2011 Proves to be a Challenging Year for Southwest Airlines
After marking its 38th consecutive year of profitability in 2010, as well as the unquestioned success of its no frills and upbeat service business strategy, Southwest is encountering headwinds in 2011.
A revamped Rapid Rewards programme and the grounding of 81 airplanes following a rupture in the fuselage of a Boeing 737-300 were the two events disrupting the successful air route traced by the low cost carrier.
New Rapid Rewards programme causes mixed reactions
Southwest revamped its Rapid Rewards programme in 2010 to make it more competitive for business travellers. The old system was developed when Southwest’s business was dominated by short-hop flights. Fliers received a point towards a free ticket, regardless of the fare paid. Southwest realised that with longer trips, travellers could receive more benefits from other carriers.
The new system links the reward to the fare – the more paid for the ticket, the greater the reward. However, the changes made resulted in a mixed reaction from frequent flyers, particularly as they eliminate the possibility to earn a reward with short, cheap trips and cash in for a cross-country flight.
Additionally, Southwest received a large number of calls from passengers with questions and complaints about the new system, which was hurt by technological glitches that made it impossible for frequent flier members to see their accounts and book free flights.
In order to safeguard its reputation for customer friendly service, Southwest quickly apologised publicly for inconveniences caused by the new system since its introduction on 1 March 2010, and worked to correct the issues. Its outdated IT structure, however, is far from being up-to-date and still presents a major barrier for growth.
Grounding of 81 planes disturbs Southwest’s flight schedule
On 2 April, 2011, Southwest Flight 812 from Phoenix to Sacramento was forced into an emergency landing in Yuma, Arizona, due to a large hole forming in the fuselage that caused a loss of pressurisation in the cabin. The incident led to the immediate grounding of all 81 Boeing 737-300 for inspection, which account roughly for 15% of its fleet. The airline also cancelled approximately 300 flights, which stranded more than 31,000 passengers.
As of 5 April, a total of 19 planes returned to service after undergoing inspections with no findings, with more expected to follow once inspections are completed. Southwest is working with the Federal Aviation Administration (FAA) and the National Transportation Safety Board (NTSB) to further investigate the event, particularly as the cracks are not visible to the eye.
The development of distinct marketing strategies is a major competitive advantage for Southwest Airlines. Nevertheless, in order to sustain such strong competitive positioning in the short to medium term, Southwest will have to uphold its image as a friendly and, most importantly, safe low cost carrier.
Together, both incidents have resulted in a number of upset passengers and are expected to incur high revenue losses in the short term, particularly if passengers decide to cancel trips, instead of rescheduling flights. However, a long term impact is not expected.