SWOT analysis for Southwest Airlines

The fourth largest airliner in the United States, Southwest Airline, is still in strong position (Table 1.) after the historical terrorist attack of September 11^th. Now, the airline industry is facing financial difficulties. The fact that other companies is getting weaker may create opportunities for Southwest Airlines to gain marketing advantages.  A SWOT analysis is an important tool for a company to determine its strengths, weaknesses, opportunities, and threats, which is also the first stage of planning in marketing and helping a marketing manager to focus on key issues in planning strategy (Forrester, 2010). This study is going to apply the SWOT analysis for Southwest Airlines to analyze the data to determine how the identified strengths, opportunities, and trends can mitigate the potential effect of weakness and threats.

                                                            SWOT Analysis

“Significant to the accuracy of the SWOT analysis is anticipating trends within the industry.  Keeping an eye on competition is crucial to making appropriate adjustments to maintain competitive advantage.  A SWOT Analysis involves thorough evaluation of all elements of strategy and formulation”  (Krayna, V. L.)  For marketing strategy development, the SWOT analysis for Southwest Airlines was summarized as the following:

           Strength:  

 Financial stability, low debt rate and lean cost structure are three major strengths of Southwest airline.

          1.  Southwest Airline has minimum financial obligation.  "Southwest Airline also doesn't have significant capital obligations coming up, having already accepted 26 of the 29 airplanes it currently plans to add to its fleet." (Banstetter T. 2008).

          2. Southwest Airline is in a good financial and operational position. "Credit markets are certainly ugly right now, but we're in a good position for these turbulent times." (Southwest airlines, 2008)

          3. Southwest Airline has stable financial performance history.  “Southwest is the only major airline that has been consistently profitable for the past three decades. It has performed better than its rivals in recent years largely because of its lean cost structure.”  (Southwest airlines, 2008)

Weakness: 

       The service area provided by Southwest is limited, no international service, and the business protection for penetration is not strong.    “Southwest airline serves only 29 states and cannot compete against the bigger companies that serve nationally or even internationally. Furthermore, Southwest Airlines does not utilize a hub system that allows for bigger competitors to reach further out” (Avalon, 2005).

Threats: 

        The rough economy is discouraging tourism and business travel.  Fluctuation of fuel prices and economical uncertainty created the challenge situation for all airlines. The competition had been increasing.  "Southwest Airlines Inc. reduced flights to certain destinations" (Southwest Airlines, 2008).  Southwest Airlines Co. said its September passenger  traffic was down compared with September 2007. Southwest has a substantial number of flights in and out of  Phoenix Sky Harbor International Airport. Southwest Airlines have reduced flights in response to high jet fuel prices. Competition has not diminished during this decade. Instead, it has increased in many markets in large part because of the proliferation of Southwest Airlines and several other low-fare carriers. Competition is stronger than ever in many medium to long-haul connecting markets, where major carriers compete for passengers over their respective hub-and-spoke networks.  (Southwest Airlines, 2008).

Opportunities: 

             Because of the relative financial strength, Southwest Airlines has several obvious opportunities such as merger, develop new market, and take advantage of technology to cut cost. 

                   Mitigation of the potential effect of weakness and threats

               Good financial position gave Southwest Airlines the opportunity to merge with other airlines.  "Mergers are one strategy that some airlines have pursued to improve the efficiency of their networks and to expand their domestic and international route coverage" (Morrison, 2008).  “Could a US Airways-Southwest Airlines merger be on the horizon?  An airline industry expert from Minneapolis thinks so — at least, he thinks a merger of Pittsburgh International Airport’s two busiest carriers looks great on paper” (Fontaine,  2008). 

                 The stable financial performance would allow Southwest Airlines to implement cost saving, innovative, flexible technology to heighten performance, improve the relationship with customers and their competitive position.  Technology such as internet can help to keep the operation cost lower and give customers better deals, and another   technology example is the Navitaire system that can help airlines heighten their performance, reclaim the relationship with their customers and improve their competitive position.

            The sound operational position gives Southwest airlines the opportunity to establish new routes to minimize potential effect of the weakness that the service area provided by Southwest is limited.   It is good time for Southwest Airlines to add new routes, "Credit markets are certainly ugly right now," and "but we’re in a good position for these turbulent times." (Banstetter,  2008).  At the same time, Southwest Airlines continue to work to attract more business travelers. Southwest executives said that they will launch their first flights at Minneapolis/St. Paul Airport next year, with a route to Chicago Midway Airport, a flight that’s generally skewed toward business travelers. Gary Kelly, Southwest’s chief executive, suggested, "This is an unique opportunity. Southwest will use Midway Airport as a hub to offer one-stop service to cities nationwide from Minneapolis/St. Paul." (Banstetter,  2008) 

                 Southwest Airlines can take advantage of its strong financial position to hedge future fuel to lock in lower fuel prices than its competitors, and reduce the threat from the fuel price fluctuation. Airports are long-term and defensive investments.  Taking advantage of the current situation of economic uncertainty, Southwest Airlines can develop the right business model for long term development. Despite  the slowdown and decline, there will be long-term growth.

                                                       Conclusion

           For the first stage of planning in marketing, the SWOT analysis had been applied to determine Southwest Airlines' strengths, weaknesses, opportunities, and threats/trends.  The financial stability, low debt rate and lean cost structure are three major strength of Southwest Airline . The weakness is that the service area provided by Southwest is limited, no international service, and the business protection for penetration is not strong. The threat is that the rough economy is discouraging tourism and business travel, fluctuation of fuel prices and economical uncertainty created the challenge situation for all airlines, the competition  had been increasing. Because of the relative financial strength, Southwest Airlines has good opportunities for growth. To take advantage of its strength, Southwest Airlines can  mitigate the potential effect of weakness and threats. Southwest Airlines Inc. had been advised to consider the following possibilities:  merger, developing new market, taking advantage of cost saving,  innovative, flexible technology to heighten performance, establishing new route,  hedging  future fuel to lock in lower fuel prices, and developing  right business model for long term growth.   

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Table 1 Southwest Airlines Annual Income Statements

                 (All amounts in millions of US Dollars)

Year	Revenue		Gross Profit		Operating Income		Total Net Income		Diluted EPS (Net Income)
Dec 07	9,861.0	2,780.0		791.0		645.0		0.84
Dec 06	9,086.0	2,775.0		934.0		499.0		0.61
Dec 05	7,584.0	2,493.0		820.0		548.0		0.67