Southwest Airlines was the first low-cost carrier in the airline industry (The Economist, 2013).
Many airlines followed the same business model as Southwest airlines providing low fares and less in-flight services compared to other high cost carriers. There are approximately hundred low cost airlines around the world such as EasyJet, Ryan Air and Air Asia (Aviation Knowledge, 2011; Economic Analysis and Policy Section, 2014)
There are many advantages that Southwest Airlines gained due to being a first mover in the industry of low cost carriers.
First, Southwest Airlines has ability to increase sales volume ahead of late comers. For example, according to United States Department of Transportation (2015), Southwest Airlines accounted for 18% market share in the US airline market in 2015, which hold the highest market share in the USA. Moreover, Southwest Airlines acquired AirTran, which helped it expand more market share in the US market.
Second, there was a significant proportion of air travellers chose Southwest Airlines in the USA in 2015; therefore, it is suggested that Southwest had successfully educated customers which results in high level of customer loyalty (INVESTOPEDIA, 2015; The Dallas Moring News, 2015).
In order to utilize its brand awareness and loyalty, Southwest Airlines adopted a number of competitive strategies to more effectively defend its position in the market:
1) Cancellation policy, which allows customers to cancel a reservation up to 30 minutes before the flight departure, and the funds of the cancellation are available for the future flight.
2) Helpful, friendly and approachable employees.
3) Great on time performance of all the major US airlines, Southwest Airlines reached to 81.8% of flights on time in 2015, which was top six on time performance in the US airline industry.
4) Rewards programs: points gaining. How many points customers earn which depend on the amount and type of fare customers choosing. Points allow customers to purchase future flights. Southwest Airlines’s credit cards that make customers accumulate points more quickly.
disADVANTAGES
Although being a first mover gains Southwest a number of advantages, there are apparently some disadvantages.
First, the pioneer may face more intense competition from incumbent companies. For example, traditional airlines which are Texas International Airlines, Braniff International Airways and Continental Airlines resisted the concept of low cost carrier and competition. They claimed that three cities that Southwest Airlines requested to fly were already sufficient air service and accused Southwest Airlines to court (Southwest Airlines, 2010). Therefore, before Southwest Airlines started to operate, it faced and dealt with a number of legislations and problems which are the costs of developing new concept: low cost carrier.
Second, free-rider effect from later movers is the most significant disadvantage. The late mover can learn from the first mover’s successes and failures because they can see what is working and allow them to copy or improve the incumbent’s ideas. In the low cost carriers case, the success of Southwest Airlines attracts new comers to enter the market due to the profitable margins. According to The Dallas Moring News (2014), seven US low cost carriers including Southwest Airlines were in the top 15 the most profitable airlines in the world. Thus, the rest of six low cost airlines are Southwest Airlines’s competitors and share the market share without pioneering cost.