Low-cost differentiation and competitive advantage

: the case of Southwest Airlines

Abstract

This study complements Michael Porter’s assertion that firms must choose between cost leadership and differentiation to achieve competitive advantage. It argues instead that a third business strategy is possible: low-cost differentiation. By analyzing the case of Southwest Airlines (SA), this study answers the following research question: How low-cost differentiation influences competitive advantage? The research strategy adopted is case study research , combining primary data from interviews and secondary data from financial reports and websites. This study concludes that low-cost differentiation provided SA with sustainable competitive advantage. By eliminating non-essential service attributes and by maximizing critical service attributes, SA was able to provide a differentiated offer at a reduced cost. It thus complements Porter’s dichotomy between a standard offer with a lower cost in cost leadership and a differentiated offer with a higher cost in differentiation. This third business strategy can thus be called low-cost differentiation.

Date of Award	18 Jul 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Alexandre Morais (Supervisor)