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How Is Southwest Different From Other Airlines? - Investopedia

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Southwest Airlines' business model is based on extremely efficient operations, low-cost pricing, and innovative logistics solutions. Furthermore, their strategy ... Business CompanyProfiles CompanyProfiles HowCompaniesMakeMoney Startups Unicorns IPOs SouthwestAirlines(LUV)hasbecomeknownoverthepasttwodecadesasathrivingairlinecompanyoperatinginatimewhenmostairlineshavebeenstruggling. Anycompanyoperatingintheairlineindustrymustmaintainandstrengthenasetofcompetitiveadvantagesthatdifferentiateitfromitscompetitors.SouthwestAirlines'businessmodelisbasedonextremelyefficientoperations,low-costpricing,andinnovativelogisticssolutions.Furthermore,theirstrategyalsoincludesadeepfocusoncustomerexperienceandlookingahead.Finally,noneofthiswouldbepossiblewithoutamotivatedteamofemployees.Throughthissoundstrategy,Southwestachievedmultiplecompetitiveadvantagesthathaveallowedittostayrelevantinarapidlychangingworld. KeyTakeaways SouthwestAirlinesismoreflexiblethanmostotherlargeairlines.SouthwestistheonlylargeU.S.airlinethatisalsoalow-costcarrier.SouthwestAirlines'strategyemphasizesrecruitingandretainingmotivatedemployees.Southwestcontinuestoimproveitsbusinessmodelandpractices. TheOnlyLargeLow-CostAirline Thecollapseindemandforflightsthroughout2020nearlyputseveralairlinesoutofbusiness,butSouthwestwasabletosurvivewithoutmajorlayoffs.Whenbusinessconditionsdecline,onlythestrongsurvive.SouthwestAirlinesisstrongfrombothasizeandacostperspective. Onewayofmeasuringstrengthissize.Accordingtothistheory,largeairlineswillexperiencedeclines,buttheywillnotactuallygooutofbusiness.SouthwestisoneofthebigfourairlinesintheU.S.,alongwithAmericanAirlines(AAL),Delta(DAL),andUnited(UAL).ThatmeansSouthwesthasbiggerreservesincash,credit,andotherassetsthansmallerairlines. Biggerdoesn'talwaysmeanbetter,butitusuallydoesmeansaferwhenitcomestoinvesting. Controllingcostsisalsocrucialtosurvivingadownturn,andSouthwestdoeswelltheretoo.Low-costcarriers,suchasSouthwest,haveseveralcriticaladvantagesovertheircompetitors.Theyfocusonprovidingthelowestpricesforthemostpopularroutes,whichmeansfewerrouteswillneedtobeabandon.Negativeeconomicgrowthwillalsomakebusinessesandconsumersmoresensitivetoticketprices,thelow-costairlines'primaryadvantage.Southwestistheonlylargeairlinethatcancompeteonprice. TheRightRecruits WhileSouthwestAirlines'entirebusinessmodelisimportant,arguablythemostvaluablecompetitiveadvantagehasbeenitsdeepfocusonhiringtherightpeople.Southwestpridesitselfonbeingapeople-orientedairlinethatoperateswithfriendlyandapproachableemployeesandteammembers.Peritsbusinessmodel,Southwesthiresemployeeswhoembodythecompany'sbrandmessagingandwhohaveapassionforhelpingcustomers.Southwesthasstringenthiringpracticesandpoliciestoensuretherightmixofteammembers. SouthwestAirlineshasabusiness-orientedfocusonthecustomer'sexperience.Partofthatcustomerexperiencecomesfromtheattitudeandhelpfulnessoftheemployeesithires.However,therearemanymorefactorsthatgointothiscompetitiveadvantage. FlexiblePolicies SouthwestAirlineshassetvariouspoliciesandproceduresthatmakeflyingwiththeairlineeasy.OneoftheseisSouthwest'scancellationpolicy.Theyallowacustomertocancelareservationupto10minutesbeforetheflight'sdeparture.Moreimportantly,thefundsfromthecancellationareavailableforafuturetrip.PolicieslikethisoneensurethatthecustomersofSouthwestAirlinesremainsatisfied.Theseflexiblepolicieshelptheairlinetobuildhighlevelsofbrandloyalty. RewardsandPricing SouthwestAirlinesalsohasoneofthebetterrewardsprogramsintheindustry.Southwestgivespointstocustomers.Theycanusethepointstopurchasefutureflights.ItalsohasapartnershipwithChaseBankandofferscustomersaSouthwestcreditcard.ThecardallowsthemtoaccumulateSouthwestAirlinespointswhenmakingotherpurchases.KeepingcustomersengagedisabigcompetitiveadvantageforSouthwestAirlines. Besidesmotivatedemployeesandgreatcustomerservice,SouthwestAirlinesoffersoneofthelowest-pricedsolutionsforairtravel.Itspricingstrategyoffersextremelylowpricescomparedtootherlargeairlines,suchasDeltaandAmericanAirlines.Southwesthadtobuilditsbusinessmodelaroundlowoperatingcoststobeabletoofferlowprices.Itonlyhasafewaircrafttypes,whichhelpstheairlinereduceitscosts.Italsoservicessmallerairportsthatdon'tchargeasmuchforgateaccess.Ifacustomercanfindalower-pricedticket,SouthwestAirlinesmatchestheprice. ContinuingtoImprove SouthwestAirlineshasatrackrecordforbeingveryforward-thinking.Itisboostedbyaflexiblebusinessmodelthatsupportsrapidchange.Thatputsthecompanyinabetterpositiontodealwiththedisruptionscausedbyeconomiceventsthatarebeyonditscontrol.Southwestisalwayslookingforlower-costsolutions,andthatismoreimportantthaneverbefore. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. Southwest."RefundsForFlightReservations."AccessedAug.1,2021. Southwest."LowestPricePromise."AccessedAug.1,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedArticles CompanyProfiles SouthwestAirlinesaDarlingoftheAirlineIndustry Stocks 4ThingsYouDidn’tKnowAboutSouthwestAirlines(LUV) Sectors&IndustriesAnalysis AnEconomicAnalysisoftheLow-CostAirlineIndustry CompanyProfiles 5IconicAirlinesThatNoLongerExist Stocks AnalyzingSouthwestAirlines'(LUV)MarketShare ToolsforFundamentalAnalysis AnalyzingPorter'sFiveForcesModelonDeltaAirlines PartnerLinks RelatedTerms WhatIsaStartup? Astartupisacompanyinthefirststageofitsoperations,oftenbeingfinancedbyitsentrepreneurialfoundersduringtheinitialstartingperiod. more HowJudoBusinessStrategiesWork Ajudobusinessstrategyisaplanformanagingacompanybyusingitsspeedandagilitytomitigatetheeffectofitscompetitors. more UnderstandingBusinessModels Abusinessmodelisacompany'scoreprofit-makingplanwhichdefinestheproductsorservicesitwillsell,itstargetmarket,andanyexpectedcosts. more FranchisorDefinition Afranchisorsellstherighttouseitsbrandandexpertisetoonewhowillopenanotherbranchofthebusinesstosellthesameproductsorservices. more CostPerAvailableSeatMile(CASM)Definition Costperavailableseatmile(CASM)isameasureofanairplane'scosttooperateandabilitytogeneraterevenues. more WhatIsTravelInsurance? Travelinsuranceisatypeofinsurancedesignedtocoverthecostsandlossesassociatedwithunexpectedeventsincurredwhiletraveling. more

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