After more than 40 years of service, the company was facing some major challenges. Legacy carriers in the United States had become more efficient, and the recent mega-mergers involving Delta/Northwest and Continental/United were shaking up the industry. Smaller companies like JetBlue and Allegiant were pressuring Southwest’s cost-advantage and low-fare focus. A major internal challenge for Southwest would be managing its acquisition of AirTran. To make the acquisition a success, the company would have to integrate a workforce of more than 8,000 and new markets that included non-U.S. destinations. In addition, high fuel prices were a continuing challenge, and Southwest’s salaries were among the highest in the industry.
This case can be used for a variety of teaching purposes. The case can be used to examine how a firm can be successful in an inherently unattractive industry. Southwest has been profitable and expanding for many years and has been able to maintain a low-cost position despite many potential imitators. The case can be used to illustrate the importance of a unique activity system and the difficulty of imitating the entire system. The case can also be used to review industry structure and generic strategies. Another important aspect in the case is the challenge facing successful firms. After many years of success, how can Southwest ensure that it continues to innovate and create difficult-to-imitate uniqueness? Finally, the case can also be used as a leadership/HR case.