Southwest Continues To Fly The Blue Ocean Skies

Profitable Again, Away from the Red Ocean
In the midst of a Red Ocean industry, Southwest continues to remain profitable and growing.  It posted a 15% increase in profits in the 2nd quarter, reporting a net income of $321 million (compared to $278 million a year ago).  This happened in spite of rising costs (e.g., fuel, which for Southwest grew by 35%, of which 80% of its fuel bill was smartly hedged).  Nearly all other domestic airlines are facing huge losses, and as a result, they are raising ticket prices, slashing unprofitable routes, and charging various fees such as checking baggage.

Stay the Course into Blue Waters
Southwest, already a Blue Oceaner, is a prime example of a company that can do well to follow its current course.  The overall outlook of its management must continue a Blue Ocean tenet of not focusing on the same point in time as the other carriers.  Other airlines live by a short-term time horizon.  Southwest should maintain a mid to long range focus and; do not charge additional fees for baggage, continue hedging fuel costs, and in particular, do not raise ticket prices too quickly on less competitive routes.  This last point is very pertinent because capacity in Southwest’s markets have decreased by 15% – the industry norm is 10%.  With a weak economy forecasted to continue in 2009, management has prudently lowered its growth plans.  Although this is forecasted and its load factor is down this summer, Southwest should focus mid-term and long-term on building share where competitors are retreating.

Emotional Orientation as a Key Differentiating Factor
Lastly, Southwest should retain its focus on another of its Blue Ocean traits: maintain the emotional orientation that distinguishes its identity from the other domestic airlines.  Continue the momentum of friendly service and attitude of its employees, its corporate culture, and paramountly, the quality of customer treatment at every touch point.  This momentum begins with the internal culture, at the very start, with its attitude-focused hiring and screening process. 

What else do you think Southwest can do to maintain its Blue Ocean?  What would you do if you were running American or United?

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Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.

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