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A-Level: Business Studies

Description  This paper presents an analysis of 3 Leaders in the Airline Industry and compares their competitive advantages by determining the key factors in making them sustainable.
Word Count:  3450

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Sustainable Competitive Advantage

To uphold a sustainable competitive advantage a company must perform its value activities in a way difficult to replicate or imitate by the competitors. A competitive advantage is upheld if the cumulative cost of performing the value activities is lower then competitors. A level of value must back up the competitive advantage to the customer that is at least compatible to the competitors. Otherwise, a lower price will have to be charged and the net effect will be zero. A firm’s relative competitive advantage will be made up by what composition of the value chain the firm has versus the competitors and secondly what position the cost drivers has in each activity.

There are a number of ways to check the sustainability of a firm’s competitive advantage. Some of them are highly obvious and are often taken for granted while some are more subtle and intangible. It is often the more subtle ones that give a company the extra edge.

Southwest Airlines

Southwest Airlines first flight took off in June 18, 1971. The company got underway more then four years earlier but had a number of tough lawsuits against them before they were able to get their first plane up in the air. Southwest Airlines began serving the Texas cities of Dallas, Houston and San Antonio.

Even though the four-year legal battle, which almost left Southwest Airlines bankrupt before they could start their service, a tough start became the foundation for Southwest Airlines well-known corporate culture. The employees were motivated by Herb Kelleher’s tough character in the legal battles and underdog attitude. Lamar Muse, Southwest Airlines first CEO, contributed with several legal battles following the first couple of years after their maiden voyage. Herb Kelleher was determined and very successful in the courtroom and in September 1979 Southwest Airlines opened up their first interstate service between Dallas and New Orleans.

From the very start Southwest Airlines decided that it should be a fun experience to fly with them, without affecting the service received by the customers. Employees are encouraged to take their job serious but not themselves. Southwest Airlines believe that if their employees are having a good time they will offer better service and be more effective performing their job.

Southwest Airlines has maintained the same strategy and operating style as they started with in the 1970s. They concentrate on flying to airports that are located close to metropolitan areas and are under-utilized, e.g. Love Field in Dallas, Hobby in Houston, San Jose and Oakland in the Bay Area, and Midway in Chicago. Southwest has from the very start only operated with fuel-efficient Boeing 737s and a low fare strategy. Today Southwest Airlines is the market leader within the low cost segment. Examples of their success are the 32 years of consecutive quarters with positive earnings, and a cost to fly one seat one mile that is the lowest in the industry.

Competitive Advantages of SWA

Southwest Airline’s Competitive Advantages can be best viewed by analyzing six major factors, their Procedures, Infrastructure, Edge, Communication, Atmosphere and People

SWA procedures heavily rely on the strategy of keeping the airplanes in the air as much as possible. This has required an integration of operations and procedures to gain full control and to get a tighter organization. Means that they have used to accomplish this is quick turnarounds and one type of aircraft the Boeing 737 Additional means are the use of under-utilized airports that cost less to operate. The lesser known airports are usually lesser congested and that makes it easier to achieve fast turnarounds. However, SWA has started to extend their markets to larger airports, which makes their strategy to keep the planes in the air hard to achieve.

The less congested airports are vital to SWA and are part of what has made them less exposed to cyclical changes in the economy. Capacity utilization is an important factor for industries that are heavily associated with high fixed costs, such as the airline industry. Every factor that can keep costs down is therefore vital to make the company “recession-proof”, which makes the small airports very important to SWA since they constitute one of the foundations of their low-cost strategy. However, the policy choices made to be low-cost relies on more than operating cheap airports. SWA was first out on the market with their innovation and that has given them a head start of the competition. Timing has been a major part of several of SWA procedures since they have several innovations that have been first out on the market. This goes for all activities in their procedures. The business cycle has started to catch up with SWA in the last couple of years with new underdogs surfacing and threatening Southwest Airline’s position as the only innovative airline. The competition is likely to thicken further as the business life cycle matures within the low-cost segment.

SWA infrastructure focus is on the communication process. This is why they only have four layers between top management and ground personnel. This is a major factor to achieve a smoother running operation and to cut costs. The importance of interrelationships between value activities will decrease the cost per units and potentially increase scale. SWA has very “thin contracts” which means that everyone helps out no matter what level they are on. Also, the quick turnarounds use linkages and interrelations heavily to achieve their goal. By integrating its operations SWA has a tighter organization that has full control over daily routines. This projects that advantages of vertical integration are high when control over a value activity is demanded, which is the case in SWA and their quick turnarounds.

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