Focused cost leadership strategy

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Reference no: EM13785852

Please respond with comments, questions and concerns to the following short article.

Picked Southwest Airlines for this week’s topic since I flew their ABQ to LAX route so many times over the past 4 years and really enjoyed my experience. Before I started researching this week’s topic, I was sure I would be writing about “Focused Cost Leadership” strategy. The assumption was that they were a small, low-cost airline, catering to the southwest United States. Prior to 2010, this may have been true, but in 2010 Southwest announced a new 5-year strategic plan (Southwest Airlines, 2015) that would transform them to operate more with a generic strategy of “Cost Leader.”

In 2010, Southwest announced that they were acquiring AirTran Airways (Southwest Airlines, 2015). This significantly expanded their operations and enabled them to offer international destinations; their first international flight took flight in 2014 (Southwest Airlines, 2015). Prior to 2014, they were significantly restricted on where they could fly, according to a piece of legislation called the “Wright Amendment,” which was fully repealed in Oct 2014 (Southwest Airlines, 2015). The repeal of Wright Amendment enabled Southwest Airlines to add non-stop destinations to 15 new airports – some of which they were previously unable to reach such as JFK in New York (Southwest Airlines, 2015). According to Strategic Management (2014), one of the key factors for a “focused” strategy is to have a narrow target market. By offering international destinations and expanding service nation-wide, in my opinion, they had broken out of their “focused cost leader“strategy shell.

According to Strategic Management (2014), one of the key characteristics of a “Cost Leader” is that they use leverage efficiency in order to be able to offer customers lower prices. One example of their efficiency is that they only operate Boing 737 aircraft – 665 of them (Southwest Airlines, 2015). This increases efficiency because it is easy to train pilots and mechanics on the subtle differences in the 737 variants. Additionally, maintaining one basic airframe reduced costs associated with parts / supplies. Other major airlines fly many different aircraft, from several different manufacturers. This is a competitive advantage that a Southwest airline has over their competition.

Reference no: EM13785852

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