Running head: INTERNAL ENVIRONMENT ANALYSIS

Internal Environment Analysis: Southwest Airlines

Terra Thomson
Ohio !omini"an #niversity
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INTERNAL ENVIRONMENT ANALYSIS
Internal Environment Analysis: Southwest Airlines
Southwests Income Statement
This ortion highlights Southwest Airlines$ ro%ita&ility &ased on the %irm$s in"ome
statements and &alan"e sheets' The in"ome statements are %rom years ())*+(),) -Southwest.
In"ome Statement. (),,/' The airlines saw a slight dro in total revenue and gross ro%it %rom
())* to ())0 due to the #'S' re"ession' Then in (),). Southwest re&ounded e1onentially with
an in"rease o% 2,.345 mill' in total revenue and 2633 mill' in gross ro%it' This in"rease in
overall ro%it "an &e attri&uted to the way Southwest manages its strengths and imroves on its
wea7nesses' One strength that Southwest used is the %irm$s suerior "ustomer servi"e'
The value o% "ustomer servi"e is an imortant art o% Southwest$s mission and vision'
A""ording to the airline$s "ustomer servi"e manual. 88The mission o% Southwest Airlines is
dedi"ation to the highest 9uality o% :ustomer Servi"e delivered with a sense o% warmth.
%riendliness. individual ride. and :omany Sirit; -Ruel. ())0/' Southwest used its value o%
high 9uality "ustomer servi"e to regain "ometitive %ooting in the airline industry a%ter the
re"ession' <y utting the %o"us &a"7 on "ustomers. Southwest was a&le to lure new "ustomers
and maintain "urrent "ustomers &y &uilding "ustomer loyalty' Also. with the in"rease in ro%its
%rom ())0. the airline was a&le to e1and on the "ometitive low+"ost air%are that the "omany
already o%%ers'
Southwests Internal Environment
This se"tions outlines the strengths and wea7nesses that e1ist in Southwest Airlines$
Internal Environment' Southwest %a"ed many o% the same o&sta"les that outer "omanies in the
airline industry are dealing with' The internal strengths and wea7nesses o% the airline are what
have made the di%%eren"e in dealing with these issues' <ased on in"reased ro%it in%ormation
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INTERNAL ENVIRONMENT ANALYSIS
%rom the %irm$s &alan"e sheet and in"ome statements. it is evident that Southwest has emloyed a
strategy %ounded on e1loiting internal strengths and redu"ing internal wea7nesses' This was
imortant to a""omlish &e"ause a""ording to !avid$s arti"le. 8 a strategi"+management audit o%
a %irm$s internal oerations is vital to organi=ational health; -!avid. ())0. g' ,>6/' The Internal
?a"tor Evaluation -I?E/ is one o% the &est methods used to er%orm strength+wea7ness
evaluations'
Southwests IFE Strength Results
The %ollowing se"tion highlights Southwest$s strengths %ound on the I?E and how the
%irm has "aitali=ed on those strengths' The to strengths %or Southwest are the %irm$s suerior
"ustomer servi"e. %irm oerating strategy. and a&ility to o%%er the lowest "ost %ares' Emhasis n
theses strengths are what aided Southwest in a %ast and sound re&ound %orm the ())0 re"ession'
The oerating strategy allowed the airline to weather the re"ession with minimal loss' Southwest
does not invest an e1u&erant amount o% the %irms revenue in 8e1tras; that other airlines o%%er'
@hen the re"ession o""urred. many airlines had to "ut servi"es or o%%er them %or a %ee' <e"ause
Southwest does not oerate &y o%%ering "ustomers %ree e1tras. su"h as &lan7ets. &aggage "he"7.
and sna"7s. the "omany did not have to "hange mu"h I the way o% servi"e to redu"e oerating
"ost' This allowed Southwest to maintain the low+"ost air%are that &ene%ited "ustomers also
struggling %inan"ially in the e"onomi" re"ession'
Southwest$s "ustomer servi"e is another strong oint the %irm %o"used on to maintain a
"ometitive edge' Southwest has had unaralleled "ustomer servi"e in the low+"ost air%are
mar7et %or years' !uring the re"ession when many airlines were "utting &a"7 and o%%ering
"ustomers less. Southwest strived to maintain a "ustomer %o"used servi"e model where the
"ustomers still re"eived e1"ellent servi"e and &ene%its %orm the airline' The %irm was su""ess%ul
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INTERNAL ENVIRONMENT ANALYSIS
at maintaining its "ustomer &ase and in"reasing loyalty at a time when most airline ri"es were
low due to the e"onomy' Although the airline o%%ered similar air%are as other low+"ost airlines.
Southwest o%%ered "ustomers a higher level o% servi"e and are"iation'
Southwests IFE Weakness Results
This ortion outlines the airline$s wea7nesses and how Southwest minimi=ed them so the
%irm "ould remain "ometitive' The to two wea7nesses %a"ing Southwest are the %irm$s heavy
relian"e on assenger revenue and low emloyee rodu"tivity'
A""ording to !atamonitor$s ())0 S@OT analysis. 8The "omany is highly deendent on
assenger revenues' The "omany derived ,'>A and >'(A o% its revenues %rom %reight and other
oerations and 04'4A %rom assenger transort during ?Y())*; -!atamonitor. ())0. g'6/'
This relian"e on assenger+generated revenue was the main "ause o% Southwest$s ro%it de"line
in ())0 during the re"ession when eole were sending signi%i"antly less on travel'
Southwest also %a"es the issue o% low emloyee rodu"tivity' The "ororate "ulture at
Southwest is &ased on %un. loyalty. and emloyee are"iation' This o%ten leads to less time
%o"used on &usiness oerations and more time sent "ultivating the "ororate environment'
:ele&rations %or &irthdays. graduations. marriages. and holidays o%ten ta7e la"e during
"omany time to show are"iation and %oster &onding among the emloyees' This loss o%
"omany time to non+&usiness related a"tivities de"reases ro%its'
Southwests Total IFE Score
The remaining se"tion e1lains the results o% Southwest$s I?E analysis and what they
mean %or the airline$s %inan"ial %uture' Southwest$s total weighted I?E s"ore is (',6' The s"ore
is slightly &elow average. yet still "omara&le with s"ores o% other airlines in the industry' The
dro in the total weighted I?E s"ore "an &e attri&uted to how greatly Southwest$s wea7nesses
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INTERNAL ENVIRONMENT ANALYSIS
have a%%e"ted the %irm during the re"ession' The heavy relian"e on "ustomer revenue during a
time when "ustomers were sending less had a signi%i"ant e%%e"t on the %irm ro%its' Although
the airline re&ounded &y &uilding on its strengths. to remain "ometitive Southwest should loo7
at e1anding servi"es in to other areas o% the airline industry' Instead o% having 04'4A revenue
%rom "ustomer transort. Southwest should e1and on the growing air%reight &usiness to garner a
more &alan"ed ro%it generating strategy' In general. Southwest has done a "ommenda&le Bo& in
re"overing %rom the re"ession and &alan"ing its internal strengths and wea7nesses'
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INTERNAL ENVIRONMENT ANALYSIS
Re%eren"es
!ATAMONITOR: Southwest Airlines :o' -())0/' Southwest airlines co. swot analysis. ,+0'
Retrieved %rom E<S:Ohost'
!avid. ? -())0/' The external assessment. Strategi" Management -,(
th
edition/' #er
Saddle River. NC: Dearson'
Ruel. C' -())0/' Soutwest airlines customer service commitment' !allas. TE: Southwest
Airlines :o'
Southwest Airlines :o' -NAS!AF: !AL/ <alan"e Sheet' -(),,. ?e&ruary ,*/' Forbes.com'
Retrieved %rom htt:GG%inas'%or&es'"omG%inasGBsG%inan"eG
"omin%oG?inan"ialIndustrial'BsHt7rIL#VJeriodI9tr
Southwest Airlines :o' -NAS!AF: !AL/ In"ome Statement' -(),,. ?e&ruary ,*/' Forbes.com'
Retrieved %rom htt:GG%inas'%or&es'"omG%inasGBsG%inan"eG
"omin%oG?inan"ialIndustrial'BsHt7rIL#VJeriodI9tr

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