| Name | Southwest Airlines Co. |
| Industry | Aviation |
| Founded | March 15, 1967 |
| Headquarters | Love Field Drive, Dallas, Texas |
| CEO | Gary C. Kelly |
| Revenues | $9.9 Billion |
| Profit | $1.5 Billion |
| Competitors | Delta Air Lines, JetBlue, American Airlines, United Airline, AirTran Holdings, Virgin America |
Company Overview
The Southwest Airlines Co. was founded by Herbert Kelleher and Rollin King in 1966. It is known for its short-haul, high-frequency, low-fare, point-to-point air service using Boeing 737 aircraft. The airline’s revenue has been fluctuating in the past 5 years, even more so during the COVID-19 pandemic when the aviation industry was greatly affected. In 2020, Southwest Airlines’ annual revenue dropped from $22.43 billion to $9.04 billion and the gross profit went from $7.20 billion to $-0.64 billion. The company showed improvement in Q2 2021 as operating revenues increased 297.6 percent, year-over-year, to $4.0 billion (Macrotrends, 2021).
Table of Contents
Southwest Airlines Strengths 2021:
- Low-cost business model.
Southwest Airlines work on extremely efficient, lowest operating cost structure in the domestic airline industry. It is one of the largest U.S. airlines along with American Airlines, Delta, and United. Southwest Airlines is the only one that can compete on price. They implement a point-to-point route instead of continuous hubbing and flies only one type of aircraft. - Culture and employment.
Behind the success of Southwest Airlines is its team of friendly and motivated employees. Even during the pandemic in 2020, when several airlines were put out of business, Southwest Airlines survived without major layoffs (Invostepdia, 2021). It has an organizational culture for employee well-being that includes appreciation, recognition, and celebration. In the second quarter of 2021, Southwest Airlines was able to accrue $85 million of profit-sharing for their employees, amounting to $109 million (Southwest Airlines, 2021). - Friendly customer experience.
One of Southwest Airlines’ strategies (and what they’re known for) is exemplary customer experience. Their reputation of putting the customer first and being responsive to issues keeps the brand strong (Peek, 2021). - Additional routes.
In 2021, Southwest Airlines CEO Gary Kelley announced that they will launch 19 new domestic and international routes across the US. Jackson, Mississippi is the latest destination and California is getting new international and domestic routes (Pallini, 2020). - Resilience amidst the pandemic.
According to Southwest Second Quarter 2021 Reports, Southwest Airlines generated in June 2021 their first monthly profit since the pandemic. They are intensely focused on improving operations as they restore their network to meet demand. They are hopeful that 2022 will be another transition year in the pandemic recovery.
Southwest Airlines Weaknesses 2021:
- Low number of Routes.
Although Southwest Airlines expanded its route structure, it still has one of the fewest routes in the Unites States with over 100 destinations only (Ash, 2020). American Airlines has 364 destinations (126 international routes), while Delta Airlines offer 326 destinations (99 international routes). Southwest Airlines provides lees option to customers compared to the other airlines. - Lack of international commercial presence.
Compared to other airlines, Southwest’s international presence is relatively small with most routes and operations only in the United States. Opening to more international routes is a competitive advantage that will also increase the profit margin.
Southwest Airlines Opportunities 2021:
- Launch more routes.
In the competitive landscape, Southwest Advantage is inferior in terms of the number of routes being offered. Launching more routes will add revenue and expand the workforce in different locations. They should be adding nonstop flights to a lot more destinations. - Growth through expansion.
In addition to expanding routes, Southwest Airlines should consider acquiring new aircraft since the travel ban is slowly being lifted, and more people would want to travel again. More aircraft would also address the seating capacity limit caused by the pandemic. Southwest Airlines is expected to increase its firm orders of 737 Max 7s to a total book order of 234. They also plan to order 149 Max 8 planes to be delivered through 2031. Southwest’s capital expenditures are expected to increase from $700 million to $1.5 billion in 2022 (CNBC, 2021).
Southwest Airlines Threats 2021:
- Effects of the pandemic.
Lockdowns and social distancing are the new norms, and only a few countries have lifted the travel ban. Most people work from home and perform business meetings online. The impacts of the pandemic will be severe and long-lasting. According to EY (Wollaston et. al. 2021), even after wide vaccine availability, people still feel wary of traveling by air. The recovery has been forecasted to occur from late 2021 to 2022. - Fuel prices increase.
As oil hits pandemic high, it tags jet fuel along. U.S. jet fuel increased to $1.67/gallon (Q1 2021). Jet fuel is one of the airlines’ biggest expenses, and it’s harder to address when there is a weak demand for air travel. The fuel price is expected to increase again in Q3 2021. - Competitive market.
The aviation industry has been greatly affected by the global health crisis, but it’s slowly getting back on its feet. Because of this, the competition among the airlines has increased with everyone offering new routes, increasing amenities, and lowering fares. According to Reuters, the Biden administration will award 16 slots for flights at Newark International Airport in New Jersey to a yet-to-be-determined low-cost carrier. This is expected to trigger competition among the airlines.
Southwest Airlines SWOT Conclusion 2021:
Though the global pandemic has financially impacted the airlines’ industry, every airline has tried adjusting to short-term challenges and planning for longer-term scenarios. Despite the situation, Southwest Airlines has been faithful to low-cost fares and impeccable customer experience. Through their collaborative effort, their revenue increased after more than a year since the pandemic. They plan to accelerate fleet modernization by replacing their 700-737 aircraft with the Max and to be carbon neutral by 2050. The new additional routes will also help increase their revenue and competitive advantage. The pandemic has brought a lot of uncertainty, but Southwest Airlines has taken the necessary steps to prepare for the unknown future.
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References:
- Britannica. Southwest Airlines Co. American corporation. [online]. Britannica.
- Macrotrends (2021). Southwest Airlines Revenue 2006-2021 | LUV. [online]. Macrotrends.
- Peek, S. (2021). Southwest Airlines: A Case Study in Great Customer Service. [online]. business.com.
- Investopedia, (2021). How Is Southwest Different From Other Airlines?. [online]. Investopedia.
- Pallini, T. (2020). Southwest just announced 19 new leisure routes across the US and Mexico and a new destination — here’s the full list. [online]. Business Insider.
- Ash, L. (2020). Which United States Airlines Have The Biggest Route Networks?. [online]. Simply Flying.
- Reuters, (2021). U.S. to award Newark flights to low-cost carrier to spur competition. [online]. Reuters.
- Wollaston et. al. (2021). How the airline industry is bracing for an uncertain recovery. [online]. EY Parthenon.
- Josephs, L. (2021). Southwest Airlines raises order for smallest Boeing 737 Max by 34 planes. [online] CNBC.
- Southwest Airlines, 2021. Southwest Reports Second Quarter 2021 Results. [online] Southwest Investor Relations.
