Amber

Baker
Section 002
Expansion of Southwest Airlines into Italy
If you get your passengers to their destinations when they want to get there, on time, at
the lowest possible fares, and make darn sure they have a good time doing it, people will fly your
airline (southwest.com). When Southwest Airlines (SWA) was created it was made to be an
airline unlike any other, it was designed to be a relaxed, affordable atmosphere without all of the
frivolous extras. While they are looking ahead to expand their airline internationally, the focus of
this paper will be on the feasibility of expanding SWA into Italy. The focus will be on the
following: 1) the Italian economy and relatively recent deregulation of the European aviation
market; 2) Southwest and the various differentiation models used; and 3) what it would take for
SWA to succeed. This paper will show why Southwest Airlines should not expand to the Italian
market.
Italy has a diversified industrial economy...The Italian economy is driven in large part
by the manufacture of high-quality consumer goods produced by small and medium-sized
enterprises, many of them family-owned (World Factbook, Economy). Italy has the third largest
economy in the Eurozone. The GDP per capita is $29,600 and the purchasing power parity is
$1.805 trillion, but there is still a lot of concern from their financial investors regarding their
public debt, which in 2013 topped at 133% of the GDP. As of 2013 the growth was at -1.8% and
Italys unemployment was at a high of 12.4% (World Factbook). As of 2013 there are 129
airports in Italy with a total of 54 airlines active (World Factbook). In 2012 there were 1,379,814
aircraft movements in Italy. 146,929,598 passengers either arrived or departed from an airport in
Italy; 85,740,057 of which were international fliers (Istat). The shift from government control to
private made the European market an incredibly attractive place to grow (Burghouwt, 2003).
Deregulation may be described as a necessary but not sufficient condition for the growth of low

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cost activity (Francis, 2006, sct. 4). Many airlines in the existing market already operate under
the LCC model. There is not a lot of distance between two destinations in many cases and the cost
of flying between countries in the EU is relatively inexpensive.
Southwest Airlines (SWA) started operations in 1971 as a low cost carrier (LCC) with the
mission of being different using a low cost of operations and a low fare policy. SWA found three
strategies where they wanted to make changes that would set them apart from all of their
competitors: focus, cost leadership, and differentiation. They decided to focus all of their
attention on two types of fliers: 1) convenience time-oriented customers; and 2) price-conscious
leisure customers (Thomas, 2006, pg. 6). By focusing on just these two types of travelers SWA
has been able to market their flights directly to the ones interested. With SWA classifying
themselves as a LCC, being a leader in cost is imperative. They were able to do so using a
number of unheard of methods. They practice fuel hedging which made it possible to keep the
overall fuel expenses low, which increased cash flow leading to an growth in profitability
(Carter, 2005). The cost leadership strategy with the most affect on consumers is their handling
of flights; the process of flying Southwest begins at a less crowded secondary airport in a
midsized city, you get on a Boeing 737, the only plane that SWA uses, and you are greeted by a
maximum of three cabin crew members, and you are flown to the next point on the Point-to-Point
model that SWA uses to conserve fuel. All of these steps in your flight are implemented to make
sure that the flight is as cheap as possible for Southwest so it can be as cheap as possible for you.
The final strategy that SWA uses is differentiation. They have developed many policies that have
set them apart from their competitors. These include: a focus on short route journeys, inflight
entertainment, P.A.W.S. (Pets Are Welcome on Southwest), ticketless travel, and one of SWAs

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practices that really helped differentiate itself for me is that bags fly free (southwest.com). All
three of these strategies are what made Southwest the fourth largest airline in the US.
The emergence of the low cost carrier (LCC) phenomenon has led to an increase in
passenger traffic at many smaller secondary airports. If confronted with a choice, many leisure
passengers put up with a longer drive if it means they can avoid paying the premium for flying
through a major airport which might be more conveniently located (Muller-Rostin, 2008, pg.3).
This consumer behavior is what has made SWA such a strong competitor within the US. The
willingness to drive longer distances is not something Europeans are able to do. Unlike in the US
where driving is a more standard part of daily life, in Italy the public transport system is much
more likely to be used for travel (Alice Leri Interview). SWA will also have to overcome a lot of
competitors, unlike in the US they would not be going into Italy with the advantage of being a
first mover and this would immediately threaten their success. Unlike the other airlines Southwest
will be entering the game late and the airports will already have relationships with the existing
airlines. SWA would also need to put a lot of capital investment into the expansion. SWA only
uses Boeing 737 planes and they do not have the fuel capacity to make long distance flights. The
chances of success are vastly outweighed by the amount of hurdles SWA would have to
overcome.
Given the topics above it is my opinion that Southwest Airlines should not expand
overseas into Italy. The best course of action at this time is to start creating ties into South
America. The distances are not as great and the market is not as saturated as it is in Europe. This
way SWA can get into the international market without too much risk to their bottom-line or to
their differentiation strategy. I also believe that South America would respond positively to
Southwest Airlines Low Cost Carrier identity.

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Section 002
Works Cited
Alderighi, Marco and Cento, Alessandro and Nijkamp, Peter and Rietveld , Piet, The Entry of
Low-Cost Airlines: Price Competition in the European Airline Market (September 2004).
Tinbergen Institute Discussion Paper No. TI 04-074/3.
"About Southwest." - Southwest Airlines. N.p., n.d. Web. 21 Nov. 2014.
LaSharon Thomas, Joel. "Southwest Airlines Corporation: A Domestic Industry Analysis &
Recommendation for Expansion." University of Tennessee Honors Program (2006): 6. University
of Tennessee- Knoxville. Web. 23 Nov. 2014.
Carter, Dave, Dan Rogers, and Betty Simkins. "Fuel Hedging in the Airline Industry: The Case of
Southwest Airlines." (005): 2-4. Web. 23 Nov. 2014.
Burghouwt, Guillaume, Jacco Hakfoort, and Jan Ritsema Van Eck. "The Spatial Configuration of
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Ministry of Research and Technology of Germany (2008): 3. Web. 24 Nov. 2014.
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Leoni, Laura. "Air Transport in Italy." Istat. N.p., 19 Nov. 2013. Web. 24 Nov. 2014.
Francis, Graham, Ian Humphreys, Stephen Ison, and Michelle Aicken. "Where next for Low Cost
Airlines? A Spatial and Temporal Comparative Study." Journal of Transport Geography 14.2
(2006): 83-94. Web. 23 Nov. 2014.