MKTG 489
Southwest Airlines Situation Analysis Kent Sanner, Michael Vierela, Rainelle Uszynska, Jordan Swider
External Environment: Competitive Intensity (High) For the last 12 years, the U.S. airline industry has been characterized by a number of large mergers. Since 2000, the industry has gone from having 10 major airlines to just four. The trend started when TWA merged with American Airlines in 2001 followed by America West with U.S. Airways in 2005, Delta with Northwest in 2009, and United with Continental and Southwest with AirTran in 2010. Most recently in February 2013, it was announced that American Airlines would merge with U.S. Airways to form the largest airline in the world1. The new American Airlines will have a 26% market share followed by United at 19.3%, Delta at 19.2%, Southwest at 18.2%, and other airlines compromising the remaining 17.3% of the market 2. In the last decade the U.S. airline industry growth rates have been very turbulent. In 2001 as a result of the September 11th attacks, airlines saw a 2.7% decline in passenger growth and didn’t make a full recovery until three years later. After sufficient growth, in 2009 airlines saw another decline in passenger growth of 2.1% because of the economic crisis and increased oil prices3. However, since then growth rates are expected to hit 2% in 2013 and average 3.2% over the next 20 years. This is considered to be strong growth in the more mature U.S. market even though international markets are expected to grow at over 5%4. Lower growth rates in the U.S. market create an even more competitive environment as airlines focus on stealing market share rather than growing market demand. In addition to low growth rates, little differentiation between airlines increases competition since buyers have low switching costs. Some airlines try to combat low switching costs with frequent flyer programs and cheaper baggage check policies.
1
http://money.cnn.com/infographic/news/companies/airline-merger/
2
http://online.wsj.com/article/SB10001424127887324432004578302461513842442.html#project%3DA MRMerge021213%26articleTabs%3Dinteractive 3
http://www.iata.org/pressroom/documents/impact-9-11-aviation.pdf
4
http://www.zacks.com/stock/news/81160/airline-industry-stock-outlook-august-2012
New Entrants (Low) Entry into the U.S. airline market is quite difficult. Access to distribution, brand equity, capital requirements, and governmental policies are important factors in market entry. Terminal space is very limited at airports and existing airlines already have access to the most convenient and strategic gates. New entrants will be forced to use whatever gates are left over. Also, the initial capital investment of airlines (planes in particular) is very high. A Boeing 747 aircraft costs $350 million. Of the four current major U.S. airlines, three (America, United, and Delta) founded in the 20’s and 30’s are considered “heritage” brands. These brands are very recognizable in the U.S. market and have a long-standing, stable relationship and legacy with buyers. Lastly, government policies are another important factor for prospective entrants. After the September 11th attacks, U.S. president George W. Bush signed the Aviation and Transportation Security Act into law, which created the Transportation Security Administration (TSA). This added security measure has increased airport wait times and largely affected passenger growth for all airlines. Although these barriers of entry exist, one aspect of the airline industry that promotes entry is the lack of significant differentiation between each airline. Since little differentiation exists, buyers are likely to switch brands more easily. If an airline offers relevant differentiation, it will be easy to steal market share. Southwest did this after entering the market in 1967 with a cost differentiation model.
Substitutes (High) The transportation industry encompasses many sub-industries such as trains, buses, automobiles, and airlines. Therefore, each of these sub-industries can be considered viable substitutes to airlines. Cost and time are two of the most important considerations for buyers when deciding which form of transportation to use. Some buyers will choose to use airlines in order to go from one place to another faster. However, it is also the most expensive form of travel. Buyers with more time on their hands and traveling a shorter distance may decide that a cheaper bus ride suits their needs best. This thought process is especially evident in domestic and international travel growth rates in the airline industry. By 2016 domestic and international
travel growth rates are expected to be 2.6% and 4.3% respectively5. This could be because there are more transportation substitutes available to domestic travelers than international.
Buyer Power (Medium) The airline industry is characterized by significant buyer power specifically from intense price competition among airlines. Airlines can only afford to drop prices so low; so many are forced to consider operational cost reduction measures if they want to be the market leader on price. Low switching costs also give buyers more power. However, buyer power can only go so far. Most airlines prefer to fly their aircrafts below capacity even though they stand to make more money by dropping ticket prices for remaining seats. This is due to a risk that buyers would wait to purchase flights last-minute to take advantage of these prices cuts. Buyer power also decreases depending on location. More remote or less popular destinations will have less competition and can therefore increase prices.
Supplier Power (High) The main inputs for the airline industry are commercial aircrafts, fuel and labor. Three major firms dominate aircraft manufacturing: Boeing, Airbus, and Bombardier Aerospace. Aircraft manufacturing is characterized by smaller, high-value orders with a delivery timeline over several years. In addition the high aircraft costs, airlines need to investment in specialized mechanics that can maintain specific aircrafts. These factors make it difficult for airlines to switch aircraft manufacturers. Fuel is a commodity, so airlines are subject to market prices and geo-political factors. Much of the airline labor industry is unionized and holds a lot of power in the airline industry. But in the past airlines have had no problem using the threat of bankruptcy to regain some of this power.
5
http://www.iata.org/pressroom/pr/pages/2012-12-06-01.aspx
Internal Environment Marketing Goals and Objectives: Southwest Airlines targeted a specific market segment that required “A primarily shorthaul airline that flies directly from city to city, [with] the lowest costs.6” To aid in maintaining lower costs, Southwest targeted underutilized airports that are close to metropolitan areas and avoided the “hub and spoke system” that most airlines use. Flying into these less crowded airports allowed Southwest to keep prices down while simultaneously decreasing the turnaround time for its planes. One of the goals of the company was to establish itself as the single best point-to-point airline in America. Now the brand promise of Southwest Airlines is “Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit7.”
“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 has taken a stand for low cost tickets and refuses to raise them even when demand for air travel increases. This gives Southwest a more unique “capacity” or “frequency” goal to increase revenue. Instead of forcing loyal customers to pay more for the same service in times of demand spikes, Southwest makes its service more available and tries to increase the number of customers it serves. This is consistent with their positioning goal of being the best low cost, short duration flight provider on the market.
Current marketing strategy and performance: Southwest’s marketing strategy has been consistent with the best low-cost strategy of any business. With emphasis on low ticket pricing, customer service, quick turnaround for planes, and short non-stop flights, Southwest established themselves as a reliable source for domestic business travelers and vacationers. Establishing a strong market share in the mid ‘90’s 6
http://www.advancebusinessconsulting.com/advance!/strategic-alignment/strategic-alignment-businesscases/the-rise-of-southwest-airlines.aspx 7 ^
allowed Southwest to begin focusing on more mature marketing strategies such as cost reduction and increasing revenue per customer. Pursuing a cost reduction strategy has meant several things for the Southwest fleet including an exclusive use of the fuel efficient Boeing 737 aircraft, not offering in fight meals, and a focus on efficiency (Southwest has an average turnaround of 15 minutes from when a plane arrives at a gate and when it can depart8).
Increasing customer revenue may be difficult for Southwest Airlines since they position themselves as a low cost airline. Meals have been abandoned on Southwest flights because they are too expensive but there are other value added services Southwest could offer in an attempt to increase revenue. Southwest could offer things such as Wi-Fi, TV, games, movies or any other kind of in-flight entertainment for customers to rent in flight.
As seen in the chart above, Southwest has established itself as a market leader with the third largest market share held by a single company in the industry. This reflects Southwest’s successful performance and the value customers have put in having access to reliable low cost travel. Southwest responded to an increase in demand with a different strategy than most other companies. While most airlines saw an increase in demand as an opportunity to increase prices, Southwest saw it as an opportunity to increase the frequency of flights. Instead of charging customers more per flight, the company stuck with its low cost approach and increased the number of available flights while keeping the same low price. The financial results from Southwest’s efforts over the last 6 years can be seen below.9
8 9
https://cb.hbsp.harvard.edu/cbmp/asset/17244399 http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1125
Current and anticipated organizational resources: Southwest Airlines has benefited from fairly strong organizational resources. The company sits in a very comfortable financial position being the most profitable airline in the industry for several years now. The company has a fleet of the most fuel efficient aircraft of its size, and has perhaps the most highly motivated employees in the industry. The company also benefits from strong leadership that is not afraid to promote a bottom-up support structure, encouraging employees to go beyond the required daily tasks and make the company their own. More specifically, the company has a functional organizational structure with three layers of top management.10 The company has several core values which include quality, reliability, action, and informal communication and feedback. The company also owns and operates over 400 Boeing 737’s11 allowing it operate more than 3,000 flights a day.12 Additionally, with the procurement of AirTran, Southwest has broadened their horizons on many levels including an expansion to international travel.
Current and anticipated cultural and structural issues: There are very few “issues” with the culture at Southwest Airlines which has been exemplified for its customer driven employees for decades. With the branded “LUV” attitude that is held towards both employees and customers, Southwest has established itself as a leader in the market for customer service, holding the highest cumulative customer service 10
http://tortora.wordpress.com/2010/04/15/organizational-structure-of-southwest-airlines/ http://www.bookeditorhauck.com/pdfs/1southwest.pdf 12 http://www.swamedia.com/channels/Corporate-Fact-Sheet/pages/corporate-fact-sheet 11
score for the last 18 years13. Southwest supports this record with a transparent approach to their relationship with customers. A lengthy “Contract of Carriage” can be found on Southwest’s website that is regularly updated and outlines exactly the commitment to safe and quality air travel customers can expect when they fly Southwest Airlines. Additionally, Southwest releases the “One Report” which demonstrates for its customers and stakeholders exactly how the company has succeeded in terms of three categories: Performance, People, and Planet. Understanding the need to protect the environment the company has also taken a stand for promoting environmentally friendly processes wherever possible.
“If employees are happy, satisfied, dedicated, and energetic, they'll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy.14”
13
http://www.advancebusinessconsulting.com/advance!/strategic-alignment/strategic-alignment-businesscases/the-rise-of-southwest-airlines.aspx 14 ^
Customer Environment: Current Customers: Current Southwest Airlines customers include young adults, retirees, business travelers, and younger families. Their best customers have always been business travelers and budget travelers and Southwest has catered their product offerings to these target markets. These current customers look for fast and economical travel, a variety of destinations, convenience, as well as comfort. The majority of current customers will make their purchases in two ways: either online directly from the airline, or from their current travel agency/travel agent. The current customers purchase due to specific reoccurring needs, such as business meetings or family vacations or visits during national holidays and/or during school vacations.
Potential Customers: Potential Southwest customers include college-aged students, recently retired adults, and newer families. The potential customers of the airline industry look for convenience and ease during the purchasing process, as well as economical prices and package deals. Potential customers will make their purchases in two ways: online from a travel website or from a travel agency/program. The potential customers of the airline industry purchase due to a specific needs, such as emergencies or special events, as well as a new freedom/availability of vacation time.
Rationale of Noncustomers: Southwest noncustomers rationalize not buying by several ways. When people who do not utilize the travel industry look at flying, they can rationalize not traveling by looking at the cost of travel as a whole, or they can rationalize not flying by looking into cheaper travel alternatives to flying. Alternatives would be to choose destinations within driving distance or by searching out different vacation plans. Another way, noncustomers rationalize not making purchases in the flight industry is just by having no need or desire to travel.
Current Customers: -Business travelers, budget travelers, young adults. -Choose Southwest because of its fast, economic travel at a low cost. -Added customer values of great service, comfort and variety of destiniations.
Potential Customers: -College-aged students, recently retired adults, young families. -Price sensitive, convenience and ease of use focused
Noncustomers: -People who don't travel. (No desire to travel or simply for finanical reasons.) -People who travel but through cheaper travel alternatives. (By car, bus, train or ships.)
SWOT Analysis: Strengths: -Best cumulative customer
satisfaction record for the past 18 years. -High employee moral -Low cost operations -Fuel efficient fleet -Strong financial position -Reliable departure times
Opportunities: -Increasing route options, expanding into new states -Market recovering from economic downturn -Technological advances -Recent acquisition of AirTran
Weaknesses: -No alliances with other airlines for connecting flights -Operates their own booking service -Large capital requirements for expansion
Threats: -High fuel costs -Green conscious consumers -High competition -Unionization of the work force
SWOT Breakdown: Strengths: Many of Southwest Airlines strengths come right from their competitive advantages and overall strategies. Their emphasis on company culture, which has boosted employee morale beyond that of any other competitor, and their reliable departure times, has earned them the highest cumulative customer satisfaction record for the past 18 years. Additionally, Southwest maintains an advantage through their low-cost operations including a fuel efficient fleet made up of a single type of aircraft that reduces maintenance costs. The strong financial position the company is in is entirely the result of the strong business model and the employee and customer focus that is so strongly emphasized by upper management.
Weaknesses: Southwest is in a strong market position but that is not to say they couldn’t make improvements. The company could find many benefits from alliances with other airlines. Allowing customers to book connecting flights through Southwest’s booking service (another one of Southwest’s weaknesses) could provide the company with access to a new group of customers who would prefer to fly outside of Southwest’s network, but prefer to fly with Southwest when they can. The internal booking service Southwest runs is a high-cost, lowrevenue aspect of their business. Obviously, it is a necessary part of any airline but efforts to outsource or improve the operations of functional aspect of the company would be beneficial. Southwest is trying to avoid the capital requirements of expansion by relying on horizontal integration. However, this could be difficult for a company that only trains its employees to operate one model of aircraft.
Opportunities: A few external factors create exceptional opportunities for Southwest airlines. Nearly every company is looking to increase market share and revenue as consumer’s disposable income increase during this time of economic recovery. The acquisition of AirTran came at a great time for Southwest allowing the company to operate in the Caribbean and parts of Latin
America. Continued expansion is the best opportunity of greatest proportions for the company especially considering their strong position in the minds of consumers. Technological advances offer opportunities to expand in flight offerings with in-flight entertainment offerings such as Wi-Fi.
Threats: Many of the threats facing Southwest Airlines are industry wide and will require all companies to adapt or be left behind. High fuel costs have been prevalent for some time now and companies must keep revenue streams that can cope with fluctuating prices. Many companies have witnessed the success of Southwest’s low cost operations and are converging their own business models to be congruent with that of Southwest. This could lead to brand confusion and a drop in brand loyalty among consumers. Finally, there has been a global movement towards a new green conscious consumer who may be willing to switch to less environmentally damaging means of transportation if it became available. This is especially concerning for Southwest as opposed to other airlines because of the company’s focus on short distance trips that would be much easier to replace in the minds of consumers than cross country or international flights.
Competitive Advantage: Southwest Airlines was the pioneer company of budget airline travel due to their emphasis on cheap fares, frequent flights and less frills offerings. With these traits they captivated a large market segment of frequent business travelers. Southwest Airlines’ unique business structure of point-to-point travel enabled them to have higher levels of on-time arrivals than their competitors. This was perfect for business travelers who traveled to cities for only a couple of days and did not want to spend the majority of their time in airport terminals. Southwest Airlines’ frequent departures allowed for more spontaneity and flexibility for their customers, which allowed people to catch later flights if these business travelers had an impromptu business meeting. The airline reduces costs in areas that their customer did not find very relevant when it came to having a good flight. Since flights are typically under 90 minutes, there is not really
much a need to serve food – apart from the occasional peanut snacks.15 No first class or assigned seating – proving to be an efficient strategy. By not having assigned seats, it forced their customers to arrive early and made boarding time a lot faster, and enabled planes to take off faster. Southwest’s maintains a differentiation advantage focused on exceptional customer service against its competitors in the airline industry. Southwest Airlines has a unique brand personality, which is noticeably engrained into the work environment. The “young, friendly, refreshing, and exciting” personality was evident in the hiring process. Management focused on hiring agents and cabin staff with a friendly demander and positive personalities. Southwest paid competitive wages and allowed employees to easily invest in company stock so that they could have stronger ties of ownership to the company. A team-centered atmosphere encouraged community activities and harbored a sense of greater belonging. Employee turnover rates were the industry’s lowest at 5%.16 It is no wonder that in 2007 they had received over 329,000 job applications.17 The employees portrayed great enthusiasm for their work within the company, which made customers feel at ease and believe in Southwest’s “fun” branding personality. By maintaining a small team of management, they were able to “walk the talk” among all employee rankings and show company consistency across the board. These highly motivated employees allowed for Southwest to maintain a dual advantage against their competitors. Happy employees bled enthusiasm and love for the company while on the job which benefited and produced happy customers.
Core Competencies: Southwest Airlines’ goals and strategies are centered on several core competencies that enable it to have low fares while being considerably the most reliable airline in the industry. 15
An efficient point-to-point airport network.
"The Rise of Southwest Airlines." The Rise of Southwest Airlines. Advance Business Consulting, 1 Jan. 2013. Web. 25 Feb. 2013. 16 Heskett, James L. "Southwest Airlines: In a Different World." Harvard Business Review 419th ser. 9.910 (2013): 25. Print. 17 Heskett, James L. "Southwest Airlines: In a Different World." Harvard Business Review 419th ser. 9.910 (2013): 11. Print.
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Fastest turnaround time O
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25-minutes (from arrival to at the gate to push-back from the gate).
Low operating cost per plane o One type of aircraft: only fly Boeing 737s, which dramatically lowers maintenance and training costs. o Flights typically less than 90 minutes. o No food served during flights. o No first class or assigned seating.
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Company culture dedicated to customer service and saving money.
Marketing Goals and Objectives: Despite the recent mergers of American Airlines and U.S. Airways, which created the largest airline in the world, it is still evident that Southwest is a strong market leader in the airlines industry due to their unique differentiation advantages: loyal customer base, reverse positioning, motivated employees, and commitment to a strong brand image. Southwest will develop objectives and execute strategies to uphold their market leader position in the airline industry.
Goal #1: Reinforce and maintain market leader position in the airline industry.
Objective #1: Increase customer revenue by a solid annual growth rate of 10%. This goal can be accomplished by increasing offerings to the current customer base. Southwest has a strong brand following among business and budget travelers. Their high brand loyalty translates to a high brand equity which could be easier leveraged further to different (yet relevant) services. Southwest could easily partner with other major brands to provide other services to their customers such as more shuttle services, hotels, car rentals, etc. These additional services would earn more revenue from existing customers. Southwest could utilize their social media following to promote these extra services and products to their followers. Customer revenue for 2012 was a reported 11.1% increase from 2011 therefore, this goal is highly achievable.
Goal #2: Increase market share to combat the American/US Airways merger.
Objective #2: Acquire JetBlue (worth 5% of the market share.18) Acquisition of the rival airline, JetBlue would achieve the goal of increasing market share and enhance Southwest’s domestic presence in previously-untapped markets. JetBlue controls a large tourism market that is not being currently well served by Southwest. Acquiring JetBlue would increase Southwest’s presence business travel destinations in Canada (appealing to their current target market of business travelers) and in tourist destination in the Caribbean (where it would grant Southwest access to a new market of international travelers). This strategy would be equally successful as Southwest’s acquiring of AirTran due to the similar company positioning and the fact that both AirTran and JetBlue operate a large fleet of Boeing 737s.
18
http://www.transtats.bts.gov/
Marketing Strategy: Target Markets: Southwest’s primary target market is business travelers. They are the most valuable market for any airline because they are the most frequent buyers, most loyal, and are willing to pay more money than the average vacationer. The typical business traveler is upper-level and clevel (CEO, COO, CFO, etc.) management. These travelers are age 30-49 and one-fourth make more than $100,000 annually. Seventy-seven percent of all business trips are made by men.19 Business travelers are well connected, early adopters of technology. They are constantly use technology for both work and play. Additionally, this market enjoys building relationships with businesses they use frequently, especially hotels. Their significant use of mobile devices such as tablets and smartphones should be especially noted. Ninety-four percent want flight status updates, 70% want boarding times and rebooking options, 63% want seat upgrades, and 93% want gates and connection information sent to their mobile devices. Wi-Fi service is also very important to this market. Seventy-two percent of business travelers are unsatisfied with airline Wi-Fi availability and 68% believe that airports offer adequate wireless service.20 The buying habits and preferences of business travelers are changing drastically. As companies tighten their travel budgets, business travelers are beginning to see the benefit in customer service outweigh the extra amenities provided. Seventy percent of business travelers have reviewed and tightened travel budgets in the last year. Most are expected to book flights at least 14 days in advance and purchase the cheapest flights even if it takes longer to fly to a particular destination. Although budgets are declining, the average spending per trip has
19
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/subject_areas/national_household_travel_survey/long_d istance_business_travel.html 20 http://www.foxbusiness.com/travel/2012/07/31/business-travelers-dissatisfied-with-airport-airline-mobiletechnology-adoption/
actually increased from $422 to $564 - mainly because of inflated ticket prices, but also extra expenditures on food and lodging.21 The secondary market would be budget travelers who are considerably price sensitive. These types of travelers vary widely in their demographics. Similarly to the primary target market, these consumers are always looking for a good deal and look for the cheapest airfare.
Product Strategy: Southwest Airlines started in 1967 with short-haul flights between Houston and Dallas. The Southwest name can be attributed to its beginnings servicing the Southwest region of the United States. With a 19% share in the US airlines industry, and after expanding so fiercely, it’s clear the company is starting to outgrow this regional name. Although no official name change has occurred, the company and its employees are starting to refer to itself as SWA. Other than its name, Southwest prides itself on building relationships with its customers. By using “LUV” has its stock trading index, the company is branding itself with more emotional traits with which people can connect. In addition to its tradition blue, red, and yellow airplane logo, Southwest also uses a heart with iconic aviation wings.
A 2012 survey by Buyology Inc. shows Southwest Airlines as the most desirable brand in the United States for both men and women. Gary Singer, CEO of Buyology says that he thinks it’s because of the “accessible, affordable memories” that Southwest’s services represents in the mind of consumers.22 21
http://www.nytimes.com/2012/05/03/business/business-travel-is-rising-but-not-necessarily-the-travelbudget.html?pagewanted=all&_r=0 22 http://travel.usatoday.com/flights/post/2012/02/southwest-airlines-is-most-desired-brand/631958/1
Southwest’s flights are very “no frills.” Seats aren’t assigned to customer, there are no first and business class seating options and in-flight meals have been eliminated. It markets itself as a “no fees” brand, but does gives business travelers the option to opt-in to value-added features like Business Select seating and $5 Wi-Fi. Customers receive several benefits from these features. They feel a sense of community because everyone on the flight is treated the same and has the same access to seats and flight service. Customer service is also superior because employees provide a fun and happy experience for customers. Additionally, because Southwest uses the same fleet of 737 airplanes, the environment is consistent and familiar for customers on every Southwest flight that take. Southwest’s “no fee” promise also includes minimal costs for switching flights and limited price increases for last-minute flights. Business travelers have been historically taken advantage of by other legacy carriers with those types of fees.
The airline industry is highly collusive. Most of the “legacy” airline leaders offer similar frequent flier program, airport lounges, first and business class seating and amenities and even the same $25 baggage fee. As a no frills airline that offers free baggage, Southwest is doing exactly the opposite. Their focus on one differentiation factor suggests they are using a reverse positioning strategy. Southwest Airlines positions itself as the only low-fare, short-haul, highfrequency, point-to-point carrier in America that is fun to fly. This fun experience is carried out by its employees. Southwest employees record high job satisfaction levels, less stress, and above average wages. Southwest believes that happy employees are essential to an excellent customer experience, and its customer satisfaction ratings support this claim.
Pricing Strategy: Southwest Airlines' pricing strategy is mostly based off their positioning as a "budget airline." By positioning their airline that way, Southwest maintains an aim to keep their prices lower than the competition. In fact, Southwest listed their "Two Wards. Low Fares" as the top reason to fly Southwest Airlines on their site. To keep prices low, Southwest does things like serve peanuts instead of meals and cuts down on internal costs, such as maintenance costs, by doing only owning one type of plane, the Boeing 737.
Their pricing strategy can be described as offering a lot for the price, but being significantly cheaper than the competition. When Southwest cannot compete with other airlines' pricing, they do things like offer more for their price. For example, when Southwest Airlines couldn't compete with competitors pricing, they offered free whiskey to their frequent flyers without raising their prices. Another example of this is how Southwest doesn't charge travelers baggage fees. Being a budget airline is what Southwest does best, by offering travel deals throughout the year. Their great travel deals include air fare offers, as well as car, hotel vacation, cruise, and theme park offers. By having a discount for every type of traveler, Southwest's pricing strategy holds true across the board.
Distribution Strategy: Southwest Airlines distributes in a very unique way compared to most airlines, which have partnerships with third party ticketing companies (such as Expedia, Orbitz, Travelocity, Kayak, etc.). Southwest on the other hand, limits outside ticketing companies and focuses on selling tickets directly through their company website, much like Virgin America, who is on the opposite side of the pricing spectrum. With limited third party sales and contracted travel agencies, Southwest Airlines is sufficiently keeping this aspect of their business in-house for the most part. Through their site, Southwest "distributes" flights through email subscriptions and through their corporate booking site. By differentiating the different market segments, Southwest Airlines runs a multichannel distribution strategy that is strategically designed to provide businesses and corporations as well as individual business travelers with access to Southwest Airlines tickets and content through their preferred booking tool.
Promotion Strategy (Integrated Marketing Communication): Southwest is proudly known as the king of social media in the airline industry. It has a 65% share in all social media output by the US airlines industry. Along with its traditional forms of media, Southwest can leverage its social media presence and align itself very closely with the technology driven business traveler market. Social media can be used as a platform for
customer services, but also promotion. Southwest can reaffirm its brand identity as a community-oriented and customer driven airline through its online interaction with customers.
Marketing Implementation: Southwest has already entered the implementation stage of horizontal integration with the acquisition of Trans Air. With proper training, leadership and marketing, Southwest should be able to efficiently evolve the Trans Air brand into a similar success. Focusing on developing the operational core competencies for Trans Air that have been so effective for Southwest (such as low cost operations and developing the best employee and customer environment in the industry) will be key in turning Trans Air Airlines into a successful procurement. The infrastructure to increase customer revenue already exists for Southwest; it is now time for the company to transition from creating value to communicating the value to customers. Aggressive social media advertising campaigns to promote the use of their ancillary services such as hotel bookings, shuttle rides, and in flight Wi-Fi. Point of purchase advertising on their own website (with popups or additional options on the ticket processing page) is likely to be the easiest and most efficient way to inform patrons of the extra services. It is well known that Southwest customers enjoy the “no frills” method of flying which is why these services should not in any way impact ticket prices of those who do not wish to partake.
Tactical Activities: The advertising and promotion effort can be done parallel to the communications objective of reaffirming Southwest’s position in the minds of consumers. In this case, more traditional forms of advertising (such as T.V.) should be used in an effort to reach a larger audience. Communicating the company’s position of a low cost, reliable airline is the priority. However, small portions of each advertisement should be allocated to the promotion of the ancillary services.
Evaluation and Control: Output Controls: Measuring the results of new tactics is just as important as the development of the tactics themselves, for this reason Southwest should monitor the results based on the following objectives: Objective #1: Sell one ancillary service to 20% of Southwest ticket holders over the course of the 2013 fiscal year. This objective can be tracked at the point-of-purchase (Southwest Airlines website) and additional customer information should be obtained, preferably by customer satisfaction surveys, to assess the value customers place in the new services. Objective #2: Grow market share by 5% by the end of the 2015 fiscal year. This goal will require large capital or monetary investment which is why the time period for completion is so long. With the recent acquisition of AirTran, Southwest may need to focus on restoring cash on hand before investing in long term debt that can coincide with capital investment or other acquisitions.
Implementation Timeline: While the overall completion of the previously stated objectives relies somewhat on external forces (technology advancement and the state of competing firms), it is expected that the objectives can be met within the allotted time. Increasing customer revenue can begin immediately with the implementation of in-flight Wi-Fi access, and additional value added offerings. The following chart gives insight into the expected quarterly progress towards each goal. The schedule has been arranged by quarter to allow for adjustments based on technological advancements, customer reaction to implementation, and changes in the competitive environment.