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Case study Competitive advantage

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					     Case study:
 Competitive advantage




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Case Disc uss ion Questio ns
1.        W h at d o e s t h e s u c c es s of S o u t h w e s t A i r l i n e s t e l l y o u a b o u t
t h e r e l a t i v e i m p o r t a n c e of i n d u s t r y c o m p a n y - s p e c i f i c f ac t o r s i n
e x p l a i n i n g a c o n p e r f or m a n c e ?
2.         W h at i s t h e b a s i s of S o u t h w e s t ’ s c o m p e t i t i v e ad v a n t a g e ?
H ow mi gh t it l os e t h at ad van t ag e?



Intr oduct ion

F or m o s t of t h e l as t f i f t e e n y e a r s , t h e U . S . a i r l i n e i n d u s t r y h a s
b e e n o n e of t h e l e as t a t t r ac t i v e t o b e i n . F o l l o w i n g t h e 1 9 7 8
d e r e g u l a t i o n of t h e i n d u s t r y , t w e n t y - n i n e n e w a i r l i n es e n t e r e d t h e
industr y bet ween 1978 and 199 3- T his r apid incr eas e in air line
c ar r y i n g c a p a c i t y l e d t o a s i t u a t i o n of o v e r c a p a c i t y . A s m o r e a n d
m o r e a i r l i n es      c h as e d      p as s e n g e r s , f a r es       wer e driven                down   to
levels        b ar e l y    s uf f icient       to     maint ain          the    p r of i t a b i l i t y   of   U.S .
airlines. I ndeed, t wic e sinc e 19 78 t he indus tr y has been engulf ed
in an int ens e pric e war —f irst in t he1981- 1983 per iod and t hen
again in t he 1990- 1993 per iod. S o int ens e did t he com petition
b ec o m e d u r i n g t h es e t w o p e r i o d s t h a t i n 1 9 8 2 t h e w h o l e i n d u s t r y
l os t $ 7 0 0 m i l l i o n , w h i l e i n t h e 1 9 9 0 - 1 9 9 2 p e r i o d t h e i n d u s t r y l o s t a
st agger ing $7. 1 billion, mor e t han had been mad e during t he
p r e v i o u s f i f t y - y e a r h i s t o r y of t h e i n d u s t r y .
D es p i t e     the     ob vi ou sl y       h os t i l e     nat ur e    of     t his    in dus tr y,       on e
c om p a n y ,     S o u t h w es t    A i r l i n es ,     has     not   only     been        consis t entl y
p r of i t a b l e b u t a l s o h as b e e n i t s p e r f or m a n c e i m p r o v e d u r i n g y e a r s
wh en its c omp et i t ors wer e wal l ow i ng i n r ed i n k. S o ut h west is a
r e g i o n a l a i r l i n e w i t h a m a j o r p r es e n c e i n T e x a s . I n 1 9 9 2 , w h e n
e v e r y m a j o r U . S . a i r l i n e e x c e p t S o u t h w es t l o s t m o n e y , S o u t h w e s t
a c t u a l l y r e p o r t e d a s h a r p j u m p i n i t s n e t p r of i t t o $ 1 0 5 . 5 m i l l i o n o n
r e v e n u es of $ 1 . 6 8 b i l l i o n , u p f r om $ 2 6 . 9 m i l l i o n o n r e v e n u e s of
$1. 31 billion in 1991.
S o u t h w e s t i s p r of i t a b l e b ec a u s e of t w o f ac t o r s : i t s l o w c os t s an d
t h e l o y a l t y of i t s c u s t o m e r s . I t s l o w c o s t s c o m e f r o m a n u m b e r of
s ou r c e s .   S outhwes t           of f er s     a      no -f rills   appr oac h           to    c ust omer
s er v i c e . N o m e a l s a r e s e r v e d o n b o a r d , a n d t h e r e a r e n o f i r s t -
c l as s s e a t s . S o u t h w e s t d o e s n o t s u b s c r i b e t o t h e b i g r es e r v a t i o n
c om p u t e r s u s e d b y t r a v e l a g e n t s b ec a u s e i t d e e m s t h e b o o k i n g
f e e s t o o c os t l y . T h e a i r l i n e f l i es o n l y o n e t y p e of a i r c r af t , t h e f u e l -
ef f i c i e n t B o e i n g 7 3 7 , w h i c h k e e p s t r a i n i n g a n d m a i n t e n a n c e c o s t s
d o w n . L as t b u t n o t l e a s t , t h e a i r l i n e h a s a v e r y p r o d u c t i v e w o r k
f or c e . S o u t h w e s t e m p l o y e e s s a y t h a t t h e y a r e w i n i n g t o w o r k h a r d
b ec a u s e t h e y f e e l a p p r e c i a t e d b y t h e t o p m a n a g e m e n t . T h e C E O ,
H er b K e l l e h e r , h a s b e e n k n o w n t o h e l p f l i g h t a t t e n d a n t s s e r v e
d r i n k s a n d h e l p m a i n t e n a n c e e n g i n e e r s s er v i c e p l a n es . A s o n e
f light at t endant put it, the air line’s employees work har d bec aus e
“ you d on ’t wan t t o l et H er b d own .” In ad d it i on , S ou th w est op er at es
a g e n e r o u s s t oc k o p t i o n p l a n t h a t e x t e n d s        t o a l l e m p l o y e es . A s a
r es u l t a b o u t 1 0 p e r c e n t of t h e a i r l i n e ’ s s t o c k i s o w n e d b y i t s
e m p l o y e e s , wh i c h g i v e s t h e m a n a d d i t i o n a l i n c e n t i v e t o w o r k h a r d .
S out hwest ’s         cust om er         loyalt y          als o   c omes       f r om    a        number      of
s ou r c e s . D u e t o i t s l o w c os t s t r u c t u r e , S o u t h w e s t c an of f er i t s
c u s t o m e r s l o w p r i c e s , w h i c h b u i l d s l o y a l t y . S o u t h w e s t a l s o h as a
r e p u t a t i o n f o r b e i n g t h e m o s t r e l i a b l e c a r r i er i n t h e i n d u s t r y . I t h as
the quic kest t ur n ar ound time in t he industr y ( it t akes a S outhwes t
gr ound cr ew just f if t een minut es t o t ur n ar ound an inc oming a
c r af t a n d p r e p a r e i t f or d e p a r t u r e ) , w h i c h          helps keep f lights on
t i m e . T h e c o m p a n y a l s o h a s a w e l l - e a r n e d r e p u t a t i o n f or l i s t e n i n g
t o i t s c u s t o m e r s . F o r e x a m p l e , w h e n f i v e T e x as m e d i c al s t u d e n t s
w h o c o m m u t e d w e e k l y t o o u t - of - s t a t e m e d i c a l s c h o o l c o m p l a i n e d
t h a t t h e f l i g h t t h e m t o c l as s f i f t e e n m i n u t e s l a t e , S o u t h w es t m o v e d
t h e d e p a r t u r e t i m e u p f i f t e e n m i n u t e s . I n a d d i t i o n , S o u t h w es t ’ s
f oc u s e d r o u t e s t r u c t u r e ( i t s e r v e s j u s t f i f t e e n s t a t e s , m os t l y i n t h e
S o u t h ) h as h e l p e d i t b u i l d a s u b s t a n t i a l r e g i o n a l p r es e n c e a n d
a voi d    s ome       of     the     cutt hr oat       c ompetition           that     the     n at i o n w i d e
ai rl in es h a ve t o gr ap p l e wit h.

				
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Description: Case Discussion Questions 1. What does the success of Southwest Airlines tell you about the relative importance of industry company-specific factors in explaining a con performance? 2. What is the basis of Southwest’s competitive advantage? How might it lose that advantage?
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