5. What is the nature of the business-level strategy that allows a company to attract customers away from its competitors in the industry? How well do the strategic managers adopt for using functional-level strategies to create a competitive advantage over its rivals?
While many airlines are using mileage-based segmentation, Southwest Airlines is applying needs-based segmentation to gain better insight of their customers. Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices. In contrast, most airlines offer high priced tickets to those who are inflexible (that they cannot tell in advance when they need to ...view middle of the document...
By focusing on the customer, Southwest has been able to consistently receive the highest customer satisfaction rating in the industry.
9. How is the effectiveness of the company’s strategies? Consider the Profitability (ROIC) and Profit Growth of the company for at least the last five years comparing with its competitors in the industry.
Considering ROIC of Southwest Airlines in 2004-2008 comparing to its competitor: American Airlines, Continental Airlines, Northwest Airlines, United Airlines and average ROIC among 5 competitors, Southwest was the only airlines that consistently profitable. its competitors during that period. Its ROIC is beyond the average for 4 years except 2007. This is due to the effectiveness of Dell’s strategies in term of capital turnover.
ROIC | 2004 | 2005 | 2006 | 2007 | 2008 |
Southwest Airlines | 3.88% | 5.33% | 8.02% | 4.20% | 4.13% |
American Airlines | -1.13% | -0.80% | 9.99% | 8.00% | -34.56% |
Continental Airlines | -3.72% | -0.74% | 8.99% | 9.65% | -3.74% |
Northwest Airlines | -10.93% | 20.38% | -18.79% | 6.29% | -78.60% |
United Airways | 11.35% | 1.21% | 12.36% | 8.38% | -124.59% |
Average | -0.11% | 5.08% | 4.11% | 7.30% | -47.47% |
As shown above, ROIC of Southwest has been stable compared with those rivals at a rate of about 3% - 4% except those in 2006 which its ROIC was at rate approximately 8% due to an acquisition of ATA, its competitor. Moreover, by comparing with the industry, ROIC of Southwest has been almost above the line since it has had a prudential operation policy leading a 36-year in a consecutive year resulting in gain from its operation. This is considered the main factor of making Southwest’ ROIC being stable. Southwest Airline has...