Analysis Of Southwest Airlines Operational Improvements

Southwest Airlines Operational Improvements

The airline industry has grown rapidly over the decades. In the most recent decade revenue has doubled. Most growth seen in the industry has been in the low-cost carriers. With all this growth, why has profit margins been so thin? There are a series of trends that suggest most of the profit is eaten up by overhead such as the airports, manufacturers, salaries, and service providers which all remain profitable while the carriers struggle. There is another theory that the continual increase in regulation has been the issue. Not to mention natural disasters, terrorist threats, and sickness concerns that all impact passenger attendance.

Recognizing industry trends such as growth, prices, and consumer

Average of $296.60 in 1995 to $388.32 in 2015 (“Average Domestic Air”, 2015). While this seems to fit an inflation based rate increase, it does not. An inflation-adjusted U.S. average shows a decrease in per passenger rates from $463.03 in 1995 to $388.32 in 2015 (“Average Domestic Air”, 2015). With the inflation-adjusted per seat cost declining, what has happened is that the big players have slowly adjusted prices that are now comparable to Southwest’s. A 2013 price per seat mile provides a clear picture on where each airline stands in the pricing ranks. Delta is currently the highest cost airline with $8.98 per seat mile, Allegiant the low-cost winner at $5.66, and Southwest currently in the middle at $8.25 (Bachman, 2014). This trend indicates that Southwest Airlines is no longer the low cost leader in the airlines industry.

To break this trend Southwest Airlines may need to slow its rate increases below the competitions in upcoming years. Another possibility for Southwest is to change its bags fly free slogan to one bag fly’s free to cash in on some additional profit. A few additional charges could help Southwest lower rates

“Thirty percent of Americans who answered a recent poll by TripAdvisor said comfortable seating is the biggest improvement airlines could make, and 41% said airlines adding more legroom would be the biggest improvement” (Patterson, 2012). Southwest is making a small step to meet this demand trend with the wider Boeing 737-800 aircraft. The newly ordered aircraft are said to be configured with newly designed seats. “The new aircraft seats are the widest economy seats available in the single-aisle 737 market, and offer a unique design that gives our Customers what they asked for: more space,” said Bob Jordan, Southwest’s Executive Vice President and Chief Commercial Officer (“Southwest Airlines”, n.d.). The airline that offers the most comfortable and largest coach seats is most likely going to gain a comparative advantage. With Southwest’s .7 inch wider seats, customers will be more inclined to choose a Southwest flight over the competition. However, the comparative advantage will more than likely be minimal since only new aircraft will be equipped with the larger seats. Overhauling Southwest’s existing fleet with wider seats is more than likely necessary to truly gain the comparative