Southwest Airlines SWOT Analysis / Matrix

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SWOT analysis is a strategic planning tool that can be used by Southwest Airlines managers to do a situational analysis of the company . It is a handy technique to analyze the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Southwest Airlines is facing in its current business environment.

The Southwest Airlines is one of the leading organizatations in its industry. Southwest Airlines maintains its prominent position in market by critically analyzing and reviewing the SWOT analysis.  SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the Southwest Airlines to develop four types of strategies:

• SO (strengths-opportunities) Strategies
• WO (weaknesses-opportunities) Strategies
• ST (strengths-threats) Strategies
•  WT (weaknesses-threats) Strategies

SWOT Matrix Strategies Objective

The central purpose of SWOT matrix is to identify the strategies that a firm can utilize to exploit external opportunities, counter threats, and build on & protect Southwest Airlines strengths, and eradicate its weaknesses.

Step by Step Guide to Southwest Airlines SWOT Analysis

Strengths of Southwest Airlines – Internal Strategic Factors

As one of the leading firms in its industry, Southwest Airlines has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of Southwest Airlines are –

• Strong Free Cash Flow – Southwest Airlines has strong free cash flows that provide resources in the hand of the company to expand into new projects.
• Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
• Strong distribution network – Over the years Southwest Airlines has built a reliable distribution network that can reach majority of its potential market.
• Superb Performance in New Markets – Southwest Airlines has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
• Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.
• Automation of activities brought consistency of quality to Southwest Airlines products and has enabled the company to scale up and scale down based on the demand conditions in the market.
• High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
• Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.

Weakness of Southwest Airlines – Internal Strategic Factors

Weakness are the areas where Southwest Airlines can improve upon. Strategy is about making choices and weakness are the areas where an organization can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

• Not highly successful at integrating firms with different work culture. As mentioned earlier even though Southwest Airlines is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
• The profitability ratio and Net Contribution % of Southwest Airlines are below the industry average.
• Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Southwest Airlines needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.
• The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. Southwest Airlines has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
• Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Southwest Airlines
• The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
• Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.

Opportunities for Southwest Airlines – External Strategic Factors

• The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Southwest Airlines to increase its profitability.
• Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
• New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for Southwest Airlines. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
• The market development will lead to dilution of competitor’s advantage and enable Southwest Airlines to increase its competitiveness compare to the other competitors.
• Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Southwest Airlines to capture new customers and increase its market share.
• Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided Southwest Airlines an opportunity to enter a new emerging market.
• New trends in the consumer behavior can open up new market for the Southwest Airlines . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
• Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for Southwest Airlines in other product categories.

Threats Southwest Airlines Facing - External Strategic Factors

• Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
• The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
• The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
• As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
• Rising raw material can pose a threat to the Southwest Airlines profitability.
• Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Southwest Airlines   in those markets.
• Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of Southwest Airlines
• New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.

Limitations of SWOT Analysis for Southwest Airlines

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.

• Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
• SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
• The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Southwest Airlines
• SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
• SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of Southwest Airlines

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Southwest Airlines managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.

Limitation of Weighted SWOT analysis of Southwest Airlines

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.

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Example of Weighted SWOT Analysis

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SWOT Worksheet & Template

If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.

References / Citations & Bibliography

• M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
• A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
• O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
• L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
• R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)