What Strategy Is: A Lesson From Southwest Airlines

Southwest airlines strategy

What is strategy? When done well, it describes how an organization wins; and serves as a guide to behavior in the day to day operations of the organization. Getting to this point is not easy, crafting strategy is hard. So hard that most company’s strategies are just more of the same; choosing to be a follower rather than a leader. All followers fall into the same strategy traps, and have to pay for it by competing on a race to the bottom.

On the other hand, the company’s that are highly differentiated are truly strategic in their decisions of who they serve, how they’ll play, where they’ll play, what they need to be great at and what they won’t do. And this is the point about what strategy is:

Dare to be bad at some things in order to be great at what matters most to customers. Every great strategy is focused. Saying no to many things sharpens your focus.

Herb Kelleher, cofounder and CEO of Southwest Airlines, understood this concept of strategy and led him to create a highly differentiated airline experience for its customers: the “low cost” airline.

Southwest: The Low Cost Airline

So what, specifically, did Southwest do this achieve this?

First, Keller really understood what matters to Southwest’s customers, which is low prices. From there, he worked backward and purposely focused all his efforts on being great at reducing costs so lower prices could be achieved. That meant denying things that other airlines did routinely, such as onboard amenities, extensive network, convenient airports, and other services that are common to anyone who flies.

Southwest’s customers are willing to give up convenience in return for cheaper tickets. Southwest denied passengers any meaningful onboard comforts, including assigned seats, which meant it could turn planes around faster at the gate, which meant that the airline got more flying time out of its expensive, airborne assets than its competitors, freeing up even more room to lower prices; what customers wanted most.

Southwest is the inconvenient airline, with lower prices. What other airline, in that time, was willing to compete like that?

Southwest was willing to lose customers who didn’t want inconvenience and lower prices! That’s how ruthlessly Southwest focused on lower prices. Here’s an example of complaint letter they received from a woman who came to be known as “Pen Pal”, along with Herb Kellers response:

One woman who frequently flew on Southwest, was constantly disappointed with every aspect of the company’s operation. In fact, she became known as the “Pen Pal” because after every flight she wrote in with a complaint.

She didn’t like the fact that the company didn’t assign seats; she didn’t like the absence of a first-class section; she didn’t like not having a meal in flight; she didn’t like Southwest’s boarding procedure; she didn’t like the flight attendants’ sporty uniforms and the casual atmosphere.

Her last letter, reciting a litany of complaints, momentarily stumped Southwest’s customer relations people. They bumped it up to Herb’s [Kelleher, CEO of Southwest] desk, with a note: ‘This one’s yours.’

In sixty seconds, Kelleher wrote back and said, ‘Dear Mrs. Crabapple, We will miss you. Love, Herb.’”

What’s the takeaway?

Southwest understands who the are. Once a company or brand understands who they are and how they act, then all decisions should flow from that place; that’s very powerful. This is strategy!