Airline analysis
An Airline Industry Analysis - Raymond Suarez -Table of ContentsIntroduction FIVE EVALUATION CRITERIA US AIRLINE INDUSTRY Industry Overview The US airline industry today Future Prospects Strategic Groups in airline industry COMPETITIVE ENVIRONMENT SOUTHWEST AIRLINES Company Philosophy and Business Strategy Business Operations The Value Chain Managerial Infrastructure and H.R. Management Technology /Product Development Procurement Manufacturing/Logistics Inbound & Outbound Logistics Marketing and Sales Service Resource Based Strategic Competitive Advantages Organizational (Advantage) Historical Strategic Trajectory (Advantage) Resource Market (Advantage) Product Market Institutional SWOT Analysis Strengths Weaknesses Opportunities Threats Summary and Recommendations
CONTINENTAL AIRLINES Company Philosophy and Business Strategy Business Operations The Value Chain Managerial Infrastructure and H.R. Management Technology /Product Development and Manufacturing/Logistics Procurement / Inbound & Outbound Logistics / Service Marketing and Sales SWOT Analysis Strengths Weakness Opportunities Threats Resource Based Strategic Competitive Advantages Trajectory Inimitability
Organizational Context Summary and Recommendations
CONCLUSIONS ~ STRATEGIC COMPARISON Five evaluation criteria In order to effectively analyze the quality of strategic management at Southwest Airlines and Continental Airlines, the following five criteria were used to determine which firm practices superior strategic management policies: Company Culture Productivity Profitability Marketing Focus Organizational Design and Structure US airline Industry Industry Overview Slowing growth rates and increased competition for market share resulting in a shift toward the mature phase of the life cycle. Growth in the international sector in recent years has far outpaced growth domestically. Between 1987 and 1993, the number of passengers traveling on US airlines between United states and foreign destinations increased by 47%, while domestic traffic increased only 6%. Firms are increasingly selling to experienced, repeat buyers. Competition is placing greater emphasis on cost and service with changes in manufacturing, marketing, distributing and selling methods. The US airline industry today Since deregulation in 1978, the US airline industry has undergone significant change. The effect of deregulation has exposed the airline industry to extreme competitive pressures. Increased numbers of new airlines, the expansion of existing airlines, strong competition in the form of fare wars, and a high numbers of bankruptcies, are among the radical changes airlines have faced in recent years as a result of deregulation. Today the US airline industry faces challenges including low barriers to entry, fare wars, higher fixed costs due to new marketing strategies, and increased sensitivity to business cycles. Aircraft, the airlines' only money making equipment, are among the most expensive machines in the world; Boeing's new 737 costs $ 130 million per aircraft. As a result, airlines are typically highly leveraged due to substantial borrowing. According to a study by Solomon Brother's, the ratio of long-term debt to total capitalization of the airline industry is more than 50 percent. There is also a trend towards a "hub-and-spoke" system. This system centers an airline's base of operation at a few airports and allows most spoke cities within an airline's network to be connected via one stop service. The exclusive use of the huband-spoke system after deregulation appears to be a natural method for structuring networks. It has led to increased load factors on route segments and decreased operating costs. Moreover, foreign airlines can access the US markets by acquiring weak American carriers, while other American carriers cannot penetrate overseas markets to compete with foreign carriers. Consequently, many major US airline companies will soon be either acquired by foreign competitors or forced into bankruptcy. Recognizing the airlines' critical position, government is aggressively pursuing an "open-sky" policy. Under an airtraffic policy of reciprocity, the US allows foreign carriers access to the US domestic market. In return, the governments of these privileged carriers are expected to open their markets to American carriers. The transformation of the airline industry would certainly benefit from the study of both pricing and marketing arrangements, as well as the "codesharing" that has recently emerged between American and foreign airlines. Future Prospects Heavy losses over the past ten years and over-capacity in the domestic market will force most major airlines to gradually sell their assets to foreign airlines in order to raise sufficient cash flow, or else to organize with foreign airlines in order to expand their
markets. Meanwhile, due to costly services on short-haul routes and aggressive expansion on international routes, most US global carriers will gradually scale down short-haul operations and concentrate on long-haul and international routes. The short haul market will be occupied by many budget airlines. In short, the US airline industry has evolved into a two-tier market system in order to survive in a deregulated competitive environment. One tier is made up of major global airlines mainly providing long-haul service; the other is made up of budget airlines concentrating on short-haul service. Strategic Groups in airline industry Kling and Smith identified strategic groups among the nine major US passenger airlines utilizing the framework of Michael Porter's generic strategy typology. Profitability analysis largely validated the use of the Porter model to identify strategic groups in the US airline industry. Five airlines appear to be successfully following one of the three generic strategies and therefore enjoy better competitive positions in the industry and superior profitability. American, Delta, and United are clustered as one group of quality differentiated airlines with costs somewhat above the industry average. Competitive Environment In over twenty-five years of airline passenger service, Southwest has remained profitable years. During this period, the company competed as a regional service provider. Only later did the airline begin to enter the larger markets of the northwestern and southeastern US. More recently, Southwest has felt pressure from two different areas: the major airlines and new discount airlines. The discount airlines, represented by ValueJet and Western Pacific, are instituting many of the policies and procedures originated by Southwest. In the case of ValueJet much of its business is charter service which represents a clear battle for the same customer. The major airlines entering the discount market are Continental and United Airlines. Continental entered the US market with a service named "Continental Lite", its goal was to preempt Southwest during its entrance into the Florida markets. United, protecting its routes in California countered with "Shuttle by United". In both cases these new carriers provided stripped down services to its customers. This included smaller aircraft and no meals in return for deeply discounted tickets. Both airlines were providing luggage transfer and travel agent ticketing, also an expensive service. During the first few quarters, Continental suffered losses in the millions and was forced to cease discounted operations. United is still flying the Shuttle service but only where it can leverage its full service operations. The relatively low entry barriers for the Airline industry will allow new competitors to enter the market as old ones leave. ValueJet and Western Pacific are some of the newer competitors, replacing Eastern, Peoples Express and Braniff in the battle for market share. Exhibit 2 - Scatter Plot of US Airline Industry represents the relative positioning among some of the major airline services. It is clear that a position in the Low Quality, High Cost Quadrant is an untenable position. It is expected that TWA, Northwest and US Air will make significant changes to their business model in order to compete in the higher margin quadrants. Southwest Airlines Company Philosophy and Business Strategy Founded in 1971, Southwest airlines was started by 2 men with a vision of what an airline should be. Founders Rollin King and Herb Kelleher began with a simple notion: "If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline." Since that day Southwest has grown to be the fifth largest major airline in the US while being one of the most profitable companies in the industry, see Exhibit 3 - Southwest Sales and Profits. They currently fly 44 million
people annually to 50 cities all over the Southwest and beyond. Southwest's success is mainly due to their low cost, no frills approach to flying. They were the nations first high frequency, short distance, low fare airline. This approach has allowed them to be successful while others have failed. Even while other airlines such as United and Continental have attempted to copy this approach, they have not achieved the same success. An integral part of Southwest's success has been through having the most productive employees in the industry, and identifying the services most important to their customers, while eliminating those that have less or even no value. CEO Herb Kelleher states the airline is "competing with automobiles not other airlines". This is in reference to their strategy to compete in the short distance category of the industry. The majority of their flights are under two hours in length. While defining themselves as a no frills airline, Southwest has managed to maintain a high quality service. They have continually been recognized for achievement in a number of categories: � In May of 1988 they were the first airline to win the coveted "Triple Crown "for a month - Best On Time Record, Best Baggage Handling and Fewest Customer Complaints. Since then they have won 5 consecutive annual "triple Crowns" through 1996. � They are ranked as an honor roll member of the International Airline Passengers Assoc. as one of the Worlds Safest Airlines. A University of Nebraska study ranked them at the top of their annual Airline Quality Rating Report in 1993 and 1995. � The publication Air Transport World awarded Southwest for "20 years of Excellence in Short-Haul Service" in 1993 as well as their "Airline of the Year" award in 1993. � They were ranked one of the top 10 in the 1993 book The 100 Best Co.'s to Work for in America. � Best overall airline in Fortune's Corporate Reputation Survey released in March 1996. Top in the following categories: quality of management, innovativeness, value as a long term investment, soundness of financial position, ability to attract, develop and keep talented people, and wise use of corporate assets. Fortune listed Southwest as one of "Americas Most Admired Corporations". � Honored by the Smithsonian Institution for it's outstanding use of technology through its Ticketless Travel program. Southwest is considered a major airline since it broke $1 billion in 1989. They consistently rank first in market share in 88 of its top 100 city-pair markets. Their overall aggregate market share is 63%. They have introduced many innovative programs to help capture market share. One approach is their ticketless option for travel system wide. Customers can use any major credit card in place of a ticket. Southwest has a web site on the Internet providing a comprehensive route map of the airlines services where customers can make their own. Although they started out primarily in the Southwest, they continually expand their market o Seattle and Spokane in the pacific northwest, Baltimore and Washington on the East coast, and most recently in 1996 added Florida service in Tampa Bay and Ft. Lauderdale as well as Orlando and Jacksonville. Southwest's fundamental strategy is to "compete against the car". Herb Kelleher describes what they offer as "more for less not less for less". In order to provide this service Southwest adheres to strict operating principles. This requires rapid aircraft "turn", standardization of machinery, adherence to published schedules, extensive selection and training of all employees, and restriction of service to those airports characterized as
uncongested. Southwest has been able to follow these principles closely while many competing airlines have succeeded in some but not all of these areas. A major attraction of flying Southwest is that it is a fun and entertaining airline. Customers are often greeted with jokes and pranks in an effort to loosen them up, particularly after a long day or if delays do occur. Flight attendants have been known to hide in overhead compartments to surprise passengers. Another was noted for holding a contest for who had the biggest hole in their sock. In addition, employees are known to show extreme hustle to do whatever it takes to get the flight out on time. This includes running with baggage. Since airline industry is very labor intensive, the level of service is directly related to the quality of the people working for the airline. Southwest pays special attention to selecting employees that fit the needs of the airline and then training them to perform their jobs successfully. The interviewing process is used to find people with the appropriate sense of humor and attitude. Employees are compensated on average with the industry. In addition, Southwest tries to provide a fun and enjoyable atmosphere where employees feel valued. Individualism is respected, and employees are encouraged to submit suggestions for improvements. Training is critical and each major work area has it's own training department. Training includes specialized courses for each discipline. In addition, all employees receive courses in customer care training. Much of the specialized training takes place at Southwest's "University for People". Employees participate in a profit sharing plan which is linked to company performance. Bonuses have typically ranged from 4 to 8 percent of base pay. Through the employee investment plan, approximately 9% of the company stock is employee owned. Although labor is unionized their is no sign of tension between the union and management. Union representatives have commented that they feel closely involved as team members in the business planning process. One union representative describes the company as a "blueprint of a model employer". The company runs a very lean operation. There have never been any layoffs and according to Kelleher, the company is "managed in the good times as if it was in the bad times". Southwest has a low cost high productivity approach. One of the keys to this are the people already mentioned and their level of training as well as the careful selection process. Another key is the companies standardization on aircraft. The airline uses only one type of aircraft, the Boeing 737. The advantage here is that many things become easier and more consistent. Mechanics are all trained on the same planes. Also, aircraft can easily be switched between routes without change to service level as perceived by the customer. As a result of the above, Southwest has the fastest turnaround time in the industry. They average 17 minutes between takeoffs compared to an industry average of 45 minutes. They are therefore able to provide a tighter schedule. This in turn results in a higher productivity with the best aircraft utilization of all the major carriers. Southwest airlines success has attracted other airlines to copy their approach. However these airlines have been unable to repeat their success. Southwest has been able to package capabilities that others have been unable to imitate. This in turn has provided a considerable competitive advantage. Business Operations Southwest has carefully constructed a business operation which supports the corporate business strategy. As Exhibit 4 Southwest Wheel of Implementation illustrates Southwest's goal of achieving maximum profitability. Their strategy to do this is to be highly productive in order to keep costs down. Because the airline industry is a service business, it is highly labor intensive. Therefore employees play a key role in ensuring the success of this strategy. Southwest
has measurement systems in place to determine their level of productivity. Their primary measurements are aircraft utilization and cost per seat. The company is highly selective when hiring new employees. There management selection and development is well supported by the extensive training received by all employees. Specialized management courses are offered at Southwest's "University of People". Southwest's culture is the most notable aspect of how they run their business. The airline is casual and fun loving starting with the CEO Herb Kelleher. The organization design and structure is informal. Workers and management work on committees to do planning and decision making as well as problem solving. Employees are also major stakeholders in the company. Approximately 9% of Southwest stock is employee owned. Much of this stock is obtained through the employee investment plan as well as in bonuses which reward employees when the company is profitable. Southwest feels that in order for them to be successful every year, their employees must be tied in to the service and productivity requirements of the business. In order to do this they have operations in place which focus on hiring and training employees to be sensitive to these requirements. They reward employees for success financially as well as emotionally by creating a fun environment to work in. The Value Chain The Value Chain provides a systematic way of dividing the firm into its discrete activities and diagnosing competitive advantages and ways to create and sustain them. In the airline industry, competency in many of the activities are simultaneously demanded in order to have competitive advantage. See Exhibit 5 - Southwest Value Chain Analysis for a summarized analysis of Southwest's value chain. Managerial Infrastructure and H.R. Management Southwest is a principle centered company and is well known for its fun loving corporate culture. Southwest is fiscally prudent and financially sound. Southwest's success is due to an operational strategy of providing low cost, dependable service. Their infrastructure is designed to stress simplicity, and leverages the latest in information systems technology to ensure maximum productivity and lowest cost per mile. The company boasts an industry low, 7.5% turnover rate, and has so far avoided any layoffs or furloughs. Like most airlines, they are heavily unionized but provide employees with a generous compensation package including profit sharing. They celebrate every achievement, and embrace mistakes. Their employees are empowered to make decisions, and report high job satisfaction. Southwest has an unusual philosophy in hiring, emphasizing attitude and personality over experience. Technology /Product Development Southwest has been an innovator in the airline industry, being the first to successfully create a low cost/high value segment. By providing reasonable rates (originally based on train fares) - they enabled a whole new class of people to take to the skies. They have made heavy investments in information systems to improve efficiencies, streamline processes and reduce commissions and distribution costs. Their leadership in this area has given them a competitive advantage by allowing them to pass these costs onto their customers, and develop a reputation for being an innovator. This can be imitated, but at a cost to competitors. Procurement Southwest does not have a high degree of vertical integration. Their distribution capabilities are being increased with aggressive pursuit of electronic/ticketless ticketing and internet purchasing. Their procurement is relatively simple, compared to that of other airlines, as they have only one aircraft type (reducing the number of spare parts, etc.) and have a 'no-frills' approach to flying. Manufacturing/Logistics Southwest is the industry benchmark for high productivity and lowest cost per seat mile. They are streamlined for efficiency and flexibility. By using
just one type of aircraft, they are able to limit spare parts inventory, simplify training and deliver faster, more reliable service. Inbound & Outbound Logistics Due to its 'simple' operational strategy, which dictates direct service, one model of aircraft and rapid, ticketless distribution and boarding, Southwest is able to service and turnaround its plans within 15 minutes. Carriers have no control over what they pay for fuel and have limited control over what concessions they can wring from unions. As a result, Southwest has successfully focuses on their distribution costs, an area in which they can exert some control. This includes ticketless travel, and direct sales. This reduced commission costs and operating costs -allowing them to pass on these savings to the customer. In addition, continuous advancements being made to their information systems allows for rapid rebooking of canceled flights. Southwest should continue to develop this important value chain activity, as it offers continues opportunities for enhancing service and reducing costs. As consumers who are computer literate move into their peak years, electronic distribution, ticketing and services will increase. Marketing and Sales In a highly competitive marketplace, Southwest has been very successful in creating a strong brand name and achieving significant market share. Their marketing techniques, including 'madcap' PR antics, and off-beat ads breaks through the clutter of ordinary airline promotions and is clearly a source of differentiation. Their staff seems to truly understand what is most important to the 'value' customer, and how to deliver it. They've been formally recognized for their achievements through industry awards, and frequent press coverage. Service Southwest is known for its' 'positively outrageous service'. They have been formally recognized for their achievements through numerous service awards, including the coveted Triple Crown. Southwest has a strong training program, and believes in continuous training and development. One of the many examples of their outrageous service includes an agent meeting a cancer patient at their flights and driving them to their treatment (because they had no ride). It is critical that Southwest continue to develop this activity, which differentiates itself from the other airlines and allows them to contain costs. Low fares will get customers for one flight, but a good service will bring them back. Resource Based Strategic Competitive Advantages Using the five resource based categories as a guide, the following are Southwest's Strategic Competitive Advantages (SCA's) and opportunities for developing them. Organizational (Advantage) Since its founding, Southwest has actively fostered a unique, fun-loving company culture. Their highly selective hiring practices, emphasizing attitude and enthusiasm over experience, has resulted in a highly motivated, dedicated staff. Their is little hierarchy, with empowered employees at all levels. It is not unusual to see the CEO loading luggage on a busy day. Southwest's compensation structure meets union requirements, but goes the extra mile with a unique profit sharing plan that has made millionaires out of many of its long term employees. The unique culture, flat structure and generous compensation programs combine to deliver a highly dedicated, motivated staff with the highest productivity in the industry and the lowest turnover rate. Southwest's organizational formula plays on simplicity. Their unique structure employs no hubs, but instead focuses on point-to-point/direct, no-frills flights. In addition, they use only one type of aircraft, reducing maintenance, spare parts, training and ticketing complexity and costs. This simplicity allows them shorter wait & changeover times, and allows them to be more responsive to changes in the market. They are fiscally prudent and methodical about expansion. Despite tumultuous times in the airline industry, Southwest has remained
profitable and seen steady growth. This resource is clearly an SCA. The company culture is very difficult to imitate, as it stems largely from its founding members. Their generous compensation package can be copied by competitors, but at an incremental cost. Its 'simple' organizational formula is a competitive advantage. Theoretically, it could be copied by new market entries, but they would have to first overcome significant, costly entry barriers. Existing airlines can also try to emulate this formula (and many are trying) but it goes against the existing operational strategies so will take much time, money and effort to implement. Historical Strategic Trajectory (Advantage) When Southwest was in its infancy, they were met with a competitive onslaught in the form of price wars and lawsuits that took them years to settle and cost them millions of dollars in legal fees. These aggressive tactics only made them more determined to succeed and united the Southwest team. Southwest was the early-mover in several aspects. They were the first airline to 'democratize' the skies, leading a watershed development in domestic aviation. They were the first to offer high value/low cost air travel. The company has also been at the forefront in using the latest information & automation systems for increasing efficiencies and reducing distribution costs. Herb Kelleher, the founder, was instrumental in creating this sea change, and shaping the company's culture and operational strategy. This resource is an SCA, with inimitability. Other airlines attempt to imitate them by creating similar units, or cutting fares. As long as Southwest can continue to offer a differentiated product, by maintaining their high service and low cost they will remain competitive. Resource Market (Advantage) Southwest is the original low-fare/high value operator. They are the industry benchmark for this type of travel. Through the antics of Herb Kelleher and an aggressive, mad-cap advertising and PR program - they've been able to build a strong brand image for high value and 'positively outrageous service'. Quantitatively speaking, they've achieved market dominance in regions where they operate, and have been awarded three consecutive triple crown service ratings (unprecedented). They are also recognized as an industry benchmark for the use of automation/information systems in ticketless travel and direct sales. Southwest is recognized as the 'most emulated' airline, a nice but scary form of flattery. Their years in the business has allowed them to build relationships with key suppliers, travel companies, and build brand loyalty with their customer base. They've also benefited from their alliance with SeaWorld, increasing their market presence and enhancing their image. This resource is an SCA at this point in time. While their brand image is hard to imitate, other airlines can try to imitate their exceptional service and use of automation and information systems. Both would require significant training, an increase in existing productivity and capital investments in technology. Southwest should continue to invest in this technology, to further increase efficiencies and reduce costs. They should also continue to pursue alliances, like the one with SeaWorld, to extend their image as a lifestyle brand. Product Market Southwest is not the largest airline in the industry, so doesn't realize the economies of scale and scope as some of its competitors. However, by employing a 'simplified' operational strategy and focusing on its core competencies - they are able to achieve significant cost savings. They sell a highly differentiated product, but many are trying to copy this product. Institutional Southwest has a strong regional presence in the Southwest and Western region of the United States. They are focused only on domestic travel, which may give them an advantage over foreign airlines. This is not a strong SCA, but is not critical to success in the airline industry. SWOT Analysis In Porters,
Competitive Strategies, the text outlines three "generic" competitive strategies; cost leadership, differentiation, and focus. Failure to choose one of these strategies will leave a company with "stuck in the middle" positioning and ultimately suffer poor economic performance. As illustrated in Exhibit 6 - Southwest SWOT Analysis, Southwest has clearly chosen the short haul, low-cost, point-to-point service between midsize cities and secondary airports as its primary market focus. With this focus, the company can avoid large airports and does not fly great distances. This section attempts to outline the strengths, weaknesses, opportunities and threats associated with the focus strategy chosen by Southwest. Strengths Excellent employee recruitment and retention plans have enabled Southwest to remain the most efficient airline in the industry, see Exhibit 7 Southwest Efficiency. Aggressive retention plans enable the airline to keep employees that are trained thus maintaining operational efficiencies extremely high. Trained employees also help in Southwest's ability to reinforce its commitment to employee development plans as long-term employees are used to train the new hires. Also, recruitment of employees that can easily acclimate themselves to the enthusiastic and committed nature of the work force enables Southwest to maintain its commitment to customer satisfaction. Weaknesses Use of price as a market position. Price provides a strong compulsion to purchase Southwest Airline tickets, however changes in the marketplace could dramatically affect its value. The crash of Value Jet is one example of how price can be devalued in importance when purchasing a ticket. Customers may artificially relate low priced tickets with poor quality flight equipment and search for more expensive tickets that are associated with better and safer airline equipment. This is clearly a weakness in customer perception, Southwest has one of the best records in the industry and also flies one of the most modern fleets. Southwest uses its employees as a major component of its sustainable competitive advantage. Use of an extensive selection process that includes attitude based selection, peer review, involved customers and one year probation periods help Southwest find employees that fit the culture, facilitate operational efficiencies and reduce turnover. Also, training provides employees an environment of coaching, not policing. Coaching serves to reduce ambiguity and stress for the average employee while maintaining a high moral . Over 80% of the higher level jobs are filled by internal promotions keeping the workforce enthusiastic about long-term career opportunities at the company. Clearly, Southwest considers its employees its strongest asset. Southwest has chosen to compete in all its markets with midrange jets. The use of cheaper turboprop service can significantly challenge their low cost status. US Air has chosen to pull most of its jet service from the state of Florida and replace it with US Air Express. US Air is using this technique to undercut Southwest's traditional regional service with this low priced alternative. Opportunities New markets - High growth. As a small regional airline, Southwest is experimenting with new markets and is subsequently experiencing high growth. The company should look for opportunities to increase scales of economies in its core business. Better managing the location and arrivals of the jets being serviced, baggage handling and ticket/gate/ramp agents can be used more effectively. Compared to the competition, Southwest can turn a plane around in 17 minutes as compared to the competition which averages approximately 45 minutes per plane. The company must continue its efforts in order to maintain these differentiators. To continue this model of success, the company should only focus on providing air services where a critical mass of employees and customers can be achieved.
Heavy debt load in the industry is opening the doors for expansion. Southwest has over 25 years of "experience/infrastructure" to compete against the onslaught of heavy debt load hitting the industry. While competitors slash wages during union contract negotiations, and service quality declines, Southwest will gain market share and profits as a result of its competitive positioning. A recommit to core competencies will help propel Southwest as the premier cost sensitive provider in the industry. Threats Lack of qualified employees. Lack of qualified people is a real threat to the sustained growth of Southwest. Industry pundits predict slow to moderate revenue growth for the industry. The growth of Southwest is limited by its ability to find and hire qualified individuals. Since growth is an important aspect of Southwest's employee strategy, a loss to the company's ability to distribute profit sharing could severely damage employee loyalty. Distribution costs are a critically important expense. A study of the cost structure for an airline shows that along with jet fuel, labor costs and the costs of buying or leasing airplanes, distribution costs are a critically important expense. Distribution costs is what it costs the airlines to sell a ticket through a wholesaler or a ticket agent. With the advent of the Internet, many airlines are beginning to sell tickets from their Web Sites. The lowered costs of this distribution medium could even the playing field against the ticketless system employed by Southwest. A recent market study shows that if the airline industry had auctioned off last minute unsold seats over the Internet, total additional revenues could have exceeded $5.7 billion. Removing the costs of over capacity could have a significant impact over operational efficiency, a primary staple of Southwest. Customers increasingly demand better service. As the company grows and finds competition with other airlines, it may become exceedingly difficult to maintain its low cost structure and high levels of quality. Customers may force the company down a full service path as they demand increasingly more and better service. As a result, Southwest could be forced to shed its minimalist cost structure by providing higher end service to their customers.