How attractive is the US airline industry? Not so much One of the worst net operating margin performers when measured against other industries About 80% of airline operating costs are fixed or semi- variable.
Once an airline established its route structure, most of its operating costs were fixed The nature of the cost structure limited cost reduction opportunities Fuel costs restrictive union agreements that limits labor flexibility 2. Describe Southwest Airlines’ strategy. What important choices did it make?Price leader strategy operating stra tegy one type of airplane, short flights and monitored growth more passengers per employee fewest number of employees per aircraft debt-to-equity ratio lower than the industry average managing/culture strategy – creating highly committed workers less hierarchy, no layoffs (7% turnover), fun culture, flamboyant, funny, charismatic management Employee initiative was supported by management and encouraged at all levels First to introduce employee profit sharing, Employees wned about 10% of companys stock Advanced employee training regularly Team building eadership Cultural diversity resault in – highly motivated workers who increase airline efficiency in all aspects helping reduce operation expenses and prices the company can offer differentiation strategy – high service quality and unique “style” customer oriented service: First to sell seats from an internet site First airline with a homepage on the internet Rapid rewards frequent flyer program – Frequent flyer based on money spent nd not miles flown Attracting new customers Increasing business from existing customers Strengthening partnerships – hotels, car rentals, etc. esault in: higher satisfaction rate lower complaints “Positively Outrageous Service” Outcome Choices of markets resulted in significant growth in air travel at those locations earning a profit for 40 consecutive years leadership style: flamboyance, fun and a fresh unique perspective unconventional leading to consistently new standards for itself and for the industry engaging management style Outcome – Lowest rate of employee turnover, 7% 3. How easy would it be to imitate this strategy? Not so easy Numerous imitators, most of which failed Some of the attempts were almost comical Major operational problems with the Strategy Turnaround times delays unsuccessful pricing strategies 4.
Is the strategy sustainable? What could go wrong?High performance that is difficult to maintain On-Time arrival and departure had declined in recent years from being near the top in the industry relies much on unique management, worker ommitment and special company culture – can change do to change of management style or acquisition of other companies high efficiency due to expertise in small routes and one type of fleet – expanding to other markets has a learning price So far, avoided the trap of growing beyond its means.