Southwest Airlines (LUV) has become known over the past two decades as a thriving airline company operating in a time when most airlines have been struggling.
Any company operating in the airline industry must maintain and strengthen a set of competitive advantages that differentiate it from its competitors. Southwest Airlines' business model is based on extremely efficient operations, low-cost pricing, and innovative logistics solutions. Furthermore, their strategy also includes a deep focus on customer experience and looking ahead. Finally, none of this would be possible without a motivated team of employees. Through this sound strategy, Southwest achieved multiple competitive advantages that have allowed it to stay relevant in a rapidly changing world.
Key Takeaways
- Southwest Airlines is more flexible than most other large airlines.
- Southwest is the only large U.S. airline that is also a low-cost carrier.
- Southwest Airlines' strategy emphasizes recruiting and retaining motivated employees.
- Southwest continues to improve its business model and practices.
The Only Large Low-Cost Airline
The collapse in demand for flights throughout 2020 nearly put several airlines out of business, but Southwest was able to survive without major layoffs. When business conditions decline, only the strong survive. Southwest Airlines is strong from both a size and a cost perspective.
One way of measuring strength is size. According to this theory, large airlines will experience declines, but they will not actually go out of business. Southwest is one of the big four airlines in the U.S., along with American Airlines (AAL), Delta (DAL), and United (UAL). That means Southwest has bigger reserves in cash, credit, and other assets than smaller airlines.
Bigger doesn't always mean better, but it usually does mean safer when it comes to investing.
Controlling costs is also crucial to surviving a downturn, and Southwest does well there, too. Low-cost carriers, such as Southwest, have several critical advantages over their competitors. They focus on providing the lowest prices for the most popular routes, which means fewer routes will need to be abandoned. Negative economic growth will also make businesses and consumers more sensitive to ticket prices, the low-cost airlines' primary advantage. Southwest is the only large airline that can compete on price.
The Right Recruits
While Southwest Airlines' entire business model is important, arguably the most valuable competitive advantage has been its deep focus on hiring the right people. Southwest prides itself on being a people-oriented airline that operates with friendly and approachable employees and team members. Per its business model, Southwest hires employees who embody the company's brand messaging and who have a passion for helping customers. Southwest has stringent hiring practices and policies to ensure the right mix of team members.
Southwest Airlines has a business-oriented focus on the customer's experience. Part of that customer experience comes from the attitude and helpfulness of the employees it hires. However, there are many more factors that go into this competitive advantage.
Flexible Policies
Southwest Airlines has set various policies and procedures that make flying with the airline easy. One of these is Southwest's cancellation policy. They allow a customer to cancel a reservation up to 10 minutes before the flight's departure. More importantly, the funds from the cancellation are available for a future trip. Policies like this one ensure that the customers of Southwest Airlines remain satisfied. These flexible policies help the airline to build high levels of brand loyalty.
Rewards and Pricing
Southwest Airlines also has one of the better rewards programs in the industry. Southwest gives points to customers. They can use the points to purchase future flights. It also has a partnership with Chase Bank and offers customers a Southwest credit card. The card allows them to accumulate Southwest Airlines points when making other purchases. Keeping customers engaged is a big competitive advantage for Southwest Airlines.
Besides motivated employees and great customer service, Southwest Airlines offers one of the lowest-priced solutions for air travel. Its pricing strategy offers extremely low prices compared to other large airlines, such as Delta and American Airlines. Southwest had to build its business model around low operating costs to be able to offer low prices. It only has a few aircraft types, which helps the airline reduce its costs. It also services smaller airports that don't charge as much for gate access. If a customer can find a lower-priced ticket, Southwest Airlines matches the price.
Continuing to Improve
Southwest Airlines has a track record for being very forward-thinking. It is boosted by a flexible business model that supports rapid change. That puts the company in a better position to deal with the disruptions caused by economic events that are beyond its control. Southwest is always looking for lower-cost solutions, and that is more important than ever before.
FAQs
Low-cost carriers, such as Southwest, have several critical advantages over their competitors. They focus on providing the lowest prices for the most popular routes, which means fewer routes will need to be abandoned.
What is the winning strategy of Southwest Airlines? ›
Southwest, for example, wins by providing cheap, fast, efficient, and simple service in the complicated air travel industry. They provide products or services for which customers are willing to pay a premium over competitive offerings.
Why has Southwest Airlines been so successful? ›
Southwest Airlines has been successful due to a variety of factors, such as high-quality service, flexible customer benefits, and low operational costs. One of the primary factors is likely its low fares and low fees, which attract customers searching for low-cost travel options.
How many CEOs has Southwest Airlines had? ›
It also uses the internal practice of ranking "employees first, customers second". Bob Jordan, formerly executive vice president of corporate services, became Southwest's sixth CEO on February 1, 2022, replacing Gary C. Kelly. Kelly continues as chairman of Southwest Airlines.
What is Southwest Airlines customer satisfaction rating? ›
Southwest Airlines received an American customer satisfaction index score of 78 in 2024, the same as the previous year's ACSI score. Over the period give, the highest customer satisfaction score registered at 81 points in 2009, 2011, and 2013.
What are the 3 core values of Southwest Airlines? ›
Core Values. Southwest Airlines' core values, 'Live the Southwest Way: Warrior Spirit, Servants Heart, Fun-LUVing Attitude' and 'Work the Southwest Way: Safety and Reliability, Friendliness, Service, Low Costs' are cornerstones of how they conduct business.
What is so good about Southwest Airlines? ›
Flexible policies: Southwest Airlines offers flexible booking policies, such as no change fees and no cancellation fees (with certain restrictions). This flexibility can be attractive to travelers who value the ability to modify or cancel their plans without penalty.
Why is Southwest struggling so much? ›
Demand for travel remains strong, including among business flyers, but airlines are dealing with higher labor costs, and delays in getting new aircraft from Boeing are limiting their ability to add more flights. Southwest said it lost $231 million.
What are the negatives with Southwest Airlines? ›
Customer satisfaction is high, flexibility to change or cancel flights has always been exceptional, and free checked bags on every flight is a big plus. As for the drawbacks, no seat assignments or first class perks, plus a mixed reliability rating, are worth factoring in.
Why is Southwest so loved? ›
Re: What do you love about Southwest Airlines? Fun staff, companion pass, no change fees, and two free checked bags! Home airport MDW, frequent visitor to MCO to see the mouse.
The ownership structure of Southwest Airlines (LUV) stock is a mix of institutional, retail and individual investors. Approximately 64.45% of the company's stock is owned by Institutional Investors, 9.94% is owned by Insiders and 25.61% is owned by Public Companies and Individual Investors.
What is the salary of the CEO of Southwest Airlines? ›
Bob Jordan's compensation bumped up $3.97 million in 2023 from the year before, bringing his total earnings that year to $9.3 million. The raise was revealed in a regulatory filing on Friday and first reported by the Dallas Morning News.
What is unique about Southwest Airlines? ›
Southwest Airlines is more flexible than most other large airlines. Southwest is the only large U.S. airline that is also a low-cost carrier. Southwest Airlines' strategy emphasizes recruiting and retaining motivated employees. Southwest continues to improve its business model and practices.
What is Southwest Airlines secret to success? ›
Point-to-Point Service: A Unique Approach 🗺️
While most airlines use a hub-and-spoke model, Southwest offers point-to-point service. This means fewer connecting flights and the ability to utilize smaller, less crowded airports, leading to more efficient scheduling and lower wait times.
Why do employees love Southwest Airlines? ›
Employees are the Heart of Southwest. Throughout our more than 50-year history, we're committed to providing our Employees with great jobs and benefits, a world-famous Culture, and an environment where they feel comfortable bringing their authentic selves to work. It's all about a career with Heart and Purpose.
Which airline has the lowest ratings? ›
For the second consecutive year, Frontier Airlines finished last in the economy/basic economy segment with Spirit Airlines ranked one spot ahead. JD Power also highlighted some other takeaways from the survey — specifically, how staffing and media attention can influence airline rankings.
What competitive strategy does Southwest use? ›
Southwest Airlines popular competitive strategy is keeping customers happy by being low cost, employee driven, future-minded, and differentiated. The overall low-cost provider strategy that is being used at Southwest is a low-cost airline that focuses on no-frills service (Investopedia, 2015).
What is the strategic objective of Southwest Airlines? ›
Connect People to what's important in their lives through friendly, reliable, and low-cost air travel. To be the world's most loved, most efficient, and most profitable airline.
What is the market strategy of Southwest Airlines? ›
Southwest Airlines' marketing mix or 4P (product, price, place, and promotion) caters to the needs of travelers, while focusing on affordability as a competitive factor. As a discount carrier, the company highlights competitive pricing to attract travelers and make its marketing strategy effective.
What is the point-to-point strategy of Southwest? ›
Southwest's innovative approach was to implement a point-to-point model, offering direct flights between smaller, less congested airports. This decision had far-reaching implications for the airline's operations and the industry as a whole.
