Case analysis: Southwest Airlines
The Southwest Airlines had little capital when they entered the market. Despite this, the company has grown and currently expanded its operations in 68 cities. The airline is trying to beat all records in the biggest number of daily flights and they are competing to be the first among other airlines in ferrying the highest number of travelers per plane. Its popularity is attributed to low fares, its laudable operations, and services that leave it customers satisfied. Moreover, it is appreciated for low prices, flights that are frequent, on-time arrivals, very high safety records and flying bags for free. However, it has not been without certain hurdles to the airline. This paper analyses the problems faced by the Southwest Airlines, their causes, alternatives and also solutions to those problems.
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One of the problems the airline faced especially at the beginning of their existence was a lack of resources. This was clear from the fact that on the plane they offered a meal consisting of only a small bag of peanuts. Another major problem that is still sometimes present is high fuel prices. Jet fuel prices are very significant in airlines industry that is why that they account for almost half of the flight ticket (40%). Planes consume much fuel and it was estimated to be around 1.5 billion gallons of fuel per year. This means that even small fluctuations in prices or supplies of fuel can create significant changes in ticket prices. This leads to another issue of reasonable prices that to a great extent depends on the price of jet fuel. Fares are very significant to this airline because it has to compete with other companies offering similar services.
The symptom of small budget was the poor meal offered to the clients. The airline even made fun of it in the advertisement stating that thats how their meals looked. The symptom of the non-stable fuel prices is its impact on flight fares. The company states that 40% of the ticket price is contributed by the price of jet fuel.
Fuel hedging is one technique of saving money. The company creates a program in place of purchasing fuel for several years in advance. This program helps the company to save millions of dollars when there are rapid increases in prices. For instance in the year 2000 fuel hedging saved the company more than $2 billion. The disadvantage of this program is that it requires the company to invest colossal amounts of money to buy jet fuel several years before it is used that can lead to financial distress (Vasigh et al). It can also be risky especially if the company buys the fuel and after some time the prices go down instead of rising.
Another alternative is to use lighter planes since lighter planes consume less fuel. The disadvantage of lighter planes is that they can carry fewer passengers hence the company will require more planes to fulfill their plans for the transportation To make their planes lighter the company uses less water for the washrooms and replaced seats with those that are not so heavy.
One solution is to offer discounted prices that will attract more customers to use their services (Ramaswamy and Namakumari).This can be achieved through the accumulation of money that can later be redistributed to cover the losses connected with the offered discounts. The remaining sum of money can be used to pay for the jet fuel. It can partly be achieved by increasing the number of flights. The airline should, therefore, always look for new markets, offer lower prices and good quality services to satisfy their clients.