Dan Wang, Southwest Airlines, Page 1

Southwest airlines (SWA), founded in 1967 is now among the four largest airliners in the
United States, which features low operating cost structure meanwhile offering low fares
and thus possessing the best customer satisfaction record. Its continual profitability
results from timely alteration of and strong execution on the strategic choice which takes
into account the challenging and changing competitive environment. This echoes the
model introduced by professors Don Hambrick and Jim Fredrickson, advocating that
strategy is conceptualized as being about choice which has five elements: arenas,
vehicles, differentiators, staging and economic logic.

First, SWA has the clearly-defined arenas: being the only short haul, low fare, high
frequency, and point to point carrier. However, due to the uncertainty for achieving
future growth by staying with the original strategy, management in SWA decides to
transform the business model to offer new products i.e. more distant locations and
services i.e. priority boarding process. In addition, they also seek for geographic
expansion by looking beyond Texas for more growth opportunities. Second, the
business strategy relies on both organic growth efforts and acquisition of new territory
as its vehicle for getting to its evolved arenas. For example, the organic efforts included
that in 1984 they added flights with more than 3-hour fly time to meet changing
customer needs. Moreover, they initiated the new boarding procedure by maintaining
the open seating on the aircraft but allowing customers to reserve places in the waiting
line. Externally, they entered new markets to the northeast US in 1993 with the initiation
to Baltimore. In 2004, they agreed to code share with ATA Airlines for the first time in its
history representing another strategic move to grow in Chicago. Subsequently, over the

Dan Wang, Southwest Airlines, Page 2

time period described in the case, SWA instituted service to Philadelphia in 2004 and
was in consideration to further expand its footprint onto LaGuardia. Third, SWA wins in
the arenas by offering two major differentiators - the competitive products and caring
customer services. They charge fares about 60% lower than the average coach class
while increasing the operation productivity, for example, by speeding up turnaround time
of aircraft at the gate which is only half of the industry average. On the other hand, they
select employees with strong passion and commitment who provide the memorable
services and make it fun to fly on SWA. Fourth, SWA manages sound staging strategy
by committing to geographic expansion but only one airport at a time. They also know
the need to put growth plan on hold in Philadelphia when facing high fuel prices and
economy recession. Finally, the economic logic of SWA rests primarily on its scale
economies. Although the company reached its presence to the airports with greater
congestion and higher cost structure, SWA was aggressively optimizing its network and
minimizing the underutilization of aircraft to realize efficiency. Meanwhile, in the early
years, SWA was able to take advantage of Boeings overproduction of 737 twin jet and
secured the favorable pricing and financing terms to lower the cost.

On balance, the five elements of SWAs strategy all fit together. The vehicles chosen by
the management has enabled the company to support the well-defined and even
evolving arenas. The consistent demonstration of the key differentiators and steady
staging tactics has won the company so many successes in business expansion. These
coherence has explained the reason behind SWAs consistent profitability as well as the
growing competitive edge.