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Analysis Of Southwest Airlines

2695 words - 11 pages

EXECUTIVE SUMMARYSouthwest Airlines has come across some issues and the one with the most concern is expansion. Southwest must meet the current and forecasted demand, find sufficient facilities, keep their strategy coherent and consistent, and ensure that the entry into a new market is timely. These issues main constraint is finding facilities at a low cost to remain profitable. What has to be taken into account would be new construction costs in a major city airport, addition of two new gates, more labor costs, etc.The management of Southwest must strive to keep its competitive advantage and strategic coherence when faced with future expansion decisions. The airline must make certain that any expansion decisions are consistent with its short-haul, high frequency, low-cost, "luv" strategy. Competition in the airline industry is tough, but also the risk of substitutes to air travel threatens to take travelers out of airplanes.Southwest's main advantage is their price (as much as 80% when compared to other major airlines). This strategy is highly sustainable, dramatically increasing their size of the market where they enter.From the three routes given, we chose that Southwest should implement the Baltimore - Chicago route, since financially it seems sustainable. The labor conditions in both of these airports are good (there is a lot of room for expansion), and the route is about 611 miles long, which still constitutes a short haul route.PROBLEM STATEMENTDespite the overwhelming success Southwest has maintained, the airlines does face several major issues that play vital roles to its continued profitability. Based on a conservative growth strategy, Southwest's top concern is expansion. The airline faces an urgent expansion decision regarding where and how to commit two new Boeing 737's into service. This decision is comprised of several important components. Southwest must meet the current and forecasted demand, find sufficient facilities, keep their strategy coherent and consistent, and ensure that the entry into a new market is timely.Southwest must be aware of an increasing or decreasing demand not only in the markets that it currently serves, but also any potential market. As air travel steadily increases, Southwest must decipher which cities hold the greatest opportunity to profit over other major airlines, such as United and US Air. The airline industry requires enormous quantities of capital, which prohibits Southwest to grow in an uncontrolled manner. For example, 500 letter writers in each city had requested the Detroit to Phoenix route. Southwest must then determine if there is ample demand to warrant the addition of that route into service.The main constraint regarding the proposed expansion is finding enough facilities at a low cost in order to remain profitable. Construction costs in a major city airport would be approximately $1 million including the addition of two gates and other improvements. The cost at smaller regional airports...

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