EXAMPLE PROFILE OF SUCCESS
Southwest Airlines is the only consistently profitable airline in the world, yet their advantage and success continues to sustain in a highly- competitive airline market. While the industry & market dynamics they face are exactly the same as their competitors like American Airlines and Delta Airlines, Southwest is in a class of its own. According to our analysis, there were several key points that predict success, but here are a couple that become really clear with the proper focus and analysis:
Repeatability: While other airlines employ a broad array of aircraft and engines that translate into very low repeatability, e.g. being able to deliver the exact same way to all customers (which has enormous operating leverage implications), Southwest has always focused on only one airframe, the Boeing 737. This level of repeatability means their airline fleet is completely interchangeable. If an aircraft is taken off line, any other aircraft in the southwest fleet can replace it without a second thought to the number of seats or crew certification. All pilots, crew members, and mechanics only have to be certified on one aircraft. This simple, repeatable principle provides them powerful leverage that translates to lower overall operating costs and quicker turn times at the gate.
Gross Margin: While all airlines tend to have to price competitively, Southwest’s cost advantage due to its repeatability translates into higher Gross Margin when charging the same price. However, Southwest goes even further: by not offering meal service (a negative they turn into a positive by joking about it “just peanuts”), they can seat more passengers (a number of seats are sacrificed in order to add meal service capability to an aircraft). This provides Southwest additional Revenue per aircraft. The combination of higher Revenue and lower Expenses translates into higher Gross Margin. This also gives them the flexibility to grow traffic by offering lower prices to rates that other airlines cannot competitively follow.