1. Executive Summary
a. Summary of the Plan
A company as iconic and successful at Southwest Airlines makes creating a brand audit for such a company more powerful as Southwest as been a force of innovation since its inception. They have created sophistication out of a casual and lax atmosphere and no “no frills” philosophy, introduced ticketless travel into the airline world, and installed their own unique touch for the frequent flyer. Not only have they made an impression of making their flights as memorable and entertaining as possible for the “point a to point b” traveler, they have also made their flights as cost effective while also maintaining profit, something their competitors are still unable to attain.
With looking into the historical attributes of Southwest, where they began, as well as their mission, goals, financial revenue, all of which must go into analyzation. Gauging the financial reports of Southwest, current projections, as well as historical revenue are all important for the analyzation of the company’s renowned success.
We will be analyzing the company’s strengths, weaknesses, opportunities, and threats, as well as their marketing mix. We will also investigate pricing strategies they used to bring them to success, what promotions have been utilized, and positioning the company has taken. Attributes that should also be noted are their target markets. Does Southwest target a multiline flight with many connections? Do they only offer direct flight? Do they target an audience that prefers an extravagant flight with the option of business class travel? These are all questions that will be answered with the plan presented.
While projections have remained steady since 2017, Southwest Airlines has created big waves and generated increase revenue by buying out a previous competitor of theirs, AirTran Holdings, and making Southwest Airlines now an international airline rather than just domestic. Although it can seem that Southwest Airlines makes positive change and economic growth at a somewhat slow-moving pace, it can perhaps be considered an intelligent and cautious move.
As it is, Southwest Airlines has already made their brand iconic by their choice in attire for employee, the atmosphere on each flight, the type of flight being taken, as well as ticketless travel and the unique option for the frequent flyer. They have made themselves known for their innovative solutions, the ability to make their ticket purchase tailored to the consumer, using all direct marketing, and removing the extravagance out of travel. They are known for being a direct flight, all coach fare airline, as well as being fiercely competitive.
What we will go over is how Southwest does not allow interline or joint fares, to keep their competitors out of their customers’ line of purchase. This competitive nature has kept and will continue to bring Southwest Airlines to great success. This company will undoubtedly stay on top of financial projections with their creative solutions, intelligent and cautious decision-making, and fast paced growth strategy. With the purchase if AirTran Holdings, they will continue to be a top contender in the airline industry.
2. Company Description
Southwest Airlines was founded in 1967 by Herb Kelleher as an intrastate airline in Texas. It did not become southwest airlines until 1971. With all Boeing 737, newer generation fleet, the airline has a total of 717 aircraft and over 56,111 employees today. Southwest upgrades their fleet they currently order.
3. Strategic Focus and Plan
Southwest Airline’s mission statement is “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” (www.SouthwestAirlines.com). (Purpose, Vision, Values, and Mission. (n.d.). Retrieved from http://investors.southwest.com/our-company/purpose-vision-values-and-mission)
The company goals as stated on their website are to “Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel”. (? Purpose, Vision, Values, and Mission. (n.d.). Retrieved from http://investors.southwest.com/our-company/purpose-vision-values-and-mission)
c. Core competitive and sustainable competitive advantage
The core competitive and sustainable competitive advantage of Southwest Airlines, according their website, are as follows:
• “Live the Southwest Way
• Warrior Spirit
• Servant’s Heart
• Fun-Loving Attitude
• Work the Southwest Way
• Safety and Reliability
• Friendly Customer Service
• Low Costs”( Purpose, Vision, Values, and Mission. (n.d.). Retrieved from http://investors.southwest.com/our-company/purpose-vision-values-and-mission)
“During 2Q2014 Southwest recorded its fifth consecutive quarter of record profits. Its consistent profitability and balance sheet strength have resulted in the airline holding the position of the only US airline to achieve investment grade status until Alaska Air Group secured that coveted position earlier in 2014.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? Southwest has an iconic brand
“Southwest is one of the most recognized brands in the US, and it consistently works to exploit its heritage through advertising during high profile sporting events and in social media. It has been deemed the top travel brand and fifth overall brand by The Business Journals in the American Brand Excellence Awards.
“This provides important differentiation in a commoditized industry. Standing out by not going along with the crowd and forgoing the revenue is arguably a net gain, albeit perhaps not easily accountable.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large. Retrieved from https://centreforaviation.com/analysis/reports/southwest-airlines-swot-financial-strength-is-mainstay-but-cost-and-culture-challenges-loom-large-187714)
? It maintains a robust domestic network
“Presently Southwest is benefitting from strong demand within the US market place, reflected in its 8% passenger unit revenue growth in 2Q2014, the largest gain of any US airline. Based on data from CAPA and OAG for the week of 15-Sep-2014 to 21-Sep-2014 Southwest is the second largest airline in the US domestic market measured by seat deployment. Its share is approximately 20% behind Delta’s nearly 22% share. Through its acquisition of AirTran and seizing on required slot divestitures by American and US Airways for those airlines to move forward with their merger, Southwest has made inroads in the key US markets of Washington National and New York LaGuardia. As a result Southwest has a relatively strong position in eight of the top 10 US cities by arrivals for the week of 15-Sep-2014 to 21-Sep-2014: Chicago (it holds an 88% seat share at Midway), Atlanta (second largest with a 7% share, Delta retains an 80% share), New York LaGuardia (fourth largest airline with an 8% share), Denver (second largest airline with a 26% share), Los Angeles (a highly fragmented market where Southwest retains a 13% seat share), Houston (a 91% seat share at Hobby), Las Vegas (Southwest holds a 43% share) and Washington (a nearly 9% share at Washington National and a 70% share at Baltimore/Washington International) (All information is based on data from CAPA and OAG.)”( CAPA. (2014, September 21).” Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? Minimal revenue opportunities
“Southwest has rejected the product unbundling that nearly all of its US counterparts have undertaken that airlines tout is designed to allow customers to tailor their experiences. The reality is for most airlines – full service, hybrid, and ultra-low-cost – ancillary revenue presents the largest opportunity to grow revenue significantly over the medium and long term. The airline’s top-line revenues increased just 3.6% year-on-year during CY2013 after peaking at 29% growth in CY2011”. (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? Its product is outdated
“Southwest has the balance sheet strength to leverage new products that its customers would find appealing, and that in the medium term would generate high margin revenue. An extended legroom offering is now the norm for numerous airlines worldwide (including many ULCCs) and offers an opportunity to drive up ancillary revenue. Southwest has densified its aircraft (and decreased seat pitch) during the past couple of years – another trend apparent in the US industry. But other than offering onboard Wi-Fi, its product is arguably stale, and more importantly, it could be missing an opportunity to leverage its strong brand to create new revenue opportunities”. (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? Wright Amendment repeal
“During Oct-2014 all restrictions on long-haul flying from Southwest’s Dallas Love Field base will be dissolved, allowing Southwest to offer direct flights to many of its strongest markets without the need for connecting service. Initially Southwest is operating service to Baltimore, Denver, Las Vegas, Orlando and Chicago Midway. Other new service includes flights to Atlanta, Fort Lauderdale, Los Angeles, Nashville, LaGuardia, San Diego, Orange County, Tampa and Washington National. Given its favorable positioning in all of those markets the new direct flights from Love Field should spool up quickly and make a positive revenue contribution to the airline’s already strong results.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? New international operations
“Southwest introduced its own-branded international service during 2014 after many years talking about expanding to adjacent international markets. The AirTran acquisition and a reservations system upgrade have helped accelerate the process and now Southwest offers service to Aruba, Cancun, Los Cabos, Nassau, Montego Bay and San Juan. The airline marks an important milestone in late 2015 when it launches international flights from Houston Hobby after successfully beating back opposition from United (Houston InterContinental’s largest airline) over the construction of a new international terminal at Hobby.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
“Contrary to its claims, Southwest is no longer the low fare leader as Spirit Airlines, Frontier Airlines and Allegiant Air overtake the historical Southwest role of using low fares to stimulate air travel. During CY2013 its average fare increased 7%, and nearly 6% in 1H2014. Some of that was due to strong demand within the US market place; but the reality is Southwest needs to maintain certain fare levels to manage its costs.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large.)
? Cost Increase
“Southwest is during numerous labor negotiations that are making it tough to predict its unit cost increases in the medium to long term. For the moment its unit costs are in line with major airlines, rising 2% in 1H2014 as passenger unit revenues grew a healthy 6% during that time. But the airline will inevitably endure some cost pressure as new contracts take effect after tense negotiations. Southwest has previously acknowledged that its labor agreements are built on an operating model it executed 10 to 15 years ago, and the airline has one of the highest pay structures in the industry. For CY2013 salaries, wages and benefits represented 31% of the airline’s total top-line expenses.” (CAPA. (2014, September 21). Southwest Airlines SWOT: Financial strength is mainstay, but cost and culture challenges loom large).
5. Market-Product Focus
a. marketing objectives
Southwest has branded themselves as targeting a certain demographic and ticket pricing that is tailored to the passengers understanding, making the purchase a simple process by the straightforward consumer. The customer knows exactly what they are paying for at the time of purchase.
b. target markets
Southwest has a very broad target demographic. They appeal to customers that are price-conscious and don’t mind the “no-frills” philosophy. This translates to a lot of small business owners, middle-class families, young adults and travelers traveling short-distances.
With being extremely cost efficient, having a single aircraft type, short hauls, secondary airports, point to point vs. hub and spoke to keep costs down and no seat assignment, Southwest Airlines can turn airplanes quicker at the gates.
6. Marketing Mix
a. pricing strategies
Southwest makes sure to charge the lowest fares while still allowing profit. They also keep competitive with the automotive industry as it is “cheaper to fly” via long distance and some short distance travel. Another part of their pricing strategy is their competition with major US carriers. It has been projected that other US carriers would have cut the costs by 29% to function at operational levels of Southwest Airlines.
b. product distribution strategy
With Southwest, they use primarily direct marketing, using the phone or the internet as the main point of purchase. There is no middle person which be convenient for most consumers. Another thing is that there are no joint fares or interline. With Southwest Airlines being as competitive as they are, they only want their customers to fly with Southwest Airlines. Also, as part of their “no frills” philosophy, they only offer the customer coach fares. There main appeal is towards the consumer who is primarily in search of a “point a to point b” sort of flight.
It may be notable to know that Southwest Airlines happens to be the first major airline to introduce ticketless travel, eliminating the need for computer reservation systems altogether.
“Intrigue, entertain, persuade”-Southwest Airlines Motto
Southwest Airlines has made themselves recognizable and through various promotions and brand building, in terms of their unique frequent flyer approach. Instead of how many miles a customer has flown, they gauge their flyer miles by how many trips a customer has taken. On top of that, the employees at Southwest have a uniform that stands out from the rest as well. Although the employee dress professionally, it is with a casual, “not too serious” approach.
7. Financial Data and Projections
? Current Projections
? Historical Revenue
10. Organization of Firm
? Organizational Structure Analysis of Southwest Airlines
9. Implementation of Plan
With benefits in cost efficiency, primary market national positioning, steady operating strategy and fleet operation, Southwest Airlines stands out among their competitors. They have sustained profit while keeping costs low, and with the semi recent profit of AirTran Holdings, they can now be more than a domestic airline but gain international recognition as well. They have been able to sustain customer loyalty, maintain employee satisfaction, while still maintaining profits and tailoring to customer needs. It’s fast-paced growth strategy, innovative solutions, and willingness to preserve their casual, laid back atmosphere can make it possible to attain stakeholder success and further development.