Southwest Airlines

International MarketingGroup 4

OVERVIEW• Introduction – Vinothini• Current Situation – Vinothini / Thilini• SWOT – Asjad• Marketing Objectives – Asjad• Marketing Program – Dhananji• Segmantation – Dhananji• Implementation – Asjad• Evaluation – Asjad

INTRODUCTION • Founded in 1971 by Rollin King and Herb Kelleher

• The third-largest airline in the world

•Operates more than 550 Boeing 737 aircrafts

• 35000 employees

• The United States’ most successful low-fare, high frequency, point-to-point carrier.

• It is also known as a “discount airline” since 1973

Vision Provide safe and comfortable air transportation from

close-in air ports, at prices competitive with automobiles and buses & to involve customers & employees in the product & the process, making the airline a fun, profitable & quality experience.

Goals

• To attract more business and leisure travelers with the powerful low-fare brand and outstanding Customer Service commitment.

• Continued focus on revenue management enhancement and schedule optimization.

• Maintaining a healthy financial strength.

• Commitment to contain costs and maximize productivity to protect the position as one of the premiere low-cost producers among major airlines.

Continue offering low fares and enhancing the Customer Experience to win new Customers and retain those already captivated by the Southwest Culture.

Main Objective of the Company

Growth Opportunities

• Southwest has already entered many of the highest demand markets and established its dominance on the most profitable routes but should focus on entering the remaining top 50 cities in which they have no service.

• The long term solution for Southwest’s growth question is to look outside the U.S. for suitable markets such as Mexico & Canada.

CURRENT SITUATION

• Currently operates 3,100 flights per day

• Provides low fare service to 64 cities in 32 states with more than 500 boeing 737 aircrafts.

•In 2010, profit increased 285 percent to $550 million, or a record $.74 per diluted share,compared to $143 million, or $.19 per diluted share, for 2009.

• Revenue increased from $10.35 billion in 2009 to $12.10 billion in 2010.

CURRENT SITUTAION• Net income increased from $200 million in 2009 to $459

million in 2010

• Share of the domestic market grew to 21 percent as the largest domestic carrier in terms of originating passengers boarded, compared to 20 percent a year ago

• Recently started new nonstop air service between Denver and Boston Logan, Denver and Reno in 2009.

INTERNAL ENVIORNMENT

STRENGTH - Sensible expansion policy - Strong financials

WEAKNESS - Little room for strategic expansions - No established alliances - Fully valued share price -

Areas of Services

• Domestic flights

•Arrival Suites

•Frequent flier loyalty program

•Cargo transportation services

•Contract flight training

•Online ticket booking services

•Airport lounge

ROUTE MAP

The Main Reason for Success – Low cost

• The average airfare for southwest passenger is $112.76

•No baggage fees

•Complimentary in- flight service

•Open seating policy

•Fleet of Boeing 737 Aircraft

SEVEN REASONS FOR SUCCESS OF

SOUTHWEST AIRLINE

• One plane fits all

• Point to point flying

• Simple In flight service

• No frills, no fees

• Strong Management

• A relatively happy workforce

• Aggressive fuel hedging

• The fine print

SouthWest Airlines

US Airways

AirTran Airways

Jetblue Airways

Alaska Airlines

Express jet Airlines

Others

U.S Low Cost Career Industry

Market Share

2010 Top 5 U.S. Airlines Market Share based on

Revenue Passenger Miles

Rank Carrier Market Share

1 American 13.8%

2 Southwest 13.8%

3 Delta 11.8%

4 United 10.4%

5 US Airways 8.0%

The New Competitors

JET BLUE - Almost large - Inexpensive

VIRGIN AMERICA - Inexpensive - Luxury Feel - Premium Option ( seats, food, drinks )

Competitor Analysis

Finance.yahoo.com

Finance.yahoo.com

Competitive advantage

• point-to-point services

• Southwest strategically secured routes through secondary airports which generally had lower fixed costs for the airlines and less congestions for passengers ease.

• Southwest also implemented the first and most simplistic frequent-flier program

PROBLEMS• September 11, 2001, terrorists attacked the world trade center and the pentagon, shook the whole country.

•20% falloff in airline traffic in the fourth quarter of 2001

•Unprecedented three day shutdown of flights

• On March 5, 2000, Southwest Airlines Flight 1455 overran a runway at the Burbank airport in California

• On December 8, 2005, Southwest Airlines Flight 1248 skidded off a runway at Midway Airport in Chicago, Illinois, in heavy snow conditions

PROFITABILITY

• Fuel hedging

• Operated only one model of aircraft

POSSIBLE STRATEGIES

• Expand into more cities-Increase amount of shorter destination flights into the -larger airports

• Increase direct flights-Purchase bigger planes-Get agreements with Airports for flights

• Eventually look to acquire American Airlines

Airline Services

Cargo Services

Car RentalHotel Reservation

STOCK

Porter’s 5 Forces

High

High

SLEPT AnalysisSocial Environment

• Southwest tried to make use of this social environment. It gave tickets at a reasonable price.

• Southwest became a talk of the town by using certain social trends. Since it was based at love Field Airport--it ran ads with the slogan "there is somebody else up there who loves you”.

• The company fare structure :

i. “Wanna Get Away” ii. “Anytime” iii. “Business Select”

Legal EnvironmentAirline Deregulation Act passed 1978 by the US Congress in 1978 created

an political obstacles for Southwest and yet they were able to overcome it through an agreement with the Senators and House of Congress.

1. It enabled Southwest to operate from Love Field airport non-stop flights only to cities within Texas or to those states bordering with Texas namely Louisiana, Arkansas, Oklahoma, and New Mexico.

2. But the law forbade South West to advertise, publish schedules or fares or check baggage of the inter state flights taking off from Love Field.

According to the Air Transportation Association airlines have to use ground based radar dependent navigation systems with legacy facilities and process.

Economic Environment

• Objective was to become a low cost, low-fare airline.

• They bought new 737 air craft’s from Boeing Company at a price of $12 million while the normal price was $15 million.

• Recruited many senior and well skilled people who were retrenched from big companies due to the slump in the airline industry in the late 70’s.

• Jet-fuel prices do no perfectly correlate with oil prices but the historical price level of $70.85 for oil reached in 2005,

Historically crude oil has averaged around $20/barrel in the U.S. but since it reached its historical high, the price of crude oil has remained above 60$/barrel which meant problems for southwest..

• Southwest currently has an advanced hedging program that is continually trying to determine future cash flows relating to jet fuel prices to optimize their hedges.

Political Environment

Governments helps to stabilize domestic industries and strengthen competitiveness through various fiscal & monetary policies.

• Obama administration is pushing for changes in the way fares and baggage fees are disclosed by airlines.

• Airports in the U.S. are interested in raising the $4.50 maximum passenger facility fee says a spokesperson for the Air Transport Association.

Technological Environment

• Southwest uses only Boeing 737 minimize extra training requirements for the pilots.

• First major airline to test satellite technology on commercial aircraft to supply passengers with Wi-Fi Web connectivity. 

• New ticketing systems with online boarding passes are introduced.

• Open seating system with first-come basis. There is no need for software to sort and hold seat assignments, and it reduces cost of printing boarding passes.

SWOT ANALYSIS

Strengths •Low Operating Costs•Modern Cost efficient flight network •Service innovation•Technical Expertise•Product Innovation•Brand Image•Excellent Customer Service•Well experienced in the industry

Opportunities•Vertical Integration

•Long Term Industry Growth

•18 States available for new routes

•International growth

Weakness•Decreasing differentiation to Competitors

•Lack of intra-airline services and alliances•Ageing company patriarch & visionary – Herb Kelleher

Threats•Increasing costs in Fuel and Labor

•Terrorist Attacks

•Weather

•Legislature & regulatory constrictions

•Recession can reduce travel (Business Class)

Strengths •Low Operating Costs•Modern Cost efficient flight network •Service innovation•Technical Expertise•Product Innovation•Brand Image•Excellent Customer Service•Well experienced in the industry

Opportunities•Vertical Integration

•Long Term Industry Growth

•18 States available for new routes

•International growth

Weakness•Decreasing differentiation to Competitors

•Lack of intra-airline services and alliances•Ageing company patriarch & visionary – Herb Kelleher

Threats•Increasing costs in Fuel and Labor

•Terrorist Attacks

•Weather

•Legislature & regulatory constrictions

•Recession can reduce travel (Business Class)

Strengths •Low Operating Costs•Modern Cost efficient flight network •Service innovation•Technical Expertise•Product Innovation•Brand Image•Excellent Customer Service•Well experienced in the industry

Opportunities•Vertical Integration

•Long Term Industry Growth

•18 States available for new routes

•International Growth

Weakness•Decreasing differentiation to Competitors

•Lack of intra-airline services and alliances•Ageing company patriarch & visionary – Herb Kelleher

Threats•Increasing costs in Fuel and Labor

•Terrorist Attacks

•Weather

•Legislature & regulatory constrictions

•Recession can reduce travel (Business Class)

Marketing Objectives

Short Term (1-2 Years)• Increase Market Share by 5%• Add 2 new cities and 2 states to the route map

Medium Term (3 Years)• Introduce new innovative low-cost services by

3%• Increase the number of new cities to 5 and

states to 4 within three years

Long Term (5-10 Years)• Continue to increase product lines by 5%

• Reduce employment turnover to 2%

• Continue to improve service quality by 5%

• Decrease the number of customer complaints per 100,000 passengers to 1% per year.

Segmentation

• Demographics – Age – Life style

• Psychographics – Psychological position

• Geographics – Place

Target Market• Definition– The consumers a company wants to sell its

products and services to, and to whom it directs its marketing efforts. Identifying the target market is an essential step in the development of a marketing plan. A target market can be separated from the market as a whole by geography, buying power and demographics, as well as by psychographics.

Target Market Definition. http://www.investopedia.com/terms/t/target-market.asp#axzz1fAtwVPKt (accessed November 29, 2011).

Target market

• Medium to high-frequency business travelers. (1-3 roundtrips per month)

• Male/female professionals aged 24-55 years of age.• Price/cost conscious• Dissatisfied customers from full-service airlines

Target Market Cont…

• Commuting distances ranging from 750 - 1700 miles• Leisure family travelers• Internet/technology savvy• 30-60 day trip planners

Positioning

• Positions marketing communications as:– THE only low-fare, short-haul, high-frequency,

point-to-point carrier in America that is fun to fly.

• Southwest’s brand exudes an element of fun

Positioning Cont…

• In the minds of their customers SWA is:– Discount– tons of special offers– fun filled destinations – most importantly a supper awesome cheap trip

Marketing Strategies• A travel product that is built around flights that is

targeted:– Specific demographics– Ticket pricing

• Building Brand Loyalty– By being environmentally friendly– By entering small markets• E.g.: Buffalo, Hartford, Ontario and Oakland

Positioning Strategies

• Needs to be extremely cost-efficient

• Differentiate itself by doing seemingly weird things.– E.g.: NOT assigning seats in its flights.

Positioning Strategies

• When SWA enters a new market:– Traffic explodes– Southwest nabs many customers who might have

driven before.• Eg: Louisville and Chicago route passengers grew from

8,000 to 26,000• Explosive growth in St. Louis and Kansas city route.

Product Life Cycle

Product Life Cycle• Maturity Stage– They have being in the business from 1971.– Slowdown in sales growth– Product and mix modifications – Southwest Cargo

Services– Excess capacity; price markdowns– Profit per unit is falling– Some competitors exit – American Airlines, United

Airlines and etc

Marketing Programs

Products

• Flights• SOUTHWEST.COM– First airline to have a home page

• Car Rental Services• Hotel & Cruise Reservations

Product policy

• Improving route map• Nuts about southwest

Pricing policy

• Product Line Pricing– Prices are different from • destination to destination• vehicle to vehicle • hotel to hotel

• Psychological Pricing

Pricing Policy Cont…

• Product Bundle Pricing– Travel Deals• Air – Special Vocational Deals (Disneyland, Las Vegas

and etc)• Car – up to 30% discount • Hotel – up to 50% discount

– No change fee– Bags Fly Free– Pets are welcome

Place Policy • Direct Channel Method– No intermediaries– No Agent/Broker

• Nine Reservations Centers– 30% of sales– More than 4,000 Southwest Reservations Sales

Agents

Promotion Policy • E-mail newsletters

• Magazines– Fortune, economic times, time

• Frequent Flyer Mileage Program

Promotional Policy

• DING!• Charity – Classic Golf Tournament

• Sponsorship – Baseball, Hockey, Basketball, Party Golf

Tournament and NFL

Process Policy • Flying multiple short quick trips into the

secondary (more efficient and less costly) airports of major cities

• Uses only one aircraft type, the Boeing 737

• No common online venue ticket purchase– Minority are booked through travel agents.

Process Policy Cont…

• Tickets are issued – over the phone – online at www.southwest.com

• Allows passengers to change reservations without additional cost.

• Refunds can be made online - just call the reservation number.

People Policy • Southwest’s motto: The employees come first, the

customers come after them.

• One thesis: Keep employees happy then they will ‐keep customers happy.

• Pilots, Crew members, Front officers, Ticketing staff, & Customer relations

Physical Evidence Policy

• Southwest is known for:– Flights– Tickets– Reservation Centers– Boarding announcements – Crew members that burst out in song.

Physical Evidence Cont…

• “Marvin Martinez, a bellman and front desk agent at the San Antonio River Walk Marriott, says, “We all bring out smiles in our own special way. Me, I’m a performer. Every day I’m on stage in front of my biggest fans, my guests. When I walk into the lobby, I’m on! I’m an aggressive hospitality animal. My guests always leave satisfied.”

Implementation

How to implement the objectives above

• Allocate a marketing budget of $6M (5% of revenue) for a marketing team

• Hire additionally 10 people internally for the marketing team

• Use the marketing team to upgrade the product lines and service quality for the next 2 years and for the long term

• Marketing team should analyze customer base and increase the market share

• Expand web-based services to provide advanced services to increase customer base

• Continue focusing on low operating costs

• Allocate budget of $1.2M (1% of revenue) for staff training costs and employee working benefits

• Training will minimize customer complaints

• Working benefits will reduce employee turnover

• Trimming unprofitable and less popular flights to newer routes

• Add Value to the “Business Select” product to increase number of customers per flight

Evaluation

• Board meetings twice a month discussing marketing plans

• New product development proposal should be submitted end of eight months

• Quality control has to approve the proposal

• Staff should be given evaluation and suggestion forms before and after the training programs

• Staff performance charts have to be evaluated every month and targets should be achieved

• Customer evaluation every one flight per month can be used to analyze the value adding features per product

Thank you for flying with us!