Southwest.handouts.isb.June2014

Competitive Strategy Southwest Airlines Prashant Kale

Structure of the Airline Industry  Low Industry Profitability Entry Barriers

-Availability of capital/leases -Availability of gates -Threat of Retaliation

Threat of new entrants ( QUITE HIGH?)

Rivalry Suppliers - Unionized Labor - Only two aircraft suppliers - Concentrated oil suppliers

Bargaining power of suppliers (QUITE HIGH)

(HIGH) -Multiple players -Similar offerings -Perishable product

Bargaining power of buyers

Buyers

(QUITE HIGH) -Multiple options -Well informed -Low switching costs

Threat of substitute products or services (INCREASING?)

Substitutes

- Alternate transportation modes - Alternate communication modes

The Business System and Competitive Advantage

Purchase/Inputs - One type of plane (737) - Screened employees

Logistics

Operations

- Point-to-point direct service - Small airports

-Short flights -No food -No assigned seats - No bag transfer

Sales/Marketing -Everyday Low Pricing - No Travel Agents

Distinctive/Innovative Activities across the Business System

They should Support your Chosen Competitive Position

Low-Cost Leadership Position

Competitive Advantage

They should be consistent and mutually reinforce each other

SWA System of Aligned and Reinforcing Activities

No meals

Limited passenger service

No baggage transfers No connections with other airlines

No seat assignments

Frequent, reliable departures

15-minute gate turnarounds

High compensation of employees

Lean, highly productive ground and gate crews

Flexible Union contracts

Limited use of travel agents

•Cost Advantage

•Low maintenance costs •Short turnaround time Automatic •Low landing fees ticketing •Low service costs machines •Low booking costs

•Customer Satisfaction

•Direct flights; less flight time •On-time performance

High level of employee stock ownership

High aircraft utilization

Standardized fleet of 737 aircraft

Short-haul, point-to-point routes between midsize cities and secondary airports

Very low ticket prices

“Southwest, the low-fare airline”

Low Cost Leadership Strategy: Relative Comparison with Avg. Industry Player Customer’s “Willingness to Pay” (The Price)

Value or Profit for The Firm Level of Firm’s Total Costs to provide Product or service

An “Average” Airline

Greater Value or Profit for The Firm Lowest Total Cost

“Cost Leadership” Position (SWA)

Sustainability of Southwest’s Competitive Advantage Distinctive activities across the entire value chain where Each activity is consistent with and reinforces the others to create a complex “system” of intertwined factors

+ Competition is unable to easily imitate Southwest’s Strategy • Initially failed to recognize ‘threat’ of Southwest • Faced difficulty in replicating its entire “system” of activities. • Were limited by their “sunk investments” in hubs, longer routes larger aircraft to easily imitate Southwest

Selective

Create a Niche

Create/Pursue A Unique Advantage Southwest

Scope of Competition (Where)

The Strategic Game Board

Across The Board

Do More and Better of the Same Same Game

Exploit Unique Advantage across Entire Industry New Game

Mode of Competition (How)

Can Southwest Sustain its Success in Future?