When people hear Southwest (SW) they think of domestic cheap flights with a special flavor.

SW core competence is not in technology but rather in its workers, culture and management system which differ from the market and give it the tools for their core products. SW Core competence are: Highly productive ground crew Values and culture (i.e the culture committee) which differ from any of its competitors Point to Point service with no need for hubs A team system

Their Core products are: -They provide comparable value at a lower cost while providing ticket fares that are cheaper than driving a vehicle over the same route. -Rapid gate turn around: Their staff are focused on rapid gate turn around as a Do what needs to be done attitude. - Personal warm and amusing service- their service is a complementary product, which clients are willing to pay a premium for (i.e when competitors cut ticket prices to half SW price, SW offered same price as competitors or old price with added perks (whisky shots, ice buckets) most of the customers preferred paying the extra premium for the special services (SW is also known for hiring new employees with an empathies on people skills). -Frequent reliable departures-this enables its customers with many alternatives and an easy solution if they miss their flight. How do we explain SW success above the industry standard? You can see the strong FIT between the different actions of the company and how they drive the Cost affective strategy of the company forward (i.e meals are not served on flights, this cheapens the tickets as well as saves time [faster turn around]). The secret behind SW is that they perform things differently than their competitors and thus gain a strategic postion in the market (as apposed to putting their focus on operational effectiveness).you can see from the choices they make that they decided where they want to be and where they dont want to compete, for example focusing on Variety based positioning (focusing on the choice of products-domestic flights, not competing in international flights ), these trade offs served SW reputation as best in its field, enabled it to create a different management system which allows

faster turn around for lights as well as cheaper cost per seat which gave SW the edge for its cost effective strategy. SW drew clear lines for their workers which enabled them to focus on the priorities of SW (fast turn arounds is a must and a Do what ever is needed attitude). The reasons why they out perform the market in turn arounds is due to many reasons all linked to one another. The workers are more productive than in other airlines and this is due to the strong family culture in the organization, the workers earning above average and being under union rules. A team system which provides a common goal per team-Everybody from the ground crew till the pilot are responsible for on time turn around- success failure is faced as a team. No meals No seat assignment- gives incentive for customers to arrive early to the gates No need for interline baggage transfer (no international flights) Strong limitations on flight routes and length (this saves the company from many bottle neck traps which are present in this market). Point to Point service Automatic ticketing machine No Hub and Spoke route system (passengers go to hubs where they are redistributed to connecting flights). All of these factors as well as others (i.e the ticketless travel program) together created a cost per seat which is inferior to the competition (also in later years companies like Jet blue joined the market), this enabled them to use a cost strategy. Due to the cost strategy SW has better tools to handle the 5 forces: 1. Competitors- have a hard time lowering prices to SW prices or lower for more then a short tenor as their costs are higher due to their activities not having the right fit and structure for this strategy. 2. New players in the market have a hard time reaching the size in this market (domestic flights) which enable cost cutting (see People Express Failure due to expansion issues) . 3. customers have less power due to SW size in the market (they hold a big piece of the domestic pie, and thus customers will not want to stop using SW services).

4. Substitute products will have a hard time competing with SW prices, especially if they have space to cut them further down. 5. Providers are actually a strong force in the airplane market but would still have a hard time integrating forward and competing on the same price level (especially as SW closed deals with suppliers on prices lower than list price [Boeing]).. Other choices SW took gave them an added value regarding the business travelers segment in the market-Frequent departures (which where possible due to the quick turn arounds) enabled passengers to catch a flight if they missed one. Using older, better located for business, and less congested airports (less congested =quicker turn arounds). As well as a very user friendly frequent flier program. 3) In the aftermath of the September 2001 catastrophe, Southwest maintained its same

approach as in the past. As other airlines had increased estimated-schedule flight times to adjust for passenger and baggage-processing, Southwest stood firm to their former tactics. They considered various approaches and changes to their system (mentioned in answer #4), but they opted against it staying true to the Companys values and methods. Other airlines were also laying off employees in an attempt to condense their losses and expenses, however Southwest again stood by their former tactics, and opted to stand firm against the changes. Their decision to stand against the other players in the market is clearly shown in late 2002, when a visitor saw the Companys day-to-day activities. According to the casewriter, the day consisted of a walk-through dealing with a hypothetical plane wreck in New Orleans, and a preparation for the annual Halloween party that was cancelled the year before due to September 11 th. Further, the employees were to bring their children in for plays the following day receiving a day off from school to do so. As is made obvious by the visitors observations, Southwest was functioning just as they used to; as a fun and innovative place to work. 4) The Companys long-standing goal of ensuring growth rates of 10-15% should be achievable in the aftermath of markets downturn. Southwests methods of never allowing the Company to grow too rapidly in the onset allowed for them to keep many potential airport sites interested, and thus many potential clients that are looking to participate with Southwest. Essentially, they stayed conservative in times where rapid growth was a distinct possibility; opting to save these avenues for a rainy day. Heightened security was the biggest detriment to Southwest, which prides on its short

waiting times and quick boarding processes. Despite this heightened security that slowed turn-over rates which was among the characteristics that Southwests passengers most appreciated the Company would not take a devastating hit for their 3 minute (12.5%) time increase per flight. As of 2002, the Company held nearly two-thirds of the market share in their top-100 cities and their respective markets. Their operating revenues showed a slight decrease between 2000 and 2001 of approximately $100 million, however this was expected due to the markets plummeting, and it accounted for less than a 1% change. Their operating expenses increased by nearly $300 million, however, thus nearly cutting their operating income by nearly 40%. The operating profit margin for 2000 was 18.7%, and it decreased to 11.4% in 2001. Southwests net income took a loss of roughly 20% between the year-ends of 2000 and 2001, with net income margins of 11.4% and 9.5%, respectively. The return on assets and return on equity had reached highs at the end of 2000, with respective values of 10.1% and 19.9%. These figures decreased to 6.5% and 13.7% in 2001. Despite the decreases in these ratios of assets and equity as a function of revenue, the Companys respective current ratio and quick ratio in 2000 were 0.64 and 0.51, and in 2001 those figures had improved to 1.13 and 1.05, respectively. This meant that the Company was better able to repay its outstanding, 12-month liabilities with its liquid assets in 2001 than in 2000; a positive sign. While Southwest considered many options, including (1) rearranging the passenger and baggagehandling processes, (2) rescheduling the airline, (3) addressing the boarding policy and (4) removing the open seating standard, the best approach would be to simply sit tight and wait for the market to return from its lapse. The Company was loved for the strategic way it was run, including its management approach, its friendly marketing and advertising appeal, and the low flight-rates, and as such, Southwest won over the hearts of many loyal customers early on. The Company should utilize the same approach that was successful for many years before, and although they would incur a loss in the interim, they would return to profitability as the market recovered.