Southwest Airline's Low Cost Strategy example essay topic

TABLE OF CONTENTS Page Introduction... 2 Discussion... 4 Conclusion... 17 References... 17 Appendix... 18 INTRODUCTION In this millennium, business organizations are continuously facing multitude of competition.

Companies must deal with challenges such as how best to approach their rivals, rapid technological change, the emergence of new industries and serving their customers. Thus, to survive and succeed in this millennium, the need to build and sustain competitive advantage will be greater than ever. Airline industry is a highly competitive industry. Nowadays, in order to survive and develop, more and more airline companies are searching for competitive advantages.

Generally, for an airline company, competitive advantage can be gained through two ways: improving customer service and cutting down operational costs. In this project, the focus will be on how international airlines companies achieve competitive through quality of service and lower cost. First, British Airways's ervice strategy will be discussed. Second, Southwest Airline's low cost strategy will be considered. After looking at these two parts, a summary of the competitive strategies will be highlighted and commented on. DISCUSSION I. How competitive advantages is gained through service British Airways is the world's largest international passenger airline.

Operating more than a thousand flights a day to 160 airports worldwide, it has a fleet of over 300 aircraft and a workforce of 60,000. In the highly competitive airline market, customer service is a key differentiator. The British Airways reputation has been built upon quality service provided by dedicated workforce. To continue to improve, the airline developed goals and values fundamental to achieving its mission including the provision of personalized service to its most valued customers.

British Airways regards the whole process of obtaining travel information, booking, ticketing and checking in at the airport as important parts of the entire travel experience. E-ticketing: British Airways was one of the first airlines to offer electronic ticketing in 1997. Electronic ticketing replaces the paper ticket with a virtual "electronic" ticket. All the information that's traditionally printed on a paper ticket is stored electronically on a computer database. Once the passenger makes a reservation and pays for the ticket, there's no need for British Airways or a travel agent to issue a paper ticket. Customers do not have to worry about receiving tickets by post, queuing to have a ticket issued at the airport, or losing their tickets.

In addition, the airline saves on the cost of issuing and handling these complex paper documents. Self-service kiosks: Self-service kiosks enable passengers to access their electronic record by using their Frequent Flyer card or credit card of payment, select their seat from an optional seat map, and print a receipt and their boarding pass -- all in one of six languages of choice. Passengers gain by having a choice of check-in method, and speedier, more convenient service from the kiosk -especially at peak travel times. The new technology is a definite winner with British Airways customers. Over 70% of the transactions at the kiosk are electronic tickets. It's a powerful combination -self-service technology coupled with electronic ticketing- that improves customer service, reduces costs, and provides faster and more efficient passenger processing.

British Airways' First Class Service As professor Stephen Shaw point out that 'an airline whose marketing strategy is based on targeting both the business and leisure travellers, cannot rely on a cabin configuration aimed at producing the lowest operating cost, instead, they must develop a multi product philosophy, one of the manifestations of which is the need to have different classes of service on board their aircraft'. Generally, a first class service has these following standard: " Priority check-in and disembarkation " Use of fast track channel " Use of first class lounge " Complimentary newspapers " Complimentary alcoholic drinks O Delectable choices First class passengers can get a choice of 30 gourmet dishes, devised by 6 international culinary experts. The first cellar holds the finest wines, champagnes and spirits, and also served the passengers at any time during the flight along with soft drinks, espresso or cappuccino. O Luxurious Facilities. BA was one of the first airlines to install personal "suite" like seats, which feature a large table for working or eating, a second mini seat for face to face meetings and eating, and a seat that converts into a full 6 and one half foot bed.

O Onboard business facilities Built-in personal phone can be used to to keep in touch with family, friends or business colleagues. In-seat power and laptop power cables are also designed for businesspeople who wants to continue his work on the plane. O Entertainment With a personal video player, passengers can have 18 FIRST in-flight video and 12 audio channels, plus over 30 videos to choose from. II.

How competitive advantages is gained through lower cost Southwest Airlines is the fifth largest airline company in America, operating more than 2,100 flights per day and carrying over 44 million passengers a year to 50 different cities all over the United States. Different from British Airways, Southwest's competitive strategy is based on one sample notion: if you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline. In order to find out the reasons why Southwest Airlines can made such a rapid progress in transport market, I made a ticket booking test through some airline companies' web site (Appendix I). I chose the same itinerary (from Los Angeles to Manchester), same date (depart date April 11 and return date April 18), and then I made a conclusion: if I choose American Airlines, I need to pay 579.85 dollars for the flights; but if I choose Southwest Airlines, I only need to pay 388.50 dollars for the flights, nearly two hundred dollars lower. So why can Southwest Airlines offered the customer such a low price? It is no doubt that the low cost strategy is the key point: O Limited Passenger Service i Little or no catering is offered. ii No preassigned seats for customers.

The turnaround process is that deplaning passengers leave by the front door of the aircraft as departing passengers board through the rear door. Departing passengers are encouraged by the flight attendants to sit anywhere that they can find a seat. i. No baggage transfers O Avoiding Travel Agent Southwest Airlines encourage passengers to book direct with the airline by phone, or by making on-line bookings through the Internet. As a result, in the year 2002, forty-six percent of Southwest's passenger revenue was generated by online bookings via southwest. com, the cost per booking via the Internet was about $1, compared to the cost per booking of $6-$8 through a travel agent. O Using Secondary Airports Southwest has a clear policy of avoiding congested hub airports wherever possible. For example, it used the old Love Field airport at Dallas, rather then the huge and busy DFW.

Using these old airports also brings benefits to customers in that they tend to be located much nearer to the center of the cities they serve. They tend also to have lower landing fees and allow for short taxi-ing distances and for a ready availability of stand and aircraft parking space. O Short Haul, Point-to-Point Routes and Frequent, Reliable Schedules i. High number of flights reduces employee idle time between flights ii. Saturate a city with flights flowering administrative costs per passenger for that city O Standardized fleet of Boeing 737 aircraft Southwest's fleet consists entirely of Boeing 737's, which are more fuel efficient than the larger airplanes. Having just one type of plane also helps to reduce training costs of pilots and mechanics, and also requires lower inventory levels of spare parts.

O High Aircraft Utilization In Southwest Airlines, high aircraft utilization is achieved by avoiding cargo transportation and by traveling on a point to point basis, which eliminated delays in boarding connecting passengers. As a result, the aircraft utilization average is between ten and twelve hours per day, while BA achieves just seven hours a day. O Flexible Employees and Standard Planes Aids Scheduling In Southwest Airlines, workers' contracts were flexible enough to allow them to jump in and help out, regardless of the task at hand. From the time a plane landed until it was ready for takeoff took approximately 20 minutes and required a ground crew of four plus two people at the gate. By comparison, turnaround time at United Airlines was closer to 35 minutes and required a ground crew of 12 plus three gate agents.. Discussion It is obvious that British Airways's success largely depends on their excellent customer service.

And Southwest Airline's success depends on their low cost operations. But now there is a question that needs to be considered: How can a low cost airline company remain competitive advantage without prejudicing quality? Some people have argued that 'Low Cost = Poor Service'. It is impossible for an airline company to offer the passenger 'the lowest price with the best service', because better customer service will cost extra operational fees". Is that true? In order to find out the answer of this question, we need to look at the customer service part of Southwest Airline's strategy.

As a successful low cost airline company, Southwest Airlines has received the highest customer service ratings in the airline industry over the past two years. Southwest Airline's mission statement is. ".. dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit". O All Southwest employees must receive mandatory service training every year. As part of Southwest's people department, a number of specialized courses are offered to Southwest employees and managers through Southwest's "University for People". These include courses on customer service, team building, decision making, employee relations, performance appraisal, communications, stress management, safety, and career development. Thus, with these training course, to let their employees understand the company, its mission, its customers and competitors.

O The company also has various award and recognition programs which recognize Southwest employees for their exceptional customer service. Flamboyant CEO Herb Kelleher, who has announced plans to step down in 2001, has created a highly participative corporate culture... O Southwest only laid off three people in 25 years and it immediately hired them back. This employee retention policy has contributed to employees' feeling of security and fierce sense of loyalty. From these strategies we can see that the center of customer service is 'people', not extra operational fees, dedicated employees and the corporate culture are the intangible assets for a company. CONCLUSION A service industry is one that provides an intangible product rather than a physical end product.

In the airline industry, the product is the complete air-travel experience. Building customer loyalty through outstanding customer service is a critical component of British Airways's strategy for continued growth and success in the highly competitive air travel industry. Effective operations, cost control activities, corporate culture and employee's loyalty are the key factors in an airline company's success. Reference 1. British Airways, web 2. Southwest Airlines, web 3.

Pat Hanlon (1999) Global Airlines, Butterworth-Heinemann, England. 4. Stephen Shaw (1999) Airline Marketing and Management, Ashgate Publishing Limited, England. 5. Rig as Dog anis (2002) Flying Off Course, Routledge, England.