Southwest Airlines is practicing a conservative growth strategy. The airline focuses on growing internally and expanding within their current routes. It is estimated that in any given year, 85% of Southwest’s expansion is internal. The company purchases new planes to add capacity to their system. By next year, they will be using 14 to 16 new planes for internal expansion. At times, Southwest expanded externally, but only when an opportunity was present. The company faces a problem with expansion. Southwest Airlines is asked to join new markets where they cannot meet the demand.
The company does not have sufficient facilities and must expand in a controlled manner. In order to help solve the problems of expansion, Southwest Airlines should increase their market research. Generally, Southwest Airlines fly into airports of smaller; less congested cities (see Figure 3). This strategy was implemented to reduce taxi time, gate holds, and in-air waiting. However, more consumers complained that it was harder for them to get into larger cities when flying with Southwest. Southwest should expand by purchasing more planes to fly into larger cities.
As mentioned earlier, Southwest Airlines faces the problem of expansion by not meeting the demand of other markets. Recommending Southwest to invest in researching new areas and finding new facilities to use would assist them in external expansion. The company focuses on a very particular strategy. Southwest Airlines has experienced success with their current strategy, but are still facing various problems. Southwest should not incorporate a new strategy but should integrate smaller strategies in order to reach optimal success.
By investing in new areas and searching for new facilities, Southwest Airlines could prevent the lack of expansion. By expanding to larger cities, such as Charlotte, Pittsburgh and Charleston, the company would increase their consumer market and satisfy their customers. Reduce Costs The last recommendation that our team is suggesting for Southwest Airlines is to take reducing the cost of their planes into consideration. Southwest planes have an average age of only seven years, significantly lower than the ndustry average, and a useful life of twenty years. We see is as an opportunity to gain a competitive advantage over their competition recommend Southwest to increase their maintenance budget. This would help sustain the useful life of the planes to get the most value out of their “young” assets. Our consulting group believes that Southwest has the opportunity to make greater profits if they re-allocate some of their money. Their profits need to fund better maintenance projects and upkeep for their equipment.
Southwest has a significant advantage over their competition, simply because they are the only major airline turning a profit. If they use the money they are earning to better maintain their equipment, they will see greater returns in the future. We also recommend for Southwest to increase their fleet by 20 planes in the next year; as opposed to the 16 that they plan to purchase. Increasing their fleet will accomplish several advantages for Southwest. In 1992, Southwest had 150 Boeings. These planes flew a total of 1,500 trips a day.
An increased quantity in a fleet will help reduce the number of trips each plane takes and can ultimately increase their useful life. The increased fleet also will allow time for planes to get proper maintenance while reducing the need to rent other aircrafts. The aircraft rental expense is a significant cost for Southwest (see Figure 4). Therefore, increasing the fleet will help reduce that cost and ultimately increase profits and the companies net worth. Conclusion Having completed a thorough examination of Southwest Airlines we were able to identify three key issues currently faced by the company.
As described earlier, these issues are: the current ticketing system, the conservative growth strategy, and buying and maintaining planes. Based on these findings, we successfully developed three corresponding recommendations for Southwest. Additionally, we created a financial forecast based on the impact of our proposed recommendations through year’s end 1995. It is our belief that Southwest Airlines currently utilizes a very successful business strategy, but with the addition of our proposed solutions, they will be able to accelerate future growth and maintain their industry leading performance.