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Southwest Airlines History & Business Strategy

According to the 10-K report filed with the U.S. Securities and Exchange Commission, Southwest Airlines Co. (ôSouthwestö) is a major domestic airline that provides predominantly short haul, high-frequency, point-to-point, low-fare service. Southwest was incorporated in Texas in 1967. It commenced service on Juneá18, 1971 with three Boeing 737 aircraft serving three Texas cities. The airline employs a relatively simple fare structure, featuring low, unrestricted, unlimited, everyday coach fares, as well as even lower fares available on a restricted basis. At fiscal year-end 2003, Southwest operated 388 Boeing 737 aircraft and provided service to 59 airports in 58 cities in 30 states.

The Design or Rational Model suggests that there are certain primary attributes that result in the formulation of a companyÆs business strategy. At Southwest, a SWOT analysis and an understanding of managerial values provide clear insights about the strategies this airline has employed and continues to use to gain a sustainable competitive advantage over its rivals. Specific information is provided below:

Low operating costs. While a lot of factors contribute to SouthwestÆs historic low cost advantage, the primary driver is the productivity of its employees.

Southwest has the lowest costs adjusted for stage length, on a per mile basis, of all of the major airlines. Among the factors that contribute to its low cost structure are a single aircraft type, an efficient, high-utilization, point-to-point route structure,

Dedicated employees, and ongoing efforts to make this airline a fun place to work

Loyal customers combined with high levels of customer satisfaction

Limited choices of carriers to certain cities along with a well designed pricing strategy

An almost unassailable market niche among the low cost and no frills carriers

Southwest had a successful hedging program, which saved the company $171 million in jet fuel costs...

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