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The Southwest Airlines: In a
Different World case shows the common struggles that face companies with
once-disruptive business models as they grow from industry upstart to
dominant player. The case focuses on the decision Southwest faced in 2008
of whether or not it should attempt to enter New York’s LaGuardia airport.
It then uses that one decision as a jumping off point to explore the
seismic shift that Southwest had undergone since its founding in 1967.
Southwest was founded as a
low-cost, no-frills airline with a radically different business model than
most legacy airline carriers at the time. Rather than offering long-haul
flights using a hub and spoke model out of major airports as most legacy
carriers did, Southwest operated shorter-distance flights offering
point-to-point service out of smaller regional airports.
In its initial conception,
Southwest did not see itself as even competing with other airlines, but
rather as a faster and more convenient alternative to bus routes. Southwest
charged consistently lower fares and flew relatively limited routes
initially. Because it only operated short flights, it served no food. It
had no assigned seats and was able to turn around flights in short time
windows. Because Southwest operated out of smaller airports, they had many
fewer delays.
Southwest’s model was successful,
but that success required many changes. Southwest started offering longer
flights and began securing spots in larger and more popular airports. Low
fuel costs throughout the 1990s allowed Southwest to keep fares low, but as
oil prices surged in the 2000s, the airline faced increasing fares and
lower demand. In addition, in 2008, Southwest was facing stiffer competition
from other low-fare airlines as well as some legacy carriers, many of whom
had declared bankruptcy and had been able to renegotiate labor and other
contracts to keep costs under control.
Choosing to enter LaGuardia was
just another in a long line of decisions Southwest faced that had the
company shifting from its roots as a low-cost startup to the most valuable
airline in the US. Some in the company worried that they were abandoning
their core and becoming no different from the legacy airlines.
Others argued that the LaGuardia
spots were valuable and were willing to continue shifting the company’s
business model in search of more and more profitable routes.
The case combines questions of
operations and efficiency with issues of market expansion and business
model changes. It’s a story that happens to many successful startup
companies as they become the leader in the industry they once sought to
upend.
The case leaves the decision up
to the student, who has to balance the tradeoff between sticking to a
successful model and adjusting that model in the face of new business
opportunities and challenges. In the real world, Southwest did enter
LaGuardia in 2008 and then expanded further in the airport in 2013.
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