Low-cost Airline’s Strategy Model Analysis: Southwest Airlines

Case Southwest Airlines

Must-Win Battles & Strategy Model

About 40 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. Southwest Airlines founded in 1971 and it was a novel business model innovation that breaks all the rules.

They began with one simple notion:

If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.

A  low-cost airline is also known as a no-frills, discount or budget carrier or airline. It is an airline that generally has lower fares and limited services. The term originated within the airline industry referring to airlines with a lower operating cost structure than traditional airlines. Low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares, because they have different business model.

Must-Win Battles

Low-cost airline’s the Must-Win Battles are:

  • Very low ticket prices (customer)
  • High utilization rate of fleet of aircraft (growth, routes)
  • Efficiency through simple structures (processes)
  • Lean and productive personnel (resources)

Low-cost airline allow business travelers, who could not fly in First Class, to enjoy a premium service. Accordingly, elements of the customer perspective focusing on frequent point-to-point flyers, limited service and refundable ticketless flight. Frequent flyers are people, mostly business, who frequently travel between destinations that are 600-900 miles apart.

The growth perspective follow only the strategy logic of the high utilization of aircrafts, which is based on elements such as the efficiency in ground services (25 min gate turnaround), short-haul, frequent and point-to-point routes between mid-sized cities and secondary airports. These the key issues keep planes in the air the most of the time. The utilization rate with high volume is very crucial for the low-cost airline’s strategy model and every business issues must follow this logic.

The process perspective based on simplicity of operations. Just one type of aircraft (Boeing 737) keeps costs down related to pilots’ training, spare parts, maintenance, etc. The hardest part of the implementation of low-cost airline business model is personnel.

Create lean organization, flexible and productive personnel:

  • Flexible contracts & multi-skilled personnel
  • Create right company spirit
  • Reward: High compensations of employees
  • Be selective: Only hire persons fit in profile

The strategy analysis (strategy model / strategy map) in Slideshare:

The whole Strategy Model of Southwest Airlines (see picture below).

Levels of analysis:

  1. Root: Mantra (“mission statement”)
  2. Orange elements: strategy logics per strategic perspective
  3. Dark blue/violet elements: business issues
  4. Blue elements: activity elements

Read more about Must-Win Battles [Click picture below]


See also Business Model Canvas:

If strategies or innovations are too well documented, they are poorly adopted

A company always has a working strategy that is applied in practice, even if it’s not documented or clearly defined. Business is conducted and products delivered all the time. This is the unwritten strategy that is nevertheless firmly embedded in the minds of many self-employed CEO’s. In big companies, strategies are well documented, but poorly adopted.

A shared desired state leads to joint strategy building and continuous dialogue, which both work in favor of strategic agility. It is not necessary to decide on a strategy by planning it; the strategy may as well be “found” along the way.

This requires preparation and the right tools for creating agile strategy

  • the ground rules of business that enable situation-specific adaptation and adjustment, which can be carried out independently in different parts of the organization
  • the business criteria are clear to everyone (for instance sales volume, profitability, differentiation, competitive advantages)
  • a shared attitude towards the business (a strategy model/business model, explaining how different things are related)
  • a continuous open dialogue on the ground rules and criteria, and their implementation
  • customer- and market-oriented strategy

Strategic maneuvering is hindered by

  • approaching the business only from the viewpoint of the core business, or more generally from any single viewpoint (thinking is controlled by previous success, which might not be applicable in the future)
  • total autonomy of units; their lack of integration into a unique combination (individuals, no team or a sense of community)
  • overly tight contracts with clients and partners narrow down the strategic horizon (market division or other similar causes of rigidity)
  • excessive specialization and expertise, where production and marketing do not share a common strategy, instead everyone is doing their own thing

We have entered an era of strategic agility?

Strategy management has always been guided by different themes, which have defined how to build a strategic competitive advantage. These might have been the cost advantage in a given country, natural resources and the amount of resources, or process efficiency. Themes come and go as no single strategy can maintain the competitive advantage –

or is there such a strategy?

Now, in the beginning of the 21st century, the old cliché nails it: the only constant thing is change. Both big and small companies have traditionally built their competitive advantage into permanent structures. Large companies have relied on, for instance, a large production capacity enabling lower costs per unit, while local actors have benefited from their ability to adapt to local markets and stay close to their customers.

Both are in trouble now, but why are the times different from before?

Competition has certainly always existed, getting more intense all the time. So in this regard, nothing has changed.

Still, has a fundamental change nevertheless taken place?

Many industries, more than ever before, are facing:

  • hyper-competition, industry consolidation and change
  • an unparalleled rapid change in consumer behavior brought on by new technology
  • a deeper and wider recession than ever before
  • a great increase in expert involvement and the amount of available information.

It is no longer possible to leave the strategic decision-making to the top management team alone – the decision-making process needs to be decentralized. How can this be accomplished in a controlled way?

The answer is…

….by using agile strategy based on modeling, visualization and transparency towards all decision-makers, including those new in the process. At this very moment, a radical change is taking place, comparable to the turmoil brought about by industrialization.

Earlier, sustainable strategy (at least in part) could be built on fixed capital (factories, machines, land, etc.) or reproducible, efficient operation of high quality. Now, sustainable strategy rather leans on intellectual capital, such as know-how, branding, and the ability to constantly do something new and different, and do it better.

Monotonous repetition is out of fashion.

Sustainable strategy is achieved by doing things in a new way. Continuous renewal becomes the only sustainable strategy. This is new to strategic thinking, which until now has mainly pursued the benefits of sustainable strategy without being able to identify its main factor –

agile strategy.

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