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. Whether it is due to fluctuating demand based on the luxury service or due to rising oil prices, a company operating in the airline industry must maintain and strengthen a set of competitive advantages that differentiates it from its competitors. Southwest Airlines' business model leverages extremely efficient operations, deep focus on the customer experience, low-cost pricing and logistics solutions, active forward thinking, and a motivated team of employees and associates. Through this sound strategy, Southwest has achieved multiple competitive advantages that have allowed it to stay relevant in the face of an evolving landscape.
The Right Recruits
While Southwest Airlines' entire business model is important, arguably the most valuable competitive advantage has been is 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. To ensure the right mix of team members, Southwest has stringent hiring practices and policies.
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, but there are many more factors that go into this competitive advantage.
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To ensure its customers have an enjoyable experience, Southwest Airlines has set various policies and procedures that make flying with the airline easy. One of these is Southwest's cancellation policy, which allows a customer to cancel a reservation up to 30 minutes prior to the flight's departure, and the funds from the cancellation are available for a future flight. Policies like this one ensure that Southwest Airlines' customers remain satisfied with their experience – even if they have to cancel their flights – and it also helps 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 offers points for purchasing flights that customers can use to purchase future flights. It also has a partnership with Chase Bank and offers customers a Southwest credit card that allows them to accumulate points that they can redeem for future flights. Keeping the customer happy is a great competitive advantage for Southwest Airlines.
In addition to motivated employees and great customer service, Southwest Airlines also offers the one of the lowest-priced solutions for air travel. Its pricing strategy offers extremely low prices compared to other airlines, such as Delta (DAL) and American Airlines (AAL). To be able to offer low prices, Southwest had to build its business model around low operating costs. It only has a few types of aircraft that don't include amenities such as in-flight movies, which helps the airline reduce its costs. It also services smaller airports that don't cost as much. If a customer can find a lower-priced ticket, Southwest Airlines matches the price.
Keep Looking to Improve
Southwest Airlines has a track record for being very forward thinking, boosted by a flexible business model that supports rapid change. Keeping the end in mind, Southwest recently acquired AirTran, which has helped it gain market share and expand its services. Southwest always tries to upgrade its fleet of airplanes, looking for lower-cost solutions that can also add more capacity, which will increase its revenue and profit potential.
All in all, it's Southwest Airlines' competitive advantages gained through its flexible business model that differentiate it from other airlines.