Southwest Airlines – A strong Brand based on a low price

Southwest Airlines  – A strong Brand based on a low price

Today, budget airlines are a dime a dozen. AirAsia, Tiger Airways, JetStar Asia and many others have burst onto the scene What most people do not know is that they are all modelled after the granddaddy of all budget airlines: Southwest Airlines. Southwest Airlines, founded by Herb Kelleher, has been profitable in every single year except one. The company was incorporated in 1967 and the maiden flight was in 1971 It is a strong brand built on low price, thanks to an amazing infrastructure that has given it an unassailable structural cost advantage over every other American airline.

For starters, Southwest Airlines only flies one type of aircraft, the Boeing 737, and that makes its fleet easy to maintain because it only has to service one type of aircraft day in, day out. Today, Southwest Airlines operates more than 500 Boeing 737 aircraft in 63 cities. Training its crew also becomes easier as both the trainers and trainees only have to worry about mastering one type of aircraft. This has resulted in reduced costs Southwest also operates on a first-come-first-served basis. It has no assigned seating. That means it is able to do away with expensive ticketing systems. Most of its flights re less than two hours long It does not serve meals. It lands at small airports. It chooses to serve only 30 of the 50 states in the United States. Furthermore, Southwest flies direct to destination, avoiding expensive hubs. All these things add up to impressive cost savings and they form part of the company’s structural cost advantage. This structural cost advantage has heIpe Southwest Airlines remain the world’s No. 1 brand for budget air travel.

Southwest Airlines beats the other budget airlines hands down but how does it stack up against the regular, full-service airlines? In 2006, Southwest Airlines had US$9. 1 billion (S$1 3.7 billion) in sales and US$499 million (S$748.5 million) — 5.5 per cent — in net profits.

Between 2004 and 2006, Continental Airlines had a total turnover of US$34.2 billion (S$51 .3 billion). It recorded losses of US$134 million (S$201 million).1 Although it managed to turn a net profit of US$343 million (S$514.5 million) on turnover of US$13.1 billion (S$19.7 billion) in 2006, its,net profit margin of 2.6 per cent was less than half of Southwest’s.

Between 2004 and 2006, United Airlines had a total turnover (from operations) of US$53.1 billion (S$79.7 billion) and a net operating loss of US$626 million (S$939 million).The situation at Delta Airlines is even scarier. The company suffered an accumulated net loss of US$1 5.2 billion (S$22.8 billion) from 2004 to 2006! Considering the state of other US airlines, we would say Southwest Airlines stacks up pretty well, thanks in large part to its unrivalled structural cost advantage.


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