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Case Discussion: Southwest Airlines

Case Discussion: Southwest Airlines

CASE 21: SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR?

Forty profitable years and an army of budget-conscious customers have made Southwest Airlines the largest
domestic ca1Tier in the United States. Fluctuating jet fuel prices and turbulent economic conditions notwithstanding, by the beginning of 2013, Southwest had expanded its network to 97 destinations, assuming an eminent position in the industry. Southwest Airlines’ competitive labor costs, low fares, and unique corporate culture comprised its best arsenal against rivals.

Yet with the U.S. air travel market stagnant and larger airlines consolidating into more dominant competitors,
Southwest has been forced to re think its traditional business model in recent years. In a significant departure from its customer-friendly policies, Southwest, like other rivals, is transitioning to a profit-boosting strategy. 1 The new strategy has meant new fees and reconfigured cabins with reduced leg room to squeeze in six extra seats on every plane in its fleet. Having forgone millions of dollars in fees that its competitors charge from customers, Southwest is beginning to look for ways to earn extra revenue to offset rising operating and integration costs from its merger with AirTran. With a new $40 fee to be amongst the first 15 passengers to board the plane, Southwest has managed to anger some of its most loyal customers.2 At the end of 2012, Southwest continued to offer its bags-fly-free policy, which has contributed to increasing its market share. When probed about his company’s plans to start charging baggage check-in fees in 2013, however, CEO Gary Kelly declared, “Never say never.”3 In a March 2013 report, Topaz International concluded that Southwest is the cheaper alternative only 40 percent of the time, fueling analysts and customers to question Southwest’s low-cost claim.4 (Excerpt). Review the Case and answer the following discussion questions:

1. Discuss Southwest’s approach to (a) attracting, (b) developing and (c) retaining human capital (i.e., employees, talent).

2. Considering the resource-based view, discuss the basis of Southwest’s competitive advantage and the potential challenges to its strategy.

 

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