Southwest Airlines (LUV) has become known over the past two decades as a thriving airline company operating in a time when most airlines have been struggling.
Any company operating in the airline industry must maintain and strengthen a set of competitive advantages that differentiate it from its competitors. Southwest Airlines' business model is based on extremely efficient operations, low-cost pricing, and innovative logistics solutions. Furthermore, their strategy also includes a deep focus on customer experience and looking ahead. Finally, none of this would be possible without a motivated team of employees. Through this sound strategy, Southwest achieved multiple competitive advantages that have allowed it to stay relevant in a rapidly changing world.
- Southwest Airlines is more flexible than most other large airlines.
- Southwest is the only large U.S. airline that is also a low-cost carrier.
- Southwest Airlines' strategy emphasizes recruiting and retaining motivated employees.
- Southwest continues to improve its business model and practices.
The Only Large Low-Cost Airline
The collapse in demand for flights throughout 2020 nearly put several airlines out of business, but Southwest was able to survive without major layoffs. When business conditions decline, only the strong survive. Southwest Airlines is strong from both a size and a cost perspective.
One way of measuring strength is size. According to this theory, large airlines will experience declines, but they will not actually go out of business. Southwest is one of the big four airlines in the U.S., along with American Airlines (AAL), Delta (DAL), and United (UAL). That means Southwest has bigger reserves in cash, credit, and other assets than smaller airlines.
Bigger doesn't always mean better, but it usually does mean safer when it comes to investing.
Controlling costs is also crucial to surviving a downturn, and Southwest does well there too. Low-cost carriers, such as Southwest, have several critical advantages over their competitors. They focus on providing the lowest prices for the most popular routes, which means fewer routes will need to be abandon. Negative economic growth will also make businesses and consumers more sensitive to ticket prices, the low-cost airlines' primary advantage. Southwest is the only large airline that can compete on price.
The Right Recruits
While Southwest Airlines' entire business model is important, arguably the most valuable competitive advantage has been its deep focus on hiring the right people. Southwest prides itself on being a people-oriented airline that operates with friendly and approachable employees and team members. Per its business model, Southwest hires employees who embody the company's brand messaging and who have a passion for helping customers. Southwest has stringent hiring practices and policies to ensure the right mix of team members.
Southwest Airlines has a business-oriented focus on the customer's experience. Part of that customer experience comes from the attitude and helpfulness of the employees it hires. However, there are many more factors that go into this competitive advantage.
Southwest Airlines has set various policies and procedures that make flying with the airline easy. One of these is Southwest's cancellation policy. They allow a customer to cancel a reservation up to 10 minutes before the flight's departure. More importantly, the funds from the cancellation are available for a future trip. Policies like this one ensure that the customers of Southwest Airlines remain satisfied. These flexible policies help the airline to build high levels of brand loyalty.
Rewards and Pricing
Southwest Airlines also has one of the better rewards programs in the industry. Southwest gives points to customers. They can use the points to purchase future flights. It also has a partnership with Chase Bank and offers customers a Southwest credit card. The card allows them to accumulate Southwest Airlines points when making other purchases. Keeping customers engaged is a big competitive advantage for Southwest Airlines.
Besides motivated employees and great customer service, Southwest Airlines offers one of the lowest-priced solutions for air travel. Its pricing strategy offers extremely low prices compared to other large airlines, such as Delta and American Airlines. Southwest had to build its business model around low operating costs to be able to offer low prices. It only has a few aircraft types, which helps the airline reduce its costs. It also services smaller airports that don't charge as much for gate access. If a customer can find a lower-priced ticket, Southwest Airlines matches the price.
Continuing to Improve
Southwest Airlines has a track record for being very forward-thinking. It is boosted by a flexible business model that supports rapid change. That puts the company in a better position to deal with the disruptions caused by economic events that are beyond its control. Southwest is always looking for lower-cost solutions, and that is more important than ever before.