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Southwest Airlines business model and strategy

South West Airlines and

A330-300 AirAsia XImagine you are the owner/CEO of a low-cost carrier (LCC) and you have grown your business extensively where you have achieved a level of market saturation where options for growth based on your existing business model are limited. This was the challenge facing the world’s biggest LCC, SouthWest Airlines in the US. A similar problem was faced by Air Asia – Asia’s fastest growing and most successful LCC.

In Europe, Ryanair and EasyJet also have continued to expand and in some senses, the saturation level of their markets is some way off – the monthly proliferation of new flights from secondary airports suggests there’s some space left to go in Europe.

Indeed, SouthWest and Air Asia have pursued different extension strategies faced with the rapid maturation of their business models. It’s important to emphasize that these airlines faced different constraints and contexts – SouthWest is a domestic, continental airline and Air Asia is an international, intercontinental carrier, nevertheless, it’s worth exploring how they went about their growth.

I would suggest that Air Asia has attempted to develop a hybrid carrier model – integrating elements of both conventional LCC services with premium services of the traditional carriers.

On the other hand, SouthWest have decided to differentiate themselves from the traditional carriers in the US domestic market not by ‘dumbing down’ the quality but actually raising the quality vis-a-vis the traditional airlines. Here’s a blurb from their website (emphasis added by me): “Stay connected inflight with WiFi (where available on WiFi equipped aircraft). Our roomy Boeing 737 cabins feature all-leather seating with some of the best seat-pitch in the industry. On top of that, our friendly, fun-loving Flight Attendants are on call to help you sit back, relax, and enjoy your flight.”

southwest_airlinesLet’s take a look at each of their strategies

SouthWest was the first major LCC to introduce a frequent traveller program: Rapid Rewards that linked your ticket spend to the number of points you would receive. While the benefits are akin to traditional FFPs, Rapid Rewards is much more limited in scope across all dimensions. Since SouthWest does not have a premium cabin, there’s no business class seats, nor are there any VIP lounges either. Instead SouthWest has linked it’s BusinessSelect flight experience to its Rapid Rewards program by offering the perks of BusinessSelect to it’s ‘A-List’ and ‘A-List Preferred’ FFs. Perks include priority check-in, free WIFI on board and a premium drink voucher.

SouthWest has equipped all their planes with leather seating and onboard comfort that exceeds many of its domestic competitors. While that’s not saying much in a US domestic airline context, it certainly provides a differentiated advantage. Moreover, unlike many LCCs, they provide complimentary non-alcoholic drinks to their customers. Most LCCs charge you for any drinks.

Identifying strategic groups in the U.S. airline industry: an application of the Porter model.: An article from: Transportation Journal
Book (American Society of Transportation and Logistics, Inc.)

Europe has done it the right way.

by Van_Helsing

By deregulating the market and letting airlines compete or go out of business.
It's revolutionized the way Europeans travel.
In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest's no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market

Part two

by Bartleby_the_Scriv

The purpose of Chapter 11, and a reason why Europe is moving to adopt a version of it, is that it encourages risk-taking by providing firms a safe haven to survive a temporary financial crisis, and a way for creditors to avoid heavy losses through the distress sale of assets. But in the airline industry Chapter 11 is being abused simply to keep in place inefficient surplus capacity. America's airlines have lost $23 billion since 2001, and they look like losing a further $4 billion this year. Unless some airlines are allowed to go out of business, so reducing the over-capacity that is causing carriers to slash prices, the entire industry is endangered by financial failure

Part 8

by crax1983

Technology too may place some constraints on offshoring. Irving Wladawsky-Berger of IBM argues that some of the tasks currently going to low-cost centres may eventually return because their underlying technologies will evolve in a way that makes economic sense of putting them back in rich countries. At the moment, for instance, customer-service call centres are very labour-intensive. McKinsey says that wages account for 70% of the costs of a call centre in America. That is why they are rapidly shifting to Bangalore, Hyderabad and other Indian cities.
But firms such as AT&T are working on speech-recognition software that might, says Hossein Eslambolchi, AT&T's chief technology officer, soon be good enough to replace a lot of the routine inquiries currently handled in call centres

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