Strategy at Work: Teachable Moments from the News
February 19, 2025 - Issue #43
In This Issue:
The Profound Strategy Missteps at Southwest Airlines
LIME as a Viable Business
Photo by: Photo by: Aurel Manea at Freerangestock.com
The Profound Strategy Missteps at Southwest Airlines
Competitive Advantage is really just a concept that is meant to describe the elements of a business that make it truly exceptional. A truly exceptional business is one that is not only able to get customers to bypass competitors and buy from them, but also one that is substantially profitable while doing so.
The first element (getting customers to bypass competitors and buy from you) requires REAL differentiation. That means having elements of the business offering to customers that is substantially different. This would preferably be elements that are relatively rare compared to the competitive set, have a runway of time when the competition will not try to match what you have, and is not easily substituted by other means.
The second element (being highly profitable) requires a sufficient (and hopefully growing) customer group that values you differentiation and is willing to pay you substantially more than your costs.
The leadership team at Southwest Airlines has been embarking on a desperate program to make more money by doing the exact opposite! In the recent past they have eliminated most of their differentiation.
They are assigning seats – WHAT? That is what most of the other airlines do as a matter of course. It takes away the anticipation, energy and talking points about a SW trip. Furthermore, it reinforces the have’s and have not’s that is so prevalent on most airlines. Clearly many prefer an assigned seat, but SW has proven for decades that they can board a plane faster than any competitors because of the seat ‘free-for-all’ approach
They are even selling extra-legroom seats for additional fees. So much for the egalitarian experience. Boarding just got even more complicated. Does this mean they plan to start re-configuring the classic SW planes? Fewer seats? Really?
They have been cancelling their employee ‘Rallies’ around the country. These were a core part of the ‘have fun’ culture at the organization. Culture is not something that ‘IS’ it is something that must be constantly nourished and cared for. Maybe they could just do a Zoom Party – that would work?
This week they announced a layoff of 15% of the workforce. It is focused on the corporate staff and is pitched as an ‘oops we hired too many people’ move. SW has NEVER laid off their team members. This was one of the core elements of its organization. It breaks both an explicit and implicit promise that will lead to more contention in the organization. I can almost hear Herb Kelleher screaming! What was it he said? “A company is stronger if it is bound by love rather than by fear.”
They are putting in long-distance and red-eye flights to get more use out of the air-frame. The entire premise of the business was built on short-haul, quick-turn, flights where no-one will mind the minimalist seating and lack of amenity offering in the cabin.
Each of these moves NOW makes SW just like everyone else. They long ago stopped being THE low-cost airline. In fact, they are not even close. They raised their prices to match American, Delta and United while trying to ride their uniqueness. That uniqueness is now down to just:
Bags Fly Free (want to bet on how long this lasts?)
Direct Flights (a tenuous one as airlines keep popping up to take that away – think Breeze, Allegiant, Avelo, etc.)
They no longer have a low-cost structure and their dependence upon flying only the Boeing 737 (a dicey play these days given the production problems at Boeing) is no longer a cost play.
In the hunt for profitability (and maybe growth) – don’t give away your competitive differentiation. If you do, you will just be another player in your industry where customers have little reason to bypass competitors and buy from you.
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LIME as a Viable Business
We’ve been following the ‘rent-a-scooter,’ ‘rent-a-bike’ and ‘rent-an-e-bike’ markets since Bird, Lime, and Jump all made a big splash between 2017 and 2019. Initially these companies were viewed as pariahs as they entered a market by simply ‘dumping’ scooters and bikes wherever they could with little regard (okay… maybe no regard) for the communities in which they invaded.
Backlash, competition, regulations forced the companies to operate more like a business than a social disruptor and along the way they picked up a loyal following of customers who now had a new means of getting around (some far more dangerous than others).
As expected there was fallout. Jump was rolled into Lime by Uber (which owns both). At the same time Bird filed for bankruptcy and is being re-imagined as a staid, compliant operation under the management of a company called Third Lane Mobility.
The key attributes of the business model are availability, reliability, ease-of-use, and the ability to report problems / get answers. Offering frequent user passes has enabled Lime to start being profitable (hmm… we will skip past EBITDA as that is not profitability… or at least cash flow positive) in a business that requires a LOT of daily maintenance by a huge cadre of individuals (and organizations).
All that said. Limiting the competition and playing nice with the local authorities has enabled Lime to have something of a monopoly or duopoly (in some cases) that might actually be sustainable.
Will the company ever be substantially profitable? Unlikely. This would require a business model that was truly scalable. At this point, Lime (and the others) muscle their way through growth.
Will the company run out of new locations that provide the size needed for positive cash flow? Likely
Does Lime have any true competitive advantages? NO!
Do they have a formula for continued viability? INDEED!
What could upset the effort?
· Regulators allowing in too many competitors
· More effective mass transportation
· Losing their edge on customer convenience, availability, and reliability
This is an orthodox business. They need to play it well by keeping all the ‘basics’ working efficiently.
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Please let me know (cbamford@bamfordassociates.com) about any issues or (even better) recommendations you have for improving the value of this newsletter to you. If you see a news story about a company strategy that looks fantastic or terrible, please reach out to me.