Southwest Airlines, which is the most profitable airlines in the competitive airlines industry, has been successful since its inception. However, despite its success over the last three decades the company now faces new challenges brought about by both external and internal factors. These challenges can be approached using five major elements from a framework developed by Hambrik and Fredrickson: strategy-arena, vehicles, differentiators, staging, and economic logic.
The Airline Deregulation Act of 1968 empowered independent airline companies to set their own fares, allocate routes, and regulate entry and exit into markets. As competition intensified, the forces affecting competition in the airlines industry included prices, customer services, safety, the number of flight routes, and the frequency of flights.
In this competitive airlines industry, Southwest Airlines has used strategies which led to the company’s success. First, the arenas in which the company operates are well defined. Southwest Airlines specializes in short-haul flights, charges low prices, and is careful about flight safety. It targets buyers of short-haul services who are quite sensitive to prices. With a geographic scope of specific, domestic regional markets, Southwest Airlines is the only point-to-point carrier among the major airlines. Therefore, the company’s organization is considerably easier to maintain. Second, in order to achieve a low-price structure, as vehicles of its strategies, Southwest Airlines devised a number of stratagems. It serves smaller, less congested, secondary airports in larger cities, which tend to have lower gate costs and landing fees. Southwest Airlines’ most important differentiators are offering the lowest possi ...