BA230 Marketing Management Case Analysis Evaluation Case No./Title: Case #2 – Southwest Airlines Date: 8 March 2013 Particulars Weight Grade Remarks Situation Analysis 1. Sufficient presentation of the relevant issues of the company's past strategy and structure as these affect it in the present 5% 2. Sufficient presentation of the relevant issues of the company’s current competitive situation: environment -- economic conditions and trends, cultural and social values and trends, political and legal issues, industry, firm, marketing strategy analysis 5% 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 10% 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 5% 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) 5% 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, 10%
Transcript
BA230 Marketing ManagementCase Analysis Evaluation Case No./Title: Case #2 – Southwest Airlines Date: 8 March 2013
Particulars Weight Grade RemarksSituation Analysis1. Sufficient presentation of the relevant issues of the
company's past strategy and structure as these affect it in the present
5%
2. Sufficient presentation of the relevant issues of the company’s current competitive situation: environment -- economic conditions and trends, cultural and social values and trends, political and legal issues, industry, firm, marketing strategy analysis
5%
Problem Identification3. 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
10%
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
5%
Internal Organizational Environment5. 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)
5%
Strategic Factors Analysis4. 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)
10%
Alternatives Presentation5. Development of sound, appropriate mutually
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
10%
Recommendation7. Sound and thorough discussion of the alternative
selected and recommended, justifying recommendation with the CSFs and KRAs
10%
Implementation, Evaluation and Control8. Development of thorough and exhaustive programs
to implement and support the recommended alternative, replete with the relevant what, why, who,
20%
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
10%
Fnal Grade 100%General Comments
University of the Philippines CebuBusiness Management Cluster
Case # 2 – Southwest Airlines
In partial fulfillment of the requirements in
BA 230 – Marketing ManagementThird Trimester SY 2012- 2013
Submitted to
Mary Gretchen F. Chaves
8 March 2013
Group # 3Alforque, Grace
Pua, PearlVersoza, 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 it’s known as well as LUV
which is likewise the brand’s 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, Trans-
Texas, 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 children’s 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 intra-state
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 Southwest’s 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 latter’s 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 Opportunities Threats
Socio-Cultural The need to travel once in a while
is being valued predominantly by
the western culture. From the
business executives who travel
Travel has been at the top of the
list to almost everyone now not
just in US but all around the
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 breaks. And not to
mention the pensioners who
really use their retiring funds for
vacations. The fact that
Southwest Airline is a U.S. airline
company makes it more enticing
to its customers most especially
that it addresses “budget”
concerns.
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 in Asia, Southwest
might not have the same level of
high revenues in the past
considering Americans would
want to venture on international
vacations and travels.
Inflation/Economic
Downturn
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
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.
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 it’s on a budget
fare, can contribute to
Southwest’s income.
Environmental Southwest Airlines can use
environmental friendly jet oil to
address its issues on the
environmental effects on people.
The environmental friendly jet fuel
from sea water would even
generate huge savings since it’s
priced at $3 to $6 per gallon. This
would also boost the company’s
The airline industry has
contributed for about 11 percent
of greenhouse gases emitted by
the U.S. transportation sector.
The growth in the airline industry
has added to the earth’s global
warming. CO2 emissions from the
jet fuel surely have negative
effects on the environment.
image thereby drawing potential
environmental friendly customers.
Oil Price Hike
Southwest’s strategy on fuel
hedging has apparently helped so
much in generating huge savings
of $2 billion most especially in
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.
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.
Political
In the same manner that a certain
amendment in a law can be
considered as a threat, this can
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 the Wright
Amendment of 1979 can
seriously affect the operations of
airline industry.
Security
Due to the terrorist attacks in US,
security has been strengthened
and thus airlines will never again
be so lax in terms of their
security. Passengers can have
the assurance that security has
been given utmost consideration.
And while the increase in security
measures may, at some point,
ease the minds of the pilots,
crew, passengers and their
families, it also increases the
anxiety and frustration with the
amount of time and effort it takes
to get from the airport ticket
counter to the terminal gate.
Technology A new breakthrough in
technology such as that of a jet
fuel from sea water can bring
tremendous savings to airline
companies like Southwest.
Adapting change will entail risks
that the company may face
should the new ways and means,
like a fuel from sea water or a
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 Strengths Weakness
Corporate
Governance or
Corporate Level
Strategy
Its corporate structure is
centered on team building which
will enhance the interpersonal
skills of its workforce and was
even awarded as the most
admired airline since 1997 and
5th most admired corporation in
2007.
Company’s culture nurtures
significant value for its
employees creating a happy and
working atmosphere and loyalty
from its employees.
Sense of ownership is also
fostered since 10% of the stocks
are held by employees and it
even grants pension through a
profit sharing plan.
One disadvantage of having a
strong happy and nurturing
working environment is that
employees may tend to abuse
and take advantage of the
benefits provided. The casual
dress code of its employees can
create an image of
unprofessional crews.
Also, a happy and contented
employee of the company for a
long period of time (since it has
low turnover rate) may be less
innovative compared to a new
one.
Human Resource
or Manpower
Hiring process is not just based
on credentials but rather on
personality and attitude
(enthusiasm and sense of
humor) the applicants and this
makes their brand personality
stand out since customer service
is their top of the mind
conveying the brand personality
The selection process is quite
rigorous since they have to
establish a tough interview
process unlike the conventional
way where credentials and
examination results are also
given equal weight.
starting from its employees.
Cross training is also
encouraged which will boost the
interest of the employees since
they can try to explore working
on other locations or other
aircrafts.
Marketing Its marketing arm is indeed
powerful to come up with ways
and programs to uphold its
company brand making it a
market leader and even a
benchmark to some budget
airline companies. (i.e. Cebu
Pacific and Air Philippine
Express, etc.)
Marketing programs are costly
since the company is doing
more than just advertising of its
service. It covers milestone from
the product/service
conceptualization to the process
on how it is delivered to its
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
US to capture a larger market.
Operations Choosing uncongested airports
to maintain the short turnaround
lead time is one of the key
factors that lead to fast
turnaround and lower fares.
Its unique boarding system may
create unfamiliarity to new
passengers which would require
SWA crews to explain
laboriously.
Promotion and
Advertising
The company has earned an
excellent reputation and
differentiation leading to a
success as the largest and most
profitable airline through
effective promotions and
advertising (i.e., media
advertising, internet, etc.)
Its successful advertising may
attract others to emulate
Southwest formula.
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.
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.
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.
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.
Boeing 737 are
smaller and old classic
models which would
bring engine - related
problems today and in
the future if not being
maintained properly
Since Beoing
continues to innovate
on the aircrafts every
year, Southwest can
take advantage of
purchasing updated
versions to better
serve their customers
while strategically
plan marketing
approach.
Engine trouble or
aviation - related
accidents if not well
maintained can incur
big market lost.
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.
Americans are being
more adventurous in
their trips these days
thus, will go for
international travels
which Southwest do
not cater.
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.
Highly profitable in
37 years and has
established a high
percentage in
market share in
Maintaining these
market share
advantage is crucial
and difficult in a
competitive industry
Profitability can be an
advantage of the
company to acquire
other smaller airline
companies or expand
Weather Uncertainty
brought by climate
change will affect
operations and
opportunities.
airline industry in the
US which they are
tagged as fifth-most
admired corporation
to venturing on
bigger planes for
longer flights to
monopolize market
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 inter-
state 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 company’s advantages that create an impression on
customer’s 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 can’t 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
Southwest’s culture is established by fun and innovative atmosphere
from the plane’s 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 company’s 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 company’s 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 DISADVANTAGES
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
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 head-
on by raising fare prices otherwise profits will suffer and this might risk the
stability of the business.
ADVANTAGES DISADVANTAGES
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
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 company’s 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
