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A Marketing Management Presentation

Southwest Airlines

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Page 2: Southwest Airlines

Group IV

o Ankit Uttam

o Rahul Raju

o Saurabh Kumar

o Shobhit Deo

o Sweta Chouhan

Page 3: Southwest Airlines

Lets start something!

o Sitting in a San Antonio bar with Herb Kelleher in1967, Rollin King grabbed a cocktail napkin andsketched out a simple triangle while posing thisquestion: What if we were to create a small, localairline that connected these three cities? HerbLooked at that napkin and after a long pause said:Lets run this shit.

o On March 15, 1967 Southwest Airlines wasincorporated.

Page 4: Southwest Airlines

David vs. Goliath

o Braniff Airways and Trans-Texas Airways provided services between thesecities.

o Both the airlines obtained a temporary restraining order from Travis CountyDistrict Court prohibited TAC from delivering Southwest’s flying certificate.

o Two went as high as the United States Supreme Court, which ultimatelyupheld Southwest's right to fly in Texas. December 7, 1970, the date of theSupreme Court decision, is considered by many to be the beginning ofderegulation in the airline industry.

o June 18, 1971: Southwest Airlines begins service to DAL, SAT, and IAH.

Page 5: Southwest Airlines

The ten-minute turn

o “Airplanes only make money in the air,” Kevin Frieberg, author of Nuts!

o In 1972, fledgling Southwest was facing turbulent times.

o To meet costs, one of the company’s four planes was sold.

o The birth of the 10-minute turn meant passengers and baggage wereunloaded, the plane was cleaned and restocked, and the new passengers goton, all in the set time limit.

o He slammed his hand on the table and bellowed out, ‘If you can’t do it I’ll fireyou and keep firing and firing until I find people who can do it,” said BillFranklin, former Vice President of Ground Operations.

Page 6: Southwest Airlines

Sir, would you like have some free liquor?

o Southwest offers "half-fare" sale to San Antonio on all flights, $13 one-way,$25 roundtrip.

o Braniff begins the $13 Fare War offering a $13 fare from DAL to HOU—Southwest's only profitable route.

o Southwest responds by offering Customers the choice of a $13 fare or a freebottle of premium liquor with every full fare ticket ($26). (Southwest becomesthe largest distributor in Texas of Chivas, Crown Royal, and Smirnoff for thefollowing two months.)

o The battle turns out to be the famous $13 Fare War—one of the most widelyreported and publicly watched conflicts of aviation history.

Page 7: Southwest Airlines

Malice in Dallas

o When Stevens Aviation realized that rival company Southwest Airlines hadinadvertently infringed on their slogan, they could have easily taken them tocourt. But Stevens Aviation CEO Kurt Herwald had the same thought so manyof us do every single day: “Why involve lawyers in this when we could just aseasily ________?”

o A hilarious series of letters to rival CEO Herb Kelleher later, the _______between the two unlikely bicep fight participants was set. The winner wouldget the slogan; the loser would pay $5,000 to the charity of the winner’schoosing.

Page 8: Southwest Airlines

We dare you to look at this photo without humming“The Final Countdown.” - Dallas Morning News

Page 10: Southwest Airlines

Fun Facts

o Served more than 1.5 billion Customers since inception.

o Operated more than 22 million flights since inception.

o Carried approximately 134 million onboard Customers during 2012.

o Received 114,845 Resumes and 2,499 New Hires.

o During first quarter 2013, 79 percent of passenger revenues were booked via southwest.com.

o Southwest has 1,355 married couples.

o In 2012, Southwest's Founder and Chairman Emeritus, Herb Kelleher,was named to Fortune's list of "The 12 Greatest Entrepreneurs of ourTime."

Page 11: Southwest Airlines

Its all about Laxmi!

o Nearly 46,000 People work to deliver exemplary Customer Servicethroughout the Southwest and AirTran systems.

o Beginning in the fourth quarter 1976, Southwest Airlines paid its firstof145 consecutive quarterly dividends to our Shareholders.

o Net income in 2012: $421 million

o Net income, excluding special items in 2012: $417 million

o Total revenue passengers carried in 2012: 109 million

o Average passenger load factor in 2012: 80.3 percent

o Total operating revenue: $17.1 billion

Page 12: Southwest Airlines

Cost leadership strategy

o Southwest strive to be the new generation of flight transportation while providing luxury at a price anyone can afford.

o Southwest Airlines is already providing low fare customer services in 64 different cities, in 32 states in America.

o It is also showing most consistently profitable record in the world’s airline industry since its 1st flight took off in 1971.

o It is also Boeing’s best customer, since it bought overproduced Boeing 737 twin Jet at lower rates, and also utilizes only Boeing 737s and 537.

Page 13: Southwest Airlines

o Even when the airline had to sell one of its 4 planes (at

a profit) to survive the first year, it turned this this deal

into a eventual strategy by lessening the turnaround

time , 10 minutes, proving that time is money.

o As a result of management’s decision to maintain its

flight schedule and staff, Southwest’s revenues declined

less than 2% in 2001.It emerged as highest valued stock

of any US airline after 2001.

o Operated only one model of aircraft Boeing

737,medium range narrow body commercial passenger

jet aircraft. Easy to replace parts and ground support

equipment.

Page 15: Southwest Airlines

o Using secondary airports,

Fly short routes, No meals,

No reserved seats, No travel agent reservations,

on-time arrivals, more easily accessible to business travelers werethe factors that also contributed to cost leadership of Southwestairlines.

o CFO Kelly himself (who later became CEO in 2004 and Presidentand Chairman in 2008 ) instituted a fuel hedging strategy, thatsaved Southwest airlines more than $4 billion between 2000 and2008.

Page 16: Southwest Airlines

PROFITABILITY

o Fuel Hedging

Purchased fuel options for years in advance to smooth out fluctuations in fuel costs.

Substantially increased its hedging in 2001 in response to projections of increased crude oil prices.

Advantaged after Sep.11, 2011 attack, the oil shock from Iraq war, and Hurricane Katrina.

Page 17: Southwest Airlines

Contribution of Fuel hedging strategies in financial objectives

1-Plan toward profitability –

It acted like a form of insurance

and reduced the risks against

volatile swings and rising energy costs.

2-Plan cash flows-

It helped in managing cash flows such that SW has enough cash in the bank to cover bills and maintain liquidity.

3-Lower overall fuel expenses.

Page 18: Southwest Airlines

Differentiation Strategy

o One of the company’s main focuses is on differentiation.

o This is an interesting strategy choice because differentiation is usually seenin high-price and/or unique product companies (such as BMW orStarbucks).

o Still, this is one of Southwest’s key choices, and they are making it work.

Page 20: Southwest Airlines

Rapid Rewards frequent flyer program.

Emphasis on flexibility

separates them from the rest of the pack.

Chase® Visa credit card to help customers earn and redeem

points.

Page 21: Southwest Airlines

o Southwest’s other key differentiation strategy is what they call “aggressivepromotion.”

o They take their key messages, put them into easy-to-understandcommercials, and let the strategies themselves do the talking.

o For example, Southwest Airlines approach to frequent flyer rewards isbased on number of trips taken; in contrast, other airlines reward peoplebased on miles flown (Southwest Airlines Annual Report, 2002).

Page 22: Southwest Airlines

Unlike other airlines, SWA does not rely

wholly on travel agents to

distribute their products.

Travel bookings on Southwest

Airlines are done primarily through direct marketing: by phone and the Internet without a

middleman.

Southwest also does not interline or offer joint fares with other airlines, nor does it have any commuter

feeder relationships.

Product Distribution Strategies

Page 23: Southwest Airlines

Focus Strategy

This dimension is not a separate strategy per se, but describes thescope over which the company should compete based on cost leadershipor differentiation.

Does not depend on traditional “HUB & SPOKE” model. Uses “POINT-TO-POINT” operating model.

Southwest Airlines’ strategy is to offer their customers low fares.Southwest continues to be the least expensive airline in its market.

The airline usually lands at small & secondary airports to steer clear ofthe congestion at competitors' larger hubs.

Page 24: Southwest Airlines

According to the Jupiter Airline CORE, Southwest is one of top airlines that scored the highest on online sales performance.

These airlines are best at moving their customers to the online channel.

o Southwest Airline’s third strategy is their devotion to their employees and customers. SouthWest has created a culture where employees feel like part of an extended family.

Page 26: Southwest Airlines

Pyramid of Primary Focal Strategies

NUMBERS

CULTURE

SCHEDULING

STRATEGY

F

O

C

U

S

CULTURE

SCHEDULING

STRATEGY

NUMBERS

F

O

C

U

S

OTHER CARRIERS

South West Airlines built numbers on its culture where as mostcompetitors let the culture to shape up by their focus on numbers.