BA230 Marketing Management Case Analysis Evaluation Case No./Title: Case #2 Southwest Airlines Particulars Situation Analysis 1.

. Sufficient presentation of the relevant issues of the company's past strategy and structure as these affect it in the present 2. Sufficient presentation of the relevant issues of the companys current competitive situation: environment -- economic conditions and trends, cultural and social values and trends, political and legal issues, industry, firm, marketing strategy analysis Problem Identification 3. Appropriate identification and phrasing of the case problem(s) primary, secondary problems with brief support discussion on the evidence and effects of the problems; identification of corresponding case analysts objectives with Key Result Areas External Environment 4. Sufficient identification and ranking of relevant societal forces affecting the industry, as well as environmental opportunities and threats facing the company and its task environment Internal Organizational Environment 5. Sufficient identification of the most important strengths and weakness of the company at the time of the case to include among others its corporate level strategy (corporate structure, corporate culture) and business level strategy (corporate resources: marketing, finance, R&D, operations, human resources, information systems) Strategic Factors Analysis 4. Sufficient and logical analysis of strategic factors classifying the issues identified in items 4 and 5 into a Strengths, Weaknesses, Opportunities, Threats analysis; analysis of Critical Success Factors(CSFs) Alternatives Presentation 5. Development of sound, appropriate mutually exclusive marketing strategic/tactical alternatives 6. Construction of rational scenario for each alternative, with relevant, exhaustive discussion of advantages and disadvantages against the CSFs and how these alternatives provide potentials to achieve KRAs, and thus, facilitate solution to the problem(s) identified Recommendation 7. Sound and thorough discussion of the alternative selected and recommended, justifying recommendation with the CSFs and KRAs Implementation, Evaluation and Control 8. Development of thorough and exhaustive programs to implement and support the recommended alternative, replete with the relevant what, why, who,

Date: 8 March 2013 Weight 5% 5% Grade Remarks

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how, how much (relevant financial computations), when, where 9. Identification of relevant types of evaluation and control mechanisms to ensure the implementation success of recommendation Fnal Grade General Comments

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University of the Philippines Cebu Business Management Cluster

Case # 2 Southwest Airlines

In partial fulfillment of the requirements in BA 230 Marketing Management Third Trimester SY 2012- 2013

Submitted to

Mary Gretchen F. Chaves 8 March 2013

Group # 3 Alforque, Grace Pua, Pearl Versoza, Sheila Marie G.

I.

SITUATION ANALYSIS

Southwest Airlines Co., formerly Air Southwest Co., was established by Rollin King and Herb Kelleher in 1967 but officially recognized for its current name in 1971. It became a major U.S. airline renowned as the largest low fares carrier with headquarters is in Dallas, Texas Love Field Airport, hence its known as well as LUV which is likewise the brands theme. It has 78 destinations in 39 states and has the most domestic passenger airlines as of January 2013. It started as an intra-state operator in Texas believing that by doing so it can avoid federal regulations which brought the attention of three airlines: Braniff, TransTexas, and Continental Airlines to take legal actions but later resolved in 1970 when Texas Supreme Court supported its rights to fly. This legal case was even adapted in a childrens book, Gumwrappers and Goggles by Winifred Barnum and a musical play, Show Your Spirit, sponsored by the company in 1983. Its founder benchmarked its ideas from Pacific Southwest Airlines, as well as the selection of its flight cabin crews/attendants giving high importance on unique personalities and attitude (composed of dancers, majorettes, and cheerleaders) with uniform outfits of hot pants and go-go boots. Its operations began in 1971 between Dallas, Houston Hobby, and San Antonio using Boeng 737 for all its aircrafts. In the first two years of its operations, it generated operating losses causing one of the four aircrafts being sold to Frontier Airlines to pay for its expenses. Yet this did not stop Southwest to continue its operations with the remaining three and came up with the ten minute turn standard ground time from then on. The Wright Amendment of 1979 set limitations on the nonstop flights to intrastate flights which prompted Southwest Airlines to pursue interstate flights apart from the existing intrastate flight operations which in turn, drove the Wright Amendment to Congress to restrict such flights. Thus, Southwest was one of the airlines that were restricted to fly to destinations beyond the states bordering Texas. In 1997, the Shelby Amendment added three more states to the allowed destinations which favored the plans, paid off Southwests efforts. In 1985, it acquired Muse Air renaming it Trans Star Airlines but eventually sold it to Texas Air (owned by Lorenzo) in 1987. In 1992, it acquired Morris Air, an airline based in Utah, which enabled Southwest to take advantage on its capital and routes for the latters inventory and service.

Southwest is one of the first airlines to have its own website where passengers can view schedules, route map, online check in, as well as company information and became number one in the airline website to earn revenue. Its streamlined operations enable it to promote budget fares competitively with customer satisfaction and fast turnaround service (20 to 30 minutes- the best in the industry. It has also a unique boarding system which speeds up the overall lead time in flying. Also, the fact that it utilizes a uniform model for all its aircraft, Boeng 737, this promotes the simplification of training, and switching of, attendants, pilot, mechanic, and aircraft substitution much easier. It has also taken advantage of fuel hedging to save more than $2 billion resulting to lower costs. It even reinforced its savings on fuel through the concept of lightweight consumption since it design its planes to be lighter by power washing every night to carry less water for bathrooms and used lighter seats which generated savings of $1.6 million. Southeast Airlines has able to differentiate itself from the others in terms of product positioning, effective marketing strategies (both internal and external), marketing programs (same-day freight service, senior discounts, fun fares, ticketless travel, ticket deals), pricing strategy, and advertising, making it the most admired airline since 1997, the 5th most admired corporation in 2007, and even one of the top five best places to work. II. PROBLEM IDENTIFICATION How can Southwest Airlines defend its brand position as a low-cost airline when tough economic times hit and sustain consistent growth, high profits, and excellent customer service in a highly competitive industry?

III. EXTERNAL ENVIRONMENT There are certain external factors (may it be positively or negatively) that can affect Southeast Airlines successful brand positioning of low cost airfares but with superior customer service. These are as follows:

Factors Socio-Cultural

Opportunities The need to travel once in a while

Threats Travel has been at the top of the

is being valued predominantly by list to almost everyone now not the western culture. From the just in US but all around the business executives who travel globe. This has been one of the

frequently due to business trips and meetings; and even the young generation who goes home and some usually take time to bond with their peers on school vacation mention vacations. breaks. the And not to who that pensioners The fact western cultures being adapted as part of globalization. Hence, if Southwest continues to focus only in US, and more and more Americans now prefer to have vacations high in Asia, in Southwest the past would might not have the same level of revenues considering Americans

really use their retiring funds for Southwest Airline is a U.S. airline company makes it more enticing to its customers most especially that it addresses budget concerns. U.S. is slowly recuperating from the 2008 financial crisis such that financial programs are instigated by their government to mitigate the crisis which will eventually Inflation/Economic Downturn lead to recovery in the future. This would mean more potential travels for Americans most especially when they just had difficult financial challenges. This would prompt them to reward themselves for surviving such difficult times. Environmental Southwest address its Airlines issues can on

want to venture on international vacations and travels.

Most businesses, if not all, were greatly affected by the US Stock Market Crash creating ripple effects to its citizens including massive layoffs. Thus, bringing about the customers focus to prioritize their basic needs first like food, clothing and shelter, rather than travels and vacation. Hence, revenues gets affected since only those who can afford to travel, even if its on a budget fare, can contribute to has

Southwests income. use The airline industry

environmental friendly jet oil to contributed for about 11 percent the of greenhouse gases emitted by environmental effects on people. the U.S. transportation sector. The environmental friendly jet fuel The growth in the airline industry from sea water would even has added to the earths global generate huge savings since its warming. CO2 emissions from the priced at $3 to $6 per gallon. This jet fuel surely have negative would also boost the companys effects on the environment. image thereby drawing potential

environmental friendly customers. Southwests strategy on fuel Since aircrafts are dependent on jet fuel as its source of energy, Southwest can still be affected whenever there are sudden price increases on such commodity if they are not able to stock up or purchase in advance. This also creates a need for a storage facility for the fuels purchased in advanced which will entail storage costs.

hedging has apparently helped so much in generating huge savings of $2 billion most especially in Oil Price Hike situations like oil price hike. Southwest can take advantage of this strategy if it can still continue on fuel hedging and if no regulatory rules will be imposed on such act. In the same manner that a certain amendment in a law can be considered as a threat, this can Political also be helpful like how the Shelby Amendment helped the airlines most especially the Southwest when it allowed three more states for its destinations.

Amending a regulatory measure such that of of the 1979 Wright can Amendment airline industry.

seriously affect the operations of

And while the increase in security Due to the terrorist attacks in US, measures may, at some point, security has been strengthened ease the minds of the pilots, and thus airlines will never again crew, Security be so lax in terms of their passengers and their families, it also increases the

security. Passengers can have anxiety and frustration with the the assurance that security has amount of time and effort it takes been given utmost consideration. to get from the airport ticket counter to the terminal gate.

Technology

new

breakthrough

in Adapting change will entail risks the company may face

technology such as that of a jet that

fuel from sea water can bring should the new ways and means, tremendous savings to airline like a fuel from sea water or a companies like Southwest. new aircraft, would fail. Customers love positive change but are sensitive if such changes are not being helpful at all which can potentially create a flaw on its

good reputation.

IV.

INTERNAL ORGANIZATIONAL ENVIRONMENT Southwest Airlines has established itself as one of the most admired airline

since 1997 due to a number of factors such as the following: Factors Corporate Governance Corporate Strategy Strengths Its corporate Weakness is One disadvantage of having a happy and nurturing is of that the environment advantage

structure

or centered on team building which strong Level will enhance the interpersonal working skills of its workforce and was even awarded as the most and

employees may tend to abuse take

admired airline since 1997 and benefits provided. The casual 5th most admired corporation in dress code of its employees can 2007. Companys significant culture value for create an image of nurtures unprofessional crews. its Also, a happy and contented

employees creating a happy and employee of the company for a working atmosphere and loyalty long period of time (since it has from its employees. low turnover rate) may be less Sense of ownership is also innovative compared to a new fostered since 10% of the stocks one. are held by employees and it even grants pension through a Human profit sharing plan. Resource Hiring process is not just based The selection process is quite on credentials but rather on rigorous since they have to personality (enthusiasm and and attitude establish sense a tough interview and of process unlike the conventional where credentials results are also

or Manpower

humor) the applicants and this way stand out since

makes their brand personality examination service is their top of the mind conveying the brand personality starting from its employees. Cross training is also encouraged which will boost the

customer given equal weight.

interest of the employees since they can try to explore working on Marketing other locations or other aircrafts. Its marketing arm is indeed Marketing programs are costly powerful to come up with ways since the company is doing and programs to uphold its more than just advertising of its company brand making it a service. It covers milestone from market leader to and some Air even a the product/service benchmark Pacific budget conceptualization to the process

airline companies. (i.e. Cebu on how it is delivered to its and Philippine customers. As a result of its steady, planned growth strategy, there are numerous untapped domestic markets and thus, it may have to look at beyond the Operations US to capture a larger market. Choosing uncongested airports Its unique boarding system may to maintain the short turnaround create factors Promotion Advertising that lead to fast SWA unfamiliarity crews to to new lead time is one of the key passengers which would require explain turnaround and lower fares. laboriously. and The company has earned an Its successful advertising may excellent differentiation profitable effective advertising reputation leading airline promotions (i.e., to and attract others to emulate a Southwest formula. Express, etc.)

success as the largest and most through and media

advertising, internet, etc.) V. STRATEGIC FACTORS ANALYSIS

A. SWOT Analysis Strength Weaknesses Opportunities Threats

Good cost savings strategies by using light materials in the plane and long contracts hedging at 50% lesser purchased fuel giving at least $6.4M a year. Cost savings by operating Boeing 737s in all their flights simplifies the training process for pilots and flight attendants and management can substitute aircraft rescheduling or transfer mechanics quickly. Very appealing market strategies and positioning to American customers like senior's discounts, fun fares and ticketless. It also uses humor, warmth and friendly customer service strategies. Highly profitable in 37 years and has Maintaining these market share Americans are being more adventurous in their trips these days thus, will go for international travels which Southwest do not cater. Boeing 737 are smaller and old classic models which would bring engine - related problems today and in the future if not being maintained properly Because of fast phased market trends, fuel company who are partnering with Southwest might eventually lessen the discount price.

The company can place the money being saved to venturing to other lined businesses like hotels, road transportation or travel agencies. Since Beoing continues to innovate on the aircrafts every year, Southwest can take advantage of purchasing updated versions to better while strategically plan marketing approach.

Rapid price hikes of fuel accounts for 40% of an airplane's ticket compared to only 15% 8yrs ago with increase of 25% in 8 yrs or 3.12% each year.

Engine trouble or aviation - related accidents if not well maintained can incur

serve their customers big market lost.

Creating this brand image will open a international opportunities in venturing on cruise, vacation accommodations and services businesses.

Airline industry at the 2007-2008 economic crisis was greatly affected. Buying a ticket eventually became less prioritized specially by Americans during that time.

Profitability can be an Weather Uncertainty advantage of the brought by climate

established a high percentage in market share in airline industry in the US which they are tagged as fifth-most admired corporation in 2007 by the Fortune 500. advantage is crucial and difficult in a competitive industry

company to acquire other smaller airline companies or expand to venturing on bigger planes for longer flights to monopolize market shares. change will affect operations and opportunities.

B. Key Success Factors 1. Cost-effective Strategies Southwest Airlines renowned for its low fares have become its selling point advantage from competitors. They try to save money by simplifying some operational processes like flying short and light flights, using only one type of aircraft, no meal service and no computer reservation system. 2. Market Positioning Advantage Providing the lowest fares for business and leisure travelers to interstate trips made the company successful in focusing on the specified market niche than competing on bigger airline companies who offers international flights. Low fares, humorous marketing advertisement and quality customer service are the companys advantages that create an impression on customers mind thus when talking about local flights, Southwest will come first in their minds. 3. Ensuring High Quality Service The firm created a cozy atmosphere at par with its low fares, embedding its catchy slogans as We are not an airline with great customer service. We are a great customer service organization that happens to be in the airline business and We can train you to do any job, but we cant give you right spirit. This has been the most important component of success of Southwest Airlines. 4. Effective Brand Equity Strategy Marketing its brand in the way the management want the people to remember them has been very effective and efficient thus

customer loyalty and market share rates are evidently at its peak. Creating its value at low fares with quality service was successfully implemented and communicated. 5. Culture Enriching Marketing Southwests culture is established by fun and innovative atmosphere from the planes packaging, to the pricing strategies, down to the customer service it caters. The employees are being motivated to extend full passion for service thus they adopt and extend to their end customers. The company believes that employees should be satisfied and happy thus evidently being expressed by their aircrafts in a LUV series packaging. It believes that the company should understand and trust its employees because sometimes customer might be wrong.

VI.

ALTERNATIVES PRESENTATION Considering that the companys performance in the market is exceptional, the

group came up with two alternatives in order to sustain its consistent growth, profits, and excellent customer service in an highly competitive industry. A. Maintain Current Low-Fare Price Strategy Remaining in its current pricing strategy and market positioning will ensure the companys success as this business model has already been proven for the longest time. The company will need to continue creating new and catchy marketing advertisements and slogans to continuously attract its target market. Southwest Airline should continue to strive for a price strategy that is considerably low compared to the local airlines and other road transportation services in the country.

ADVANTAGES Consistent or higher sales due to low price Maintain top of mind status in consumers as they will be the first choice during leisure travels

DISADVANTAGES Might encounter financial problems when tough economic times hit due to low pricing Reduced profits when market price of oil skyrockets

 This strategy may not be sustainable in the long run as prices are always bound to increase (oil, plane, other materials)

B. Start raising fare prices and discontinue low-fare strategy Maintaining consistently low prices amidst rising operating costs is not a sustainable strategy for Southwest. In the coming future, it is inevitable that oil prices and other prices will rise. Southwest needs to face this headon by raising fare prices otherwise profits will suffer and this might risk the stability of the business.

ADVANTAGES If this strategy is accepted there is expected higher profits Southwest may be able to add additional in-flight perks which selected customers may enjoy

DISADVANTAGES This strategy may affect sales May reduce number of frequent flying customers

VII.

RECOMMENDATION We recommend that Southwest should continue to keep fares lower than anyone else in the industry. They can achieve this through efficiency and operational excellence. The companys volume strategy of selling fully occupied seats for lower fares than selling fewer seats for a higher price will lead to historically high revenues for the company as well, as less money is wasted flying full rather than empty seats. In order for Southwest to maintain current its current low-price strategy, we recommend the following operational strategies for Southwest to ensure that they are able to continue offering low prices and still earn fair profits for the company.

Uniform plane model should be maintained although the company can buy updated and new versions of Boeing 737 series that have advance specs in speed and blades or engine features. Through this, as discussed in previous parts of this study, the company will enjoy huge cost savings and therefore, still gain a considerable amount of profit despite its low fares.

Southwest should strip its services to the basics and use a simple fare price structure. Meaning, pricing should only be for the base fare, extra services such as meals, baggage, seat selection should be excluded. In this way, fares are kept low, and the customers have the freedom to choose only the services they really need.

They can reduce operational costs by employing cost-saving strategies such as going paperless. They can do this by discontinuing the issuance of paper plane tickets and can instead issue unique Confirmation numbers.

Southwest should also go into E-Commerce. This strategy will allow them to sell tickets to more customers but reduce costs as the number of their physical ticketing stores will decrease. Customers should also be able to print their tickets online so the company will not have to spend additional expenses on the issuance of paper tickets.

What Southwest Airlines lacks in extra services such as on-board meals, entertainment gadgets, Southwest can make up for a fun, customer-oriented crew. The employees fun, humorous and entertaining attitude leads to a relaxing and enjoyable atmosphere during trips. It can help relieve the stress of the passengers that take Southwest Airlines as well as create additional entertainment for everyone onboard without spending additional money.

With the fast growing trend of Social Media channels such as Facebook, Twitter, Instagram, Southwest should not be left behind in exploiting this form of marketing. They should have a strong presence in all relevant social media channels so that they are constantly visible to their targets markets. This will also bring Southwest much closer to their market and allow them to gain constant insight of the needs of their customers, and improve response time of customer complaints and issues without having to spend on expensive marketing campaigns.

VIII.

IMPLEMENTATION, EVALUATION AND CONTROL EVALUATION & CONTROL Selling tickets online or through e-commerce will increase sales due to more options in their sales channels. Because of the convenience of the transaction, it will be

TIMEFRAME

PLAN

RESPONSIBILITY

Short-Term Goal: 1-2 years

Pursue E-commerce distribution.

Top Management

easier for customers to purchase tickets without having to leave their home or office thereby increasing ticket sales. If they are the first company to do this, then they will be the preferred choice of consumers.

Use of the same airplane Continuing model to reduce parts costs and training costs of pilots. Management

Measured and evaluated through the companys airplane maintenance costs versus competitors. Measured and evaluated through more frequent trips of customers, Marketing Department increased sales, and top-of-mind status of Southwest airlines among customers. Operations Team

Immediate

Social Media Marketing

Immediate

Measured and evaluated

Introduction of a Basic Fare pricing, devoid of added benefits, baggage, onboard meals to keep fares low.

through more frequent trips of customers, increased sales, and top-of-mind status of Southwest airlines among customers.

Measured through value Paperless Transaction. Immediate Reduce costs associated with plane ticket printing. Operations Team of savings from the decrease in paper usage versus the previous year, or historically.

Measured and evaluated through more frequent Fun, humorous, Continuing entertaining crew during flights. HR, Operations Team trips of customers, increased sales, and top-of-mind status of Southwest airlines among customers.

References: http://en.wikipedia.org/wiki/Southwest_Airlines http://www.slideshare.net/sarangbhutada/southwest-airlines-case-study http://pubs.acs.org/subscribe/archive/ci/31/i04/html/04n_chen.html http://en.wikipedia.org/wiki/Airline#Environmental_impacts http://www.thenewecologist.com/2012/10/eco-friendly-jet-fuel-from-sea-water/