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Southwest Airlines Case Study

In: Business and Management

Submitted By levi22
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MBA 610
Case Study: Southwest Airlines Corporation
1. Southwest Airlines Corporation is an extremely popular and profitable company due to their strategy of being the nations’ low-fare, high customer satisfaction airline. Southwest is able to offer the nation’s lowest fares due in part to their low operating-cost structure, the lowest in the domestic airline industry. This low operating-cost structure (refer to Exhibit 1 for 5 year financial highlights and 2004 data) is the basis on which Southwest builds its competitive advantage, as it allows Southwest to sell low fare tickets while still enjoying a gross margin percentage of sales (29.2% of sales in 2004) much higher than United Airlines (22.7% of sales), American Airlines (1.9% of sales), and Delta Airlines (18.9% of sales). Southwest achieved this low cost operating structure through eschewing the traditional “hub-and-spoke” approach used by their competitors, and instead flying short haul, medium haul, and point-to-point flights, allowing for more frequent flights. As a result, about 80% of Southwest’s passengers fly non-stop and the overall passenger length is approximately 758 miles. Additionally, Southwest consistently seeks out ways to improve its efficiencies and low cost structure. For an example, at Southwest, turnaround time (from the time a plane lands until it is ready for takeoff) takes approximately 20-25 minutes and requires a ground crew of four plus two people at the gate. By comparison, turnaround times at United Airlines are closer to 35 minutes and require a ground crew of 12 plus three gate agents. In 2004, Southwest improved efficiencies by reducing the headcount per aircraft to 74 from 85 and by hedging the majority of its fuel and oil needs, resulting in savings of $455 million. Southwest also lowers costs by paying its crews by trip and using less congested airports, which also allows...

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