Why Is Southwest Airlines One of the Best Low Cost Airlines?

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Even before September 11, 2001, the airline industry faced many problems, including overcapacity, lower profits due to fierce competition, airport congestion, and antitrust concerns. The terrorist attacks of September 11 had the worst economic impact on the airline industry. Although some of the initial panic and fear of flying directly following September 11 has dissipated, more rigorous security screening and passengers’ perceptions of the risk of flying have altered the demand for and experience of air travel, especially in the United States.

The events of September 11 resulted in a transitory, negative demand of more than 30% in addition to an ongoing negative demand of approximately 7%. Since September 11, revenues have plummeted, and approximately 100,000 employees have been laid off. National, Midway and Vanguard Airlines are out of business. United, US Airways, ATA, and now Northwest and Delta are flying in bankruptcy. However, low fare carriers Southwest, Jet Blue, Frontier, and Airtran have been profitable in recent quarters, with Southwest being the best low-cost airline.1

Southwest has not laid anybody off and has not cut any flights since September 11. It has managed its business in good times and survived in bad times. Prior to September 11, Southwest amassed a $2 billion cash cushion. Why did it attain growth and maintain survival and even prosperity? The following are the reasons:

Great marketing strategy and long-term overall strategy

Competition requires companies to make choices as to what to do and what not to do to attain growth and maintain survival. Southwest has a strategy — the creation of a tailored set of best-fit activities. Southwest began as a low-cost, no frills airline 30 years ago.

Southwest Airlines cabin

Credit: Matt Coleman

It has grown to be a national airline, but still has its basic cost structure. Southwest has never served meals or reserved seats in advance. It still has what is basically a linear route structure. It only flies one type of airplane and it wants to stay in high-density markets. Its operation is highly efficient. The end result of this strategy is a sustainable, competitive advantage and superior profitability.2

Employee loyalty

Southwest treats its employees right. The airline adopted the first profit-sharing plan in the U.S. airline industry in 1973. Through this plan, its employees own at least 10 percent of the company stock. It has a highly motivated workforce. The employee retention rate is 92.3%. It lost a huge amount of business after September 11, but each of its 32,000 employees gave back some of their pay to help tide over the temporary difficulty of the company. Its corporate culture really stands out.3

Southwest fully utilizes its resources and capabilities to make up its core competencies. It focuses on short-haul, point-to-point routes, no-frills service and less-crowded airports. It minimizes turnaround times and keeps its planes in the air longer than its competitors. The design of these best-fit activities, the superior management skills and the employees’ commitment are its core competencies. They demonstrate three characteristics which are (1) it is valuable to the customers; (2) it is applicable in a variety of markets; and (3) it is difficult for competitors to imitate. That is why they result in a sustainable, competitive advantage.

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  1. Airline information on-line on the Internet, http://airinfo.aero
  2. Pender, K. 2001. “Southwest Sets Standard for Success in Depressed Airline Industry.”
  3. Southwest Airlines Fact Sheet, http://www.southwest.com