The model is very much relevant in 21st-century business as well due to its deep 360-degree view of a business.

One of the 5 forces is called “Barriers to Entry” and more often than not either Oil & Gas or Airline industry would serve as an apt example of an industry with very high barriers to entry due to its high Capex and Opex requirements.

But wait, then with so many barriers to entry, why do airlines still bleed red? There are many reasons for this, but one of them is stiff competition with low-cost carriers, the 5th, and the framework’s central force (competition among the players).

Before we move on, the below is an interesting tweet response from Anand Mahindra, on being asked to buy the ailing “ Jet Airways ”.

Remember the quote: “If you want to be a millionaire, start with a Billion dollars and then start (buy) an airline!” https://t.co/dYRdwup3kK — anand mahindra (@anandmahindra) June 29, 2019

The US Airline Industry

Following the 9/11 attacks, the US airline industry has been through rough weather. 20+ airlines have filed for bankruptcy protection under Chapter 7. 60+ airlines have filed for bankruptcy protection under Chapter 11.  This list also includes the top 3 out of 4 airlines namely, American Airlines, United & Delta Air Lines, however they were able to exit the bankruptcy within a few years.

The landscape has been constantly changing with a high volume of mergers and acquisitions, resulting in changing market share statistics.

The graph above covering the period January to December 2020 showcases that the top 4 airlines constitute approx. 65% of the market share.

In this story, we are focusing on Southwest Airlines that was founded on the notions of the low-cost carrier but with its unique strategy has been profitable for the last 45 years in a row. 

The takeoff strategy of Southwest Airlines

Southwest Airlines Co. , typically referred to as Southwest, is one of the United States’ major airlines and the world’s largest low-cost carrier airline. The airline was established on March 15, 1967, by  Herb Kelleher  as Air Southwest Co. and adopted its current name, Southwest Airlines Co., in 1971, when it began operating as an intrastate airline wholly within the state of Texas first flying between Dallas, Houston and San Antonio. 

Most airlines back in the 1960s followed the most popular “Hub and Spoke” model for their operations.

Hub and Spoke model – As the name suggests, there is a defined hub from where the flights originate, and the destinations are the spokes.

The benefit of a hub and spoke model is that it has fewer routes, but the major drawback of this model is its rigidity, and if there is a slight change in the airline routing due to weather, etc., it can have cascading consequences to the other planned flights.

Point to Point model – Southwest, being a low-cost carrier, focused more on the point to point model and bought significant process improvements, in a way mastered it to achieve very high operational efficiency.

In the point-to-point model, each flight is a single journey. The origin and destination are connected via a single non-stop flight. The point-to-point model offers more travel options and flexibility as compared to the hub and spoke model.

For passengers undertaking further journeys, they will have to collect the baggage and recheck them for leg 2 of their journey. This model has considerably led to saved travel hours and done away with the necessity for connecting flights.

Key Differentiating Factors in Southwest Airlines Strategy

Southwest airlines is the third largest airline in the United States of America and arguably the biggest in the low-cost carrier segment across the globe.

So, was the operational efficiency gained due to the change in the flight operations model the only reason why Southwest airlines is the #1 low-cost carrier in the world?

NO, let’s understand what differentiated Southwest airlines strategy from its counterparts.

Customer Eccentricity

For Southwest, they keep the customers at the center of their business operations. They offer certain benefits to flyers which are not offered by other airlines, like

• Southwest allows two checked-in bags, free of cost, unlike many of its competitors.
• Flight change thirty minutes prior to the departure is allowed by Southwest.
• Southwest offers free in-flight entertainment like Live TV, Movies, use of whatsapp and imessage. It offers Wi-Fi services at very nominal rates.

All these have resulted in Southwest being the airline with the least number of complaints, according to the Department of Transportation of the United States of America.

Only one type of aircraft

Many airlines have different types of aircraft in their fleet, but not Southwest. Southwest operates by using only Boeing 737 aircraft. It saves a lot of money by:

• Training cabin crews and support staff on only one type of aircraft.
• Maintenance of inventory of spare parts for one aircraft type.
• In case of breakdown, alternate aircraft can be arranged immediately.
• Its policy of not assigning seats helps tremendously as customers can take any available seat when boarding the aircraft, thereby reducing the boarding time. In the case of alternate aircraft also, this policy hugely benefits the airline reducing the turnaround time.

Right recruitment policies

Southwest stresses a lot on the customer experience and hence it is very imperative for the airline to hire the right kind of people. Southwest focusses on hiring people who have an attitude for serving customers.

Employees undergo various pieces of training which also includes cross-training. Training is heavily centered around team building and collaboration.

The Southwest Airlines case study is a lesson in cultural strategy. An organization built on the fundamentals of customer eccentricity, effective processes, and a dedicated team is meant to achieve success and overcome challenges. This model of exceptional customer service can help a business earn an impeccable reputation in the industry. That’s what makes the Southwest model uniquely priced, yet one profitable in this cruel airline industry.

Southwest’s ability to be different and not follow the herd—not to mention becoming America’s largest airline—can be traced in large part to the Airline Deregulation Act. Thanks to this act, Herb and Rollin realized their Vision and the traveling public benefits on every flight, every day. Gary Kelly, Chairman & CEO, Southwest Airlines

Vinit Joshi is Corporate Planning & Strategy professional with 15+ years of experience across renowned & diversified business groups. When not working or spending time with family, Vinit loves listening to a variety of music

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Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large

At 43 years of age, Southwest Airlines is firmly entrenched in middle age within a mature US market place. During its more than four decades the airline has largely retained its appeal and perpetuated its renegade image, even if that perception is now more legend than reality. As its merger integration with AirTran comes to a close, Southwest continues to exploit its domestic strength by forging a presence in key US markets while laying the groundwork to bolster its international offerings in 2015 with service from a new international terminal at its sixth largest base measured by seats deployed, Houston Hobby . But even as it still engenders positive customer sentiment, Southwest faces numerous challenges. These include preserving its culture and finding new ways to generate revenue. At the same time it is becoming more difficult for Southwest to brandish its low fare image with the rise of ultra low-cost airlines that are fulfilling Southwest 's traditional role - traffic stimulation through rock bottom fares.

• Southwest Airlines has sustained profitability and has a strong balance sheet, making it financially stable.
• The airline has a well-known and recognized brand, which provides differentiation in a competitive market.
• Southwest has a robust domestic network and a strong presence in key US markets.
• The airline faces challenges in generating revenue and maintaining its low fare image in the face of competition from ultra low-cost carriers.
• Opportunities for Southwest include the repeal of the Wright Amendment, allowing for direct flights from its Dallas Love Field base, and the expansion of international operations.
• Threats to Southwest include the rise of ultra low-cost carriers and increasing costs due to labor negotiations, which could erode the airline's unique culture.

Southwest Airlines Strengths

1. financial wherewithal.

During 2Q2014 Southwest recorded its fifth consecutive quarter of record profits. Its consistent profitability and balance sheet strength have resulted in the airline holding the position of the only US airline to achieve investment grade status until Alaska Air Group secured that coveted position earlier in 2014. Southwest managed to remain profitable during the financial downturn of 2008 and 2009, and its CY2013 profits of USD754 million were the highest recorded by the airline since 2008.

Southwest Airlines Co . annual net profit (loss): 2008 to 2013

Source: CAPA - Centre for Aviation and airline reports

Growth of Southwest Airlines Co . annual net profit (loss): 2009 to 2013

At the same time Southwest has sustained a measurably strong balance sheet. Its leverage at the end of 2Q2014 was 37%, and its cash in hand was USD4 billion. During 1H2014 it generated USD1.6 billion of free cash flow, and as of 30-Jun-2014 Southwest had reduced its debt and capital lease obligations by USD1.5 billion.

2. Southwest has an iconic brand

Southwest is one of the most recognised brands in the US , and it consistently works to exploit its heritage through advertising during high profile sporting events and in social media. It has been deemed the top travel brand and fifth overall brand by The Business Journals in the American Brand Excellence Awards.

This provides important differentiation in a commoditised industry. Standing out by not going along with the crowd and forgoing the revenue is arguably a net gain, albeit perhaps not easily accountable.

3. It maintains a robust domestic network

Presently Southwest is benefitting from strong demand within the US market place, reflected in its 8% passenger unit revenue growth in 2Q2014, the largest gain of any US airline. Based on data from CAPA and OAG for the week of 15-Sep-2014 to 21-Sep-2014 Southwest is the second largest airline in the US domestic market measured by seat deployment. Its share is approximately 20% behind Delta 's nearly 22% share.

United States of America capacity by airline (% of seats): 15-Sep-2014 to 21-Sep-2014

Source: CAPA - Centre for Aviation and OAG

Through its acquisition of AirTran and seizing on required slot divestitures by American and US Airways in order for those airlines to move forward with their merger, Southwest has made inroads in the key US markets of Washington National and New York LaGuardia .

As a result Southwest has a relatively strong position in eight of the top 10 US cities by arrivals for the week of 15-Sep-2014 to 21-Sep-2014: Chicago (it holds an 88% seat share at Midway ), Atlanta (second largest with a 7% share, Delta retains an 80% share), New York LaGuardia (fourth largest airline with an 8% share), Denver (second largest airline with a 26% share), Los Angeles (a highly fragmented market where Southwest retains a 13% seat share), Houston (a 91% seat share at Hobby), Las Vegas ( Southwest holds a 43% share) and Washington (a nearly 9% share at Washington National and a 70% share at Baltimore/Washington International) (All information is based on data from CAPA and OAG .)

United States of America top 10 domestic cities by arrivals: 15-Sep-2014 to 21-Sep-2014

Southwest Airlines global top 10 hubs/bases/stations by seats: 15-Sep-2014 to 21-Sep-2014

Southwest Airlines Weaknesses

1. minimal revenue opportunities.

Southwest has rejected the product unbundling that nearly all of its US counterparts have undertaken that airlines tout is designed to allow customers to tailor their experiences. The reality is for most airlines - full service, hybrid, and ultra low-cost - ancillary revenue presents the largest opportunity to grow revenue significantly over the medium and long term. The airline's top-line revenues increased just 3.6% year-on-year during CY2013 after peaking at 29% growth in CY2011.

Growth in Southwest Airlines Co . annual operating revenue: 2009 to 2013

Southwest has attempted to pull some ancillary levers in its own, usually more positive way - selling select boarding positions at the gate, tightening flexibility around its most restrictive fares and increasing some other fee revenue. During 2013 the airline estimated that those changes would result in roughly USD175 million of incremental revenue on an annual basis. See related report: Southwest Airlines plots course to meet previously missed ROIC targets Southwest transported roughly 133 million enplaned passengers in CY2013, and its revenues outside freight and passenger operations fell 2.5% to USD815 million. US hybrid airline JetBlue carried 30 million passengers in CY2013; but recorded ancillary revenue of USD670 million in CY2013, of which USD170 million was derived from its Even More offering (extra legroom, priority boarding and in some cases expedited security clearance). Also a customer favourite, JetBlue has successfully grown its ancillary revenue through creating products customers value rather than making passengers feel nickel and dimed. It is not a stretch to conclude Southwest could create some added value for its legions of fans.

2. Its product is outdated

Southwest has the balance sheet strength to leverage new products that its customers would find appealing, and that in the medium term would generate high margin revenue. An extended legroom offering is now the norm for numerous airlines worldwide (including many ULCCs), and offers an opportunity to drive up ancillary revenue. Southwest has actually densified its aircraft (and decreased seat pitch) during the past couple of years - another trend apparent in the US industry. But other than offering onboard Wi-Fi, its product is arguably stale, and more importantly, it could be missing an opportunity to leverage its strong brand to create new revenue opportunities.

Southwest Airlines Opportunities

1. wright amendment repeal.

During Oct-2014 all restrictions on long-haul flying from Southwest 's Dallas Love Field base will be dissolved, allowing Southwest to offer direct flights to many of its strongest markets without the need for connecting service.

Initially Southwest is operating service to Baltimore , Denver , Las Vegas , Orlando and Chicago Midway . Other new service includes flights to Atlanta , Fort Lauderdale , Los Angeles, Nashville, LaGuardia , San Diego , Orange County, Tampa and Washington National . See related report: Southwest Airlines wins Love - but also new competitive forces with repeal of Wright Amendment Given its favourable positioning in all of those markets the new direct flights from Love Field should spool up quickly and make a positive revenue contribution to the airline's already strong results.

2. New international operations

Southwest introduced its own-branded international service during 2014 after many years talking about expanding to adjacent international markets. The AirTran acquisition and a reservations system upgrade have helped accelerate the process and now Southwest offers service to Aruba , Cancun , Los Cabos, Nassau , Montego Bay and San Juan. The airline marks an important milestone in late 2015 when it launches international flights from Houston Hobby after successfully beating back opposition from United ( Houston Intercontinental's largest airline) over the construction of a new international terminal at Hobby. The addition of international service is important network diversification for Southwest as it has arguably penetrated most of the domestic US (85 domestic destinations as of 21-Sep-2014). Its ability to offer its large passenger base access to near international leisure destinations is a natural progression, and should create some revenue upside once the markets reach maturity.

3. Potential partnerships with foreign international airlines

A recent study by CAPA identified a number of US airports which are currently underserved by foreign airlines. Southwest is frequently the dominant airline at the airport, operating only domestic services.

See related story:

787 and A350 airline operators will open up new Europe-US routes - despite some inertial resistance

There are many examples of independent LCCs and other airlines in such circumstances establishing partnerships and extensive codeshares with foreign carriers which need feed behind their initial gateway. For various reasons, including opposition from some employee groups, Southwest has not entertained such possibilities. There is substantial opportunity for enhanced traffic flows in these relationships.

Southwest Airlines Threats

Contrary to its claims, Southwest is no longer the low fare leader as Spirit Airlines , Frontier Airlines and Allegiant Air overtake the historical Southwest role of using low fares to stimulate air travel. During CY2013 its average fare increased 7%, and nearly 6% in 1H2014. Some of that was due to strong demand within the US market place; but the reality is Southwest needs to maintain certain fare levels to manage its costs. The rise of ULCCs is arguably creating an identity crisis for Southwest . The airline is no longer really low-fare or low-cost, but does not offer any of the amenities of hybrid or full service airlines. Southwest argues that not neatly fitting into a mould is part of its renegade image. Yet staying stuck in a 43-year old mindset stifles innovation, which is something Southwest needs to focus on in order to remain relevant in the long term.

2. Costs are rising and likely to rise further

Southwest is in the midst of numerous labour negotiations that are making it tough to predict its unit cost increases in the medium to long term. For the moment its unit costs are in line with major airlines, rising 2% in 1H2014 as passenger unit revenues grew a healthy 6% during that time. But the airline will inevitably endure some cost pressure as new contracts take effect after tense negotiations. Southwest has previously acknowledged that its labour agreements are built on an operating model it executed 10 to 15 years ago, and the airline has one of the highest pay structures in the industry. For CY2013 salaries, wages and benefits represented 31% of the airline's total top-line expenses. See related report: Southwest Airlines: solid financial performance for FY2013, but challenges are piling up

3. A unique culture is being eroded

The push and pull of the labour negotiations has already created cracks in Southwest 's favourable employee relations and its culture. In early 2014 the union representing ramp workers sued Southwest after the airline requested that employees at Chicago Midway prove they were ill during Jan-2014 after inadequate staffing and a winter storm triggered operational disruptions at the airport. Illustrating the pressure Southwest faces in its employee relations the union representing ramp workers in early 2014 warned: "By refusing to reward employees for their contribution to our airline's success, management is taking a terrible wrong turn from Southwest Airlines ' past emphasis on putting employees first and maintaining positive labor relations."

There appears to be a substantial rift emeging between employees seeing a commonality of purposes with the company and pursuing their own interests.

Outlook: Southwest 's competitiveness remains solid; but cracks are starting to emerge

The strong domestic environment within the US is helping Southwest to sustain an undeniably strong financial position, and the lifting of the Wright Amendment and new international service should help keep its passenger revenues robust. But Southwest needs to define itself for the long term in light of the rise of ULCCs and the product evolution taking place within the industry. Perhaps the most renegade change it needs is for its "family" to undertake a mindset change.

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Southwest Airlines Business Model

The Southwest Airlines business model is based on the low-cost business model. It can offer cheap flight tickets by creating an extremely efficient operation. The economic crisis resulting from the Covid-19 pandemic is putting multiple companies out of business — and that is certainly reflecting on the commercial flight industry as well.

However, against all odds, the Southwest Airlines Business Model is holding this American airline as one of the strongest airlines in the world. Over the last 20 years, Southwest Airlines, unlike many other airlines, has been surfing stability, due to its consolidated business model — and that’s precisely why the company may survive the coronavirus crisis without greater efforts.

Southwest Airlines is, currently, the leading low-cost airline in the United States. It has flights to more than 90 destinations inside the country, including the Caribbean and Central America, and Mexico. According to the site of the company , “Southwest believes in a sustainable future where there will be a balance in our business model between Shareholders, Employees, Customers, and other Stakeholders.”

And add: “To protect our world for future generations and uphold our commitments, we will remain focused on sustaining our unmatched profitability record in the industry, efficiency that conserves natural resources, fostering a creative and innovative workforce, and giving back to the communities in which we work and live”.

Southwest Airlines Competitive Advantages

Southwest Airlines’ business model is based on features that differentiate the company from any other airline. Besides low cost, their strategy includes efficient operations with on-time flights, innovative logistics processes and solutions, positive customer experience, and motivated employees — the company is often listed on Forbes as one of the “Best Employers” .

Let’s take a closer look at Southwest Airlines’ competitive advantages:

Southwest Airlines focuses on offering the lowest prices for the most popular routes, being the only large American airline that can actually compete on price, even matching prices if a customer finds a lower one is another airline. To achieve this unique advantage, the whole Southwest Airlines Business Model has been built around low operating costs. The company owns a few aircraft types, services in small and secondary airports (with lower charges), and a high airplane utilization, with short-haul flights and quick turnarounds.

Rewarded Loyalty

Besides good-pricing tickets, Southwest Airlines provides one of the best rewards programs in the industry, by giving points to customers, that can be used to buy the next flights. It also offers a credit card (in partnership with Chase Bank), that permits the users to accumulate points from purchases other than tickets.

Flexible Policy

Other strategies to guarantee passengers’ engagement are Southwest Airlines’ simple and flexible policies and procedures. For example, the company allows the passenger to cancel a reservation up to 30 minutes before departure — and the customer keeps the funds from cancellation for a future trip.

Human Resources

Southwest Airlines is also known for its friendly, helpful, and motivated employees. In order to make that true, the company invests in practices and policies, and focused on hiring members who really embody the brand’s message and are truly passionate about helping people.

Southwest Airlines is oriented to a flexible business model, which is adaptable and suitable for quick changes. They are always looking for lower-cost and disruptive solutions, which helps them grow even into critical periods.

Proven Strategy

This “proven strategy” is stated on Southwest Airlines’ website, through some outstanding such as:

• Carry the most passengers in the U.S.
• Most daily departures in the world
• Serve more than half of the top 50 U.S. metro areas
• 47 consecutive years of profitability
• Strong balance sheet
• Disciplined capital deployment strategy
• Commitment to return value to shareholders

A brief history of Southwest Airlines

Founded in 1967 by the businessman Herb Kelleher with the name “Air Southwest”, it was first planned to fly among Texas cities, especially San Antonio between San Antonio, Dallas, and Houston. In fact, its first model draw was a triangle, connecting the three cities. Later in 1971, it was rebranded as Southwest Airlines.

Back then, the company could set its plane tickets at much lower prices when compared to potential competitors. This happened because Civil Aeronautics Board (CAB)’s control regulations did not apply to Southwest Airlines, as it operated exclusively in the State of Texas.

Ten years after its foundation, in 1977, the company had ten aircraft in its fleet — all of them Boeing 737s — and started operating in other Texas cities, such as Austin, El Paso, Lubbock, Midland, and more. By 1982, Southwest Airlines had grown its fleet to 37 jets and operated interstate flights, including several cities and states, such as Las Vegas (Nevada), Oklahoma City (Oklahoma), Albuquerque (New Mexico), Phoenix (Arizona), Kansas City (Kansas), and California major cities, such as Los Angeles, San Francisco, and San Diego. By the end of 1983, there were already 46 aircraft in the fleet.

In 1985, it started operating in Chicago (Illinois), Jackson Hole, Wyoming, and St. Louis (Missouri), and by the 90s, with over 220 jets, Southwest Airlines would reach Baltimore (Maryland), the states of Mississippi, Kansas, and Alabama, as well as Florida major cities, such as Tampa, Fort Lauderdale, and Orlando. By the end of 1999, Southwest Airlines had over 310 aircraft in its fleet and expanded through the East Coast cities and states, operating in Connecticut and North Caroline.

In the next decade, after 9/11, naturally, the whole aviation market suffered a brand-new regulatory process, but Southwest Airlines continued to expand. In 2003, it started operating in Philadelphia (Pennsylvania) and had around 388 jets in its fleet — rising to 400 in the following year.

After operations started in Denver (Colorado) in 2006 and New York (New York) in 2009, it was only in 2011 that Southwest Airlines would go abroad. With the permission of the Department of Transportation (DOT), it had about 698 aircraft in its fleet and started operating in Mexico, with flights to Cabo San Lucas, Cancun, and Mexico City, coming from Orange County (California) and San Antonio (Texas). 

As for the Caribbean and Central American countries, Southwest Airlines launched its services in 2014, with flights from Baltimore heading to Aruba. In 2019, it was Hawaii that was added to the company’s airline service.

Who Owns Southwest Airlines

Although some people believe, Southwest Airlines is not owned by American Airlines, it is only an American airline company that happens to be based in Texas State as well. While AA’s headquarters are in Fort Worth, Southwest Airlines is based in Dallas. The company has Bob Jordan as the CEO, Gary Kelly as the Chairman, and Mike Van de Ven as the President and COO.

Southwest Airlines’ Mission Statement

“Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” .

How Southwest Airlines makes money

As already mentioned, Southwest Airlines’ revenue streams are based on domestic and international airline services. Its revenue is divided in:

• Passenger Revenue , from the sale of domestic and international passenger airfares;
• Freight Revenue , from shipping and cargo services;
• Other Revenue , from the sale of and provisions of extra services, such as early check-in and in-flight sales.

It’s important to highlight that this “Other revenue” doesn’t include some fees that are common for their competitors, such as bag fees, simple onboard snacks (like peanuts and crackers), seat classes, and premium seating (the company doesn’t offer this kind of seat assignments).

Southwest Airlines’ Business Model Canvas

Now, let’s analyze the Southwest Airlines Business Model Canvas in a nutshell:

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Southwest Airlines’ Customer Segments

Its customer segments: General customers, both professional and personal, especially aiming to attract low-budget users. The company also serves shipping to corporate clients, mainly importers, and exporters.

Southwest Airlines’ Value Propositions

Low-cost airfares, free-fee baggage (up to two pieces of luggage at no additional cost), a broad network of destinations, qualified customer service, beneficial rewards program, and additional services at small costs.

Southwest Airlines’ Channels

Its own website, its own mobile, and a network of affiliate sites, such as Booking Builder, Sabre, and Apollo. Its own website provides all the information about destinations, fees, and schedules, and contains the booking portal, by which customers can make and manage reservations. Moreover, the company has a network of offices that provide direct sales.

Southwest Airlines’ Customer Relationships

Regarding sales, Southwest Airlines makes them on a self-service primarily basis. Customers can book flights and manage their reservations online, without having to interact with anyone. Its personal service is offered, indeed, in-flight and by its airport staff, by assisting and informing. Besides, there is customer support during and after booking, by phone, e-mail, posts, FAQs, and, additionally, through social media (Twitter, Facebook, Instagram, and YouTube).

Southwest Airlines’ Revenue Streams

They have been analyzed above, but it’s worthy to highlight that 98% of Southwest Airlines’ revenue streams come from domestic flights.

Southwest Airlines’ Key Resources

Fleet, maintenance, physical and IT infrastructure, customer support, sales channels, partnerships network, and human resources.

Southwest Airlines’ Key Activities

Low-cost passenger airline service in the United States and near markets; corporate and group travel services, and cargo and shipping solutions.

Southwest Airlines’ Key Partners

Affiliate partners (a network of websites and travel agencies), rewards partners (businesses that provide products and services as part of the rewards program), and service partners (such as car rental providers and hotels).

Southwest Airlines’ Cost Structure

Fleet’s, physical, and IT infrastructures’ operation and maintenance, fuel, personnel, marketing and sales, and general and administrative expenses.

Southwest Airlines’ Competitors

• American Airlines: The world’s largest airline company, American Airlines was founded in 1926, and it is headquartered in Fort Worth, Texas. It manages more than 200 million passengers annually, as well as an average of 500,00 passengers on a daily basis. It operates in 350 destinations and 49 countries;
• Delta Air Lines: Headquartered in Atlanta, Georgia, it is the oldest airline company still in activity, being founded in 1925. It handles over 5,400 flights on a daily basis, operating in 325 destinations and 52 countries;
• United Airlines: The 3rd biggest airline company worldwide, United Airlines is headquartered in Chicago, Illinois, and operates in 342 destinations and 74 countries;
• JetBlue Airlines: Founded in 2000, JetBlue is based in New York City, and it is a low-cost airline company. It operates mainly throughout the U.S., the Caribbean, northern and central Latin America, as well as Europe;
• Alaska Air Group: Founded in 1985 and headquartered in Washington, the Alaska Air Group works exclusively across the U.S.

Southwest Airlines’ SWOT Analysis

Below, there is a detailed  swot analysis  of Southwest Airlines:

Southwest Airlines’ Strengths

• Low prices: It offers flights overseas — which means, not just across the U.S., but also to the Caribbean and some Latin American countries — for lower pricing than the big companies;
• High frequency of flights: It usually provides plenty of different flight schedules for a range of destinations.

Southwest Airlines’ Weaknesses

• No First-Class or other divisions: As it is a low-cost airline company, there are no First-Class seats as well, which can push away potential wealthier customers;
• Lack of meals: For the same reason, they do not serve meals on board, which can be a key factor in the customer’s choice;
• Canceled flights and/or overbooking issues: Low-cost airline companies often have this kind of issue. Overbooking and flights being canceled at the last minute, unfortunately, are not rare and can push away even loyal clients of the company.

Southwest Airlines’ Opportunities

• Return of high demand: After the pandemic, the return of a high volume of flights and bookings across the U.S.;
• New routes: Since the company already operates overseas, there’s plenty of ground for them to cover, if possible, with new cities and countries nearby.

Southwest Airlines’ Threats

• Low-cost competition: Southwest Airlines is not the only low-cost airline company operating in the U.S. Plus, although it is a fragile segment and small companies are often at high risk of bankruptcy, new competitors might emerge in the near future;
• Large-companies competition: On the other hand, larger companies — yes, the big ones, such as American Airlines, United Airlines, and Delta Air Lines — bring much more quality service to their flights, which is often a threat to Southwest Airlines’ potential clients.

-> Read More About Southwest Airlines’s SWOT Analysis .

Rebecca Goldberg and Elliott Weiss wrote an article for the Washington Post , stating that Southwest Airlines’ business model may be based on the competitive advantage of saying ‘no’, in order to keep its cost structure cheap to maintain its main value proposition working: low-cost air transportation.

They explain: “Southwest has a winning formula that aligns process, people, and purpose. But the real coup in responding to a changing competitive landscape lies in learning to say ‘no’. Operations are all about customer service, which means delivering on a promise that a customer wants to keep. Deciding what promises to keep always means saying ‘no’”.

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Southwest Airlines’ Generic Competitive Strategy, Growth Strategies

Southwest Airlines’ generic competitive strategy (Porter’s model) ensures product/service attractiveness and competitive advantages for successfully implementing intensive strategies for growth (Ansoff Matrix). With a strategic position as one of the main competitors in the commercial aviation industry in the United States, the company is popular for its low fares and high accessibility. These variables relate to Southwest’s intensive growth strategies and generic competitive strategy. In Michael E. Porter’s model, competitive advantage is developed through generic competitive strategies that the airline company can apply. On the other hand, based on Igor Ansoff’s matrix, Southwest Airlines can use various intensive growth strategies. These corporate strategy frameworks are considered in this business analysis of the commercial aviation company and its approach to growing despite strong competitors. Southwest’s success indicates effective implementation of its generic strategy for competitive advantage and intensive growth strategies suited to the business.

Southwest Airlines uses its generic competitive strategy to counteract the competitive power of other firms, such as Delta Air Lines, United Airlines, and American Airlines. These competing commercial aviation companies possess resources and the operating scale to grow despite the competitive landscape. Southwest’s intensive growth strategies facilitate the operational scale needed to maintain the corporation’s generic strategy, thereby also strengthening its competitive advantage and competitive positioning in the industry.

Southwest’s Generic Competitive Strategy (Porter’s Model)

Southwest Airlines’ generic competitive strategy is cost leadership , which creates competitive advantage based on low costs and correspondingly low prices. To address competition, the company’s strategic objective in this generic competitive strategy is to minimize operating costs, optimize profit margins, keep low prices, and offer its airline services to the mass market. The large-scale operations linked to this generic strategy for competitive advantage supports the fulfillment of Southwest Airlines’ mission statement and vision statement , which aim for global leadership in the industry. The commercial aviation corporation’s success depends on effectiveness in implementing the generic competitive strategy of cost leadership.

Cost leadership as a generic competitive strategy is observable in Southwest Airlines’ service offerings as a low-cost carrier. The company’s advertising campaigns frequently emphasize low fares as a selling point, in contrast to other firms that use the focus strategy or the differentiation strategy, such as Delta. In a way, Southwest has a best-cost provider strategy, as the company continues to minimize costs while also maintaining a high level of customer satisfaction through service quality. Based on its generic competitive strategy, the enterprise presents itself as a major commercial aviation contender in terms of price and in terms of warmth and friendliness in its customer service.

Southwest’s Intensive Growth Strategies (Ansoff Matrix)

Market Penetration . With its generic competitive strategy, Southwest Airlines applies market penetration as its primary intensive growth strategy. The company’s strategic objective in this intensive strategy is to grow its revenues by providing more of its current air transportation services to more passengers in markets where it currently operates. Southwest’s generic strategy of cost leadership ensures low costs that translate to across-the-board low prices that are a competitive advantage for keeping a large share of the commercial aviation market, in support of market penetration as an intensive growth strategy. The price sensitivity of customers in the transportation sector is one of the factors that make cost leadership and market penetration effective strategies in this case. The business strengths and competitive advantages identified in the SWOT analysis of Southwest Airlines Co. attract customers and support the success of market penetration. The strong airline brand and attractive prices enable this intensive growth strategy. Also, Southwest Airlines’ marketing mix (4P) determines how the company penetrates the target market.

Product Development . Product development is a minor intensive growth strategy in Southwest’s organizational development. The corporation’s competitive advantage depends mainly on cost leadership as its generic competitive strategy, and market penetration as its intensive strategy for airline business growth. Southwest’s product evolution has already stabilized, which means that the business has been aiming its product development efforts mostly at enhancing its current offerings. Thus, product development, as an intensive growth strategy, minimally contributes to growing the airline company. Changes in current products require corresponding changes in Southwest Airlines’ operations management, which manifests the applied intensive growth strategies and generic competitive strategy for competitive advantage in commercial aviation. The organizational culture (corporate culture) of Southwest Airlines is also a factor integrated into product development, as the company relies on organizational cultural variables to optimize its service quality and customer satisfaction and loyalty.

Market Development . The growth of Southwest Airlines minimally depends on market development. This intensive growth strategy aims to offer current services to new commercial aviation markets. When applying market development, the generic competitive strategy of cost leadership ensures competitive advantage in new civil aviation markets. However, Southwest continues to focus on its limited multinational operations in the United States and a few other countries. Thus, market development is not a significant intensive growth strategy for the airline business.

Diversification . Diversification is an insignificant intensive growth strategy for Southwest Airlines. The objective of this intensive strategy is to grow the company through new operations, such as service businesses related to air travel operations. Southwest focuses on growing within its current markets, with minimal emphasis on using the generic competitive strategy of cost leadership for competitive advantage in diversifying its business. Thus, diversification is an insignificant intensive growth strategy in the airline business. The addition or expansion of business operations requires accompanying changes in Southwest Airlines’ organizational structure (business structure) .

Key Points – Southwest’s Generic Competitive Strategy & Intensive Growth Strategies

Southwest Airlines applies cost leadership as its generic strategy for competitive advantage, along with intensive growth strategies to maximize market share and move toward its long-term goal and strategic plan of becoming a global industry leader. The intensive strategy of market penetration provides support for the airline company’s generic competitive strategy of cost leadership, and vice versa. Southwest’s brand image and service quality reflect these strategies and associated competitive advantages. For example, customers know the company for low airfares, which are a consequence of cost leadership as a generic competitive strategy that leads to cost-based and price-based competitive advantages. Also, Southwest is known for its large-scale operations, which are a result of market penetration as an intensive growth strategy.

• Kerkemezos, Y., Pennings, E., Karreman, B., & van Reeven, P. (2023). Price asymmetries and the path dependence of market power: Evidence from the US airline industry. International Journal of Industrial Organization, 87 , 102921.
• Obu, O. C., & Ukpere, W. I. (2023). The effects of transactional barriers on the effectiveness of a firm’s competitive strategy. Journal of Economic Development, Environment & People, 12 (3).
• Southwest Airlines Co. – Form 10-K .
• Southwest Airlines Co. – Proven Business Strategy .
• U.S. Department of Commerce – International Trade Administration – Travel, Tourism & Hospitality Industry .
• Copyright by Panmore Institute - All rights reserved.
• This article may not be reproduced, distributed, or mirrored without written permission from Panmore Institute and its author/s.
• Educators, Researchers, and Students: You are permitted to quote or paraphrase parts of this article (not the entire article) for educational or research purposes, as long as the article is properly cited and referenced together with its URL/link.

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Southwest Airlines SWOT Analysis

Here is a detailed SWOT analysis of Southwest Airlines covering strengths, weaknesses, opportunities and threats .

Southwest Airlines Strengths

• Southwest is one of the largest airline brands in the world
• Southwest airlines is recognized for offering low-cost travel to travelers
• The company has its reach to more than 100 destination in the USA
• Apart from USA, Southwest has its flights flying to 10 countries
• The company has more than 50,000 employees
• Due to very streamlined process, the airline operator receives very few complaints as compared to other air carrier
• Southwest's business model of low-cost air travel has been a major inspiration to many companies worldwide
• As a part of its experience, the aircrafts offer Wi-Fi, entertainment, movies, games, music etc.
• The company has a very effective marketing via several channels like TV, print ads, online ads and ecommerce portals

Above are the strengths in the SWOT Analysis of Southwest Airlines. The strengths of Southwest Airlines looks at the key internal factors of its business which gives it competitive advantage in the market and strengthens its position.

Southwest Airlines Weaknesses

• Strong competition from other low cost carriers means limited market share growth
• Dependence only on the American market means limited customer share of travelers

These were the weaknesses in the Southwest Airlines SWOT Analysis. The weaknesses of a brand are certain aspects of its business which it can improve.

Southwest Airlines Opportunities

• Expansion to other cities with the USA can help boost its business
• International flights and global expansion can help increase the revenue for Southwest airlines
• Tie-up with international airline companies to offer global air travel at affordable prices

Above we covered the opportunities in Southwest Airlines SWOT Analysis. The opportunities for any brand can include prospects of future growth.

Read more about Southwest Airlines

• Southwest Airlines Marketing Mix & Strategy
• Southwest Airlines Competitors

Southwest Airlines Threats

• Operating costs can increase and hence air fare will increase
•  Increase in fuel prices can lead to loss of margins for Southwest
• Changing economic policies, recessions & pandemics can affect the tourism sector, thereby impacting their revenue

The threats in the SWOT Analysis of Southwest Airlines are as mentioned above. The threats for any business can be external factors which can negatively impact its business.

Hence this concludes the Southwest Airlines SWOT analysis.

Read Similar SWOT analysis

• United Airlines SWOT Analysis
• American Airlines SWOT Analysis
• JetBlue Airways SWOT Analysis
• Delta Airlines SWOT Analysis
• Virgin Atlantic SWOT Analysis

About Southwest Airlines

The table below gives the brand overview along with its target market, segmentation, positioning & USP

This article has been researched & authored by the Content & Research Team which comprises of MBA students, management professionals, and industry experts. It has been reviewed & published by the MBA Skool Team . The content on MBA Skool has been created for educational & academic purpose only.

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Southwest Airlines SWOT Analysis

1. Background of Southwest Airlines

1.1. general overview of southwest airlines.

1.2. Introduction to Southwest Airlines

For the SWOT analysis Southwest Airlines , it is crucial to know about its past and future planning. Southwest Airlines is one of the major airlines of the U.S.A. It is also famous as the world's largest low-cost carrier airline. It schedules services to 111 destinations not only in the U.S.A. but also in ten additional countries. The company began operating as an intrastate airline in Texas, Dallas, San Antonio, and Houston in 1971.

At present, the company has 60,000 employees, and it operates nearly 4000 departures a day during its peak season. As per the records of 2018, Southwest airlines carried a maximum number of domestic passengers.

1.3. Development Timeline of Southwest Airlines

2. SWOT Analysis of Southwest Airlines

The Southwest Airlines SWOT analysis can find out the strategies that can help the company to strengthen its position and maximize revenue. It identifies the effects of competition and weaknesses as per the culture and organizational structure. The company can work on business diversification to gain stability in the market.

2.1. SWOT Analysis of Southwest Airlines in Detail

In SWOT analysis, 'S' actually stands for strength. It is always essential to determine the strength of Southwest Airlines. It helps in boosting up the company's motivation towards success. Companies must know what their strengths are for stable growth:

• Marketing Strategy : The company is praised for its enticingly warm L.U.V. culture. They offer low-cost flights to attract customers;
• Company Profits : As per Forbes ranking, the company was ranked #2 for the best employers in the U.S.A. in 2019. It has shown remarkable profits for 47 consecutive years. It is at 4th position as per the world's most valuable airline brand;
• Service Strategies : The company uses Boeing 737s exclusively as the choicest aircraft type. It maintains a point-to-point effective service strategy, which saves time. The company has a high capacity of Available Seat Miles. It has huge market share dominance. The industry generates huge revenue with a large number of operations.

For any company, it is pretty common to have some weaknesses. The companies need to find strategies that can remove those weaknesses. When a company is in a competitive market, any weakness can impact its growth against its competitors. The company can plan some long-term plans to change those weaknesses into their strengths. Southwest Airlines also has some weaknesses. For example:

• Product Diversity : The company faced criticism for its lack of diversification. The dependency on single revenue may lead to economic turmoil and uncertainty within the sector;
• Lack International Routes : The company does not operate international flights. Complete dependency on the domestic market alone may cause losses to its revenue;
• Revenue Loss : Significant dependency on Boeing 737s resulted in a revenue loss.

Opportunities:

A company must consider the opportunities that they can get to survive the high market competition. They must set their policies as per those opportunities to ensure their growth in the future. They should also consider the condition of the market while working on their opportunities. Here are some opportunities for Southwest Airlines:

• Globalization : The company should aim to expand globally. The recent inception of services to Hawaii shows the ray of hope for developing services to the other emerging economies;
• E-Commerce : The recent past has improved the e-payment booking process by adding Apple Pay and PayPal to its mobile app, website, and in-flight WiFi purchase page;
• New Technology : It must use the scope to exploit new technologies and adapt them to cope with the internet era. The biometric boarding kiosks may help speed up the security process;
• New Flight Routes : Millennials are entering the workforce. It must now shift to long-distance flights from short hauls.

All the companies that survive in a competitive market must have some threats that can stop their growth. Other competent opponents' market conditions change of taste of the customers can be prevalent threats. Similarly, a famous brand like Southwest Airlines also has some threats:

• Global Recession : The threats of Southwest Airlines are severe concerns that the firm must not overlook. Threats cause severe impediments to a company's growth and future success. The global recession has caused massive unemployment. The operation of the company is under threat for the same;
• Revenue Loss : Boeing 737 Max issues need modernization initiatives and a proper growth plan to avoid revenue loss due to cancellation. If they continue with this aircraft for a long, the customers may alter their airline choice;
• Incidents : The incidents of terrorism make passengers threatened, and they avoid air travels which hamper the airline industry and the economy as a whole;
• Fierce Competition : It has to compete with Delta Airlines, American Airlines, and Spirit;
• Regulations : Any negative report will enhance the safety risks. The airline industry's stringent regulations threaten the company.

3. Key Takeaways

The Southwest Airlines SWOT analysis points out the fact that the company has numerous scopes to perform better. Undoubtedly, the company is one of the most revered names in the airline industry in the U.S.A. Still, Southwest Airlines can maintain its success in the financial sector by adopting a few measures:

• It should diversify the revenue sources to avoid any major catastrophe for the airlines;
• It should increase the number of aircraft models without depending on Boeing 737s alone;
• Faced up with the fierce competition, how to stand out seems far more important for many corporates. Only the innovative technology, expand market share, and improve the service quality, the Southwest Airlines may grow in adverse environment.

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An Understandable Yet Perfect Southwest Airlines Case Study SWOT Analysis

Southwest Airlines is one of the most common airlines in the industry, especially in the US. The company can provide exceptional customer service, making them a good airline for passengers. Also, consumers can book their flights at affordable prices. With this, they get an advantage over other airlines. We will discuss its SWOT analysis since we are talking about Southwest Airlines. It is to determine various factors that may affect the company's performance. So, if you want to study more about the topic, read the post about Southwest Airlines SWOT analysis .

Southwest Airlines Company SWOT Analysis Essay

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SWOT Analysis

Swot analysis; southwest airlines.

SWOT analysis evaluates a firm’s strengths, weaknesses, opportunities, and threats. Strengths place a firm at an advantage over rival firms, while weaknesses act as disadvantages to the firm when compared to others.

Opportunities are chances that present themselves to the company and when the company grabs them, it stands a chance of making more profits. Threats are associated with those factors that can cause trouble for a company such as stiff competition (Hayward, 2002, p141). Southwest Airline is one of the low-cost airlines and a leader in terms of the number of passengers who board it annually.

Opportunities

Southwest Airline has been in operation for along time, and just like other businesses, it has been faced by both challenges and opportunities, which has made it stronger to date. First, the mission statement is simply dedicated to quality customer service, which is attained via warmth, friendliness, pride, and company’s spirit. This has proved to be true as the airline operates with the interest of a customer in mind.

The airline has been associated with a number of strengths; first, it has always been the best low-cost airline in term of fares for passengers. Therefore, most passengers have preferred it.

The airline has always maximized on internet booking, thus making it easier for its customers, and acting as a way of marketing itself. The airline pays its pilots handsomely compared to other airlines, hence motivating the pilots to fly at least an extra hour as opposed to other airlines (Mouawad, 2010). This has made it possible for the airline to make almost 3,100 flights in a day.

It is evident that the Southwest Airline has its employee’s interest at heart, thus proving difficult for them to be poached by other airlines. In addition, the airline has a unique culture, that of entertaining its passengers, thus encouraging them to fly with Southwest again.

The well utilization of Boeing 737 has made it unique as it only uses this model of airplane. Its main concentration on short trips has yielded to cutting of costs, thus benefited the airline. Nevertheless, the airline has been using one type of airplane, Boeing 737 that incurs minimum maintaining expenses.

The airline is associated with a number of weaknesses. First, it is limited to sixty cities. This is a major challenge for the airline due to the mergers formed by United Airline and Continental Airline, thus being capable of offering passengers access to the world.

The airline has not been able to defend its territory in the costs leadership, as some other airlines are imitating it, for instance, Jet blue airline that is determined to attain cost leadership. Concentration on domestic flights has made it vulnerable to other airlines, like delta, which provide international flights.

Different unions have been formed by the airline employees, thus proving challenging to the management. The use of a single model of plane could limit its efforts to minimize on petrol consumption. The airline does not rely fully on booking agencies, as compared to other airlines, hence being at a disadvantage in regard to customers who prefer booking tickets through agencies.

However, the airline does not offer the services provided by other airlines like airport lounges, reserved seat assignments, video or audio programming and First Class cabin, and video/audio programming (Dan & Charisse, 2010). In addition, the airline has been easily imitated by other airlines, thus giving room for more competition. Southwest also relies on only one manufacturer of its plane, Boeing Manufactures.

The airline’s effort to acquire Air Tran is a gate pass to international flights, as longer flights will be introduced. The enhancement of internet booking services acts as a marketer for the airline once it starts operating abroad. In addition, the expansion of its operations to other cities increases its returns. The airline can further enrich its customer services with an aim of maintaining and retaining those customers. Moreover, the new advancing technology will yield to the airline offering new outstanding services to their customers.

Southwest Airline faces stiff competition from other airlines, for instance, Jet-blue, which rivals Southwest Airline on being the lowest cost provider in the industry (Box & Saxton, 2003 p4). Due to the recent oil decrease in oil prices, the airline is facing a major blow, since it saved millions when the fuel prices were high; however, it is forced to pay higher for the fuel, until the price rises.

Therefore, the airline’s operation cost is likely to increase; however, it faces a challenge of either increasing its fares or not making profit at all. In addition, its airplanes, like all the others airplanes, are prone to terrorist attacks, which could lead to many losses and lack of faith from its customers. Another threat that faces airlines is the risk of accidents; such cases tarnish the image of an airline, as most will imply the accident is caused by recklessness or pilot exhaustion due to long hours of flying.

The above SWOT analysis elaborates the factors behind Southwest Airline success and areas that could need improvements for the airline to continue enjoying a competitive advantage. Due to the continuing increase in fuel, the airline should minimize their costs, by avoiding any major investment, such as purchasing an airplane. However, the airline should continue focusing on its customers through quality services, in order to maintain and attract customers.

Dan, K. & Charisse, J. (2010) “Southwest will buy Air Tran in merger of low-cost rivals; USA today. Web.

Box, T. Saxton, S. (2003). Jet blue: a new challenger . Web.

Hayward, P. (2002). GCSE Leisure and Tourism for Edexcel . Heinemann Vocational Series . NY: Heinemann Publishers. Web.

Mouawad, J. (2010). The New York Times . Web.

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IvyPanda. (2018, October 12). Southwest Airlines Company SWOT Analysis. https://ivypanda.com/essays/southwest-airlines-2/

"Southwest Airlines Company SWOT Analysis." IvyPanda , 12 Oct. 2018, ivypanda.com/essays/southwest-airlines-2/.

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IvyPanda . 2018. "Southwest Airlines Company SWOT Analysis." October 12, 2018. https://ivypanda.com/essays/southwest-airlines-2/.

1. IvyPanda . "Southwest Airlines Company SWOT Analysis." October 12, 2018. https://ivypanda.com/essays/southwest-airlines-2/.

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Southwest Airlines Case Study

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Southwest Airlines:

The company southwest Airlines Co’s overall CEO is Gary Kelly, while the founders are Herb Kelleher & Rollin King. The organisation was founded in Year 1967, where the company was known as Air Southwest and 1971 for Southwest Airlines. The Products and Services of the organisation behaviour of southwest Airlines are Business Select Flights, Express Bag Drop, Southwest Airlines Charter, Fly By Priority Lane Access, Early Bird Check-In, Business Travel and Groups, Southwest Airlines Cargo, P.A.W.S., and Southwest Gift Cards. Moreover, the main competitors of the organisation are Delta Airlines, American Airlines, Spirit, United Airlines, JetBlue, Skywest, Alaska, Frontier and Republic.

Current financial positon of Southwest Airlines

The headquarters of the organisation is at Dallas, Texas, U.S. The Number of Employees the organisation maintains for the year of 2020 is at 60,800. The revenues of the organisation for the year ending Dec 2019 are at $22.4 Billion, while the profits are at the levels of $2.3 Billion. During the pandemic the overall financial conditions of the organisation mainly declined, as the flights from all over the world were cancelled. Hence, the organisation faced tragic conditions in 2020, which lead to losses during the year.

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