There are numerous distinctive characteristics that had lead to the success of Southwest’s pricing strategy, this report has summarised these characteristics into four key categories and followed by a detailed explanation. These key factors appear to be niche marketing, cost containment, employee commitment and conservative growth. Niche Marketing While every company is experiencing drastic competition within the airline industry, Herb Kelleher had explored a niche, a strategic window of opportunity in the industry.
Since Southwest is not try to match or even really hard to match its resources and competencies with other large major airlines such as US Air, America West and others, Herb decided to be a domestic dominant rather than fight to shares part of the international or long-distance market segment. In revealing to the niche marketing strategy, Southwest is targeting their customers who are short-distance frequent flyers and, valuing low fare prices. By focusing on the niche market, Southwest is able to targeting on customer’s particular needs.
It helps Southwest saving largely on its R&D costs since it is not diversifying its services to satisfied different customer needs and wants. Focusing on a niche market means Southwest will provides everything about the airline has been adapted to serving that market segment in the most efficient and economical way. The niche market that Southwest had discovered becomes its differential advantage for Southwest. The lower the costs of investment, which is appreciated first step for Southwest to achieve low price strategy. Cost Containment
The Term Paper on Southwest Inc Customer Airlines Company
... niche. Although they started off small, by 1989, Southwest was considered a major airline. Today they are the fourth largest U. S. domestic customer airline ... was expansion into the global market. This would afford Southwest access to a much larger customer base. However, there were many ... their competitors, Jet Blue, is already offering a lower cost, luxury flight. After only 3 years in business, they ...
Keep operation costs low is an important element that contributed to the success of low pricing strategy. Southwest has been the lowest-cost carrier in the airline industry, with its operating costs per available seat mile were 15 percent lower than America West; 29 percent lower than Delta; 32 percent lower than United; and 39 percent lower than US Air. Other large competitors are trying to match Southwest’s cut-rate price, but they all end up with huge losses. There are many aspects of the operation contributed to Southwest’s cost containment.
Southwest is the only airline company that using a single aircraft type, fuel-thrifty Boeing 737, it is therefore enables Southwest to reduce costs in training, maintenance and inventory. Specifically, Southwest was successfully achieved a fast turnaround time on the group, with almost 70 percent of its flights have a turnaround time of 15 minutes while other competitors need an hour to turnaround on the ground. With it fast turnaround time, Southwest is better in reaching a higher level of passengers volume as well as higher revenue even though it offering a low fare prices.
Additionally, Southwest is saving on its operation costs by taking its passengers to smaller satellite airfields rather than major metropolitan fields. In customer service areas, Southwest curbed costs but satisfied passengers’ needs at the same time. It offered peanuts and drinks but no meals. Boarding passes are reusable plastic cards since Southwest does not subscribed to centralised reservation service. It does not transfer baggage to other carriers as they are the passengers’ responsibility to carry their baggage.
The Essay on Southwest Airlines Cost Advantage
Jeff Bradford MBA 634 Southwest Airlines 1. ) Many changes have occurred and are occurring in the airline industry, which pose a potential threat to Southwest Airlines. The airline industry has traditionally had many airlines receive annual loses on their income statements. This trend is still continuing today as many airlines stand in financial trouble. Some of these financial troubles arise from ...
However, passengers found these services are acceptable because of the short-haul situation, and dependable and reasonable services were still maintained with the cheap price they have paid. Employee Commitment Kelleher’s extroverted, zany, and down-home personality helps Southwest to generate a team of employees who are highly committed and loyal to the company, which also becomes a competitive advantage for Southwest as employees are the most valuable assets for every organisation. Kelleher is a uccessful leader who creates a fun and friendly working environment, and with his sincere interest in the employees and company parties, which resulted that Southwest employees are unionised but has no relationship with unions. The benefits is that Southwest is able to negotiate flexible working rules with employees, they brought a dedication to serving customers, flight attendants and even pilots are willing to help with plane cleanup. This is one of the reasons that why Southwest is able to achieves fast turnaround time.
As employees enjoying their works, they tend to achieve high productivity, and Southwest was enabling to be leanly staffed. Kelleher also introduced the first pro-sharing plan in the US airline industry in 1974, employees own a total of 13 percent of the company stock. This profit-share plan promotes employees’ productivity, and creates a sense of security and loyalty for employees. Employees are motivated through fun working atmosphere and feelings of commitment and loyalty, which helps Southwest to avoid high turnover rate in order to minimise costs that will spend on human resources issues. Conservative Growth
Kelleher was resisted to expand vigorously and chose the conservative approach to growth, the philosophy of expansion was only to do when there are enough resources could be committed. Moreover, Southwest was showing a vigorous growth but under controlled with almost financing from its internal funds, and taking the lowest level of debt in US airline industry with 49 percent equity. Southwest has efficiently using its resources concentrated in only a few areas rather than trying to compete everywhere. The above factors are all inter-related and every factor is important in the contribution of Southwest’s effective pricing stratey.
