Marketing Report

Group 3

Group Members & Work Load Assigned

Dhananji Jayasinghe (0174) – Introduction

Pemila Gunasekara – Company Background and Operations

Chandima Fernando – Industry Background and Market Size

Piyumi Rodrigo – Market Share and Macro Environmental Factors

Rameez Rashad – SWOT Analysis

Thumith Gunasekara – Marketing Strategy (Segmentation) and Executive Summary

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Table of ContentsExecutive Summary.....................................................................................................................................4

Introduction.................................................................................................................................................5

Company Background and Operations........................................................................................................6

Industry Background...................................................................................................................................7

Market Size.................................................................................................................................................8

Market Share...............................................................................................................................................9

Macro-Environmental Factors...................................................................................................................10

Political Environment............................................................................................................................10

Economic Environment.........................................................................................................................10

SWOT Analysis.........................................................................................................................................11

Strengths................................................................................................................................................11

Weakness...............................................................................................................................................11

Opportunities.........................................................................................................................................12

Threats...................................................................................................................................................12

Marketing Mix...........................................................................................................................................13

Product..................................................................................................................................................13

Price......................................................................................................................................................14

Product Line Pricing..........................................................................................................................14

Product Buddle Pricing......................................................................................................................14

Place......................................................................................................................................................15

Promotion..............................................................................................................................................15

Segmentation.............................................................................................................................................17

Target Market........................................................................................................................................17

Positioning.............................................................................................................................................17

Appendix...................................................................................................................................................18

Main competitors...................................................................................................................................18

Southwest.com......................................................................................................................................19

Questionnaires.......................................................................................................................................20

References.................................................................................................................................................22

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Executive SummarySouthwest Airlines is the number one domestic airline provider in low fair flights

throughout the nation. The company’s goal is to remain profitable while offering their products

for the lowest price that any company can ever offer. Southwest has gain a large portion of the

market industry by competing in smaller hubs around the United States of America. Even though

many of their passengers are business people or customers who fly in-state, Southwest always

appeals to the entire general public.

With a net income of $459 million and a market share of 13.8%, southwest is facing a

competition with few of the top five domestic passenger carriers such as American Airlines,

Delta, United, and US Airways. From the beginning this organization’s implementation and

maintenance of a very unique marketing strategy and a structure is the major key to their success.

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IntroductionIn June 18, 1971, Southwest Airlines commenced there Customer service with three

Boeing 737 aircrafts covering three main cities in Texas – Houston, Dallas, and San Antonio.

Today, Southwest operates 548 Boeing 737 aircrafts among 72 cities in 37 states. “Yearend

results for 2010 marked Southwest's 38th consecutive year of profitability. Southwest became a

major airline in 1989 when it exceeded the billion-dollar revenue mark. Southwest is the United

States' most successful low fare, high frequency, point-to-point carrier. Southwest operates more

than 3,400 flights a day coast-to-coast, making it the largest U.S. carrier based on domestic

passengers carried as of September 30, 2010.” (Fact Sheet, 2011)

Southwest is the leading provider in air carrier service which provides the best customer

service and the lowest rates. Goal of this company is to keep air travel simple and profitable. It is

an entirely domestic airline which focuses the smaller airports in USA. Southwest has

established their company’s hold in the airline industry by their long time period of profitability.

The scope of this report is to discuss about this particular company’s major marketing

points such as company background the product, industry background, market size, market share,

macro-environmental factors, strengths, weaknesses, opportunities, threats and marketing

strategies and segmentation.

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Company Background and OperationsThe 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.

The founders of the Southwest Airlines, Rolling King and Herb Kelleher, wanted to start

an airline with the cheapest airfare than any other airlines at that time but airlines were regulated

by civil aeronautics board and they controlled the airfare and kept fairs high. However Kelleher,

who is an attorney, realized that if an airline only operated within one state, it would not be

subject to the regulations, so the airline began to fly within Texas. Other airlines of the time tried

to stop them by taking legal actions against Southwest and they began a three year legal battle to

keep Southwest on the ground. Eventually Southwest airlines prevailed in 1970 when the Texas

supreme court upheld air southwest’s right to fly in Texas. The decision became final on

December 7, 1970 and they succeeded in creating Southwest the first low-cost airline in United

States of America.

As the largest airline in the United States, Southwest operates more than 3,400 flights a

day and it has a fleet of 548 Boeing 737 aircraft’s as of march 2011. Southwest serves 72 cities

in 35 states throughout the United States and approximately 73% of the Company’s Customers

flew non-stop length of 648 miles with an average duration of approximately 1.8 hours.

On March 29, 1971, Air Southwest Co. changed its name to Southwest Airlines Co and

On September 26, 2010, the Company entered into a merger agreement providing for the

Company’s acquisition of AirTran Holdings, Inc. Southwest has one of the youngest fleets in the

nation, with an average age of approximately nine years and the company listed on New York

stock exchange under the ticker symbol LUV. The year 2010 was the southwest’s 38 th

consecutive year of profitability, the net income was more than 450 million, total RPMs was 78

billion, total operating revenue was 12.1 billion. The Southwest is a partner of fortune 500

companies and Gary C Kelly is the current president and CEO of Southwest Airlines Co.

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Industry BackgroundRegional airlines provide air transportation to publics or cargo over regular routes and schedules

connecting small cities mostly using smaller aircrafts and jets.

A regional airline can function either,

1. As a “feeder airline” where they make a contract with a major airline and do business

under the name of the major airline.

2. As a “commuter airline” where they operate under their own brand name, connecting

isolated towns or villages with larger towns. In this case the regional airline will be their

only sensible link to a larger city.

3. As an “independent airline” where their operations are larger than of an air taxi or

commuter airline service, operate point-to-point flights under their own brand name, but

not a “mainline” service (aircrafts with over 100 seats) and fly smaller to mainline.

Southwest Airlines is recorded as the largest airline in the U.S, based on domestic passengers

carried as of June 30, 2010, even though it is considered as a low-cost or no-frill airline. It is an

“independent airline” which operates point-to-point flights under its own brand name.

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Market Size The market of regional airlines reported a loss of $1.5billion net loss for the whole airline

industry after 9/11 incident. But the leading airlines such as Delta Air Lines, United Continental

Holdings, AMR Corporation, Southwest airlines, and US Air Ways Group were able to somehow

cope with the impact of the crisis and improve the industry’s revenue.

By the end of year 2010, the revenue of the domestic airline industry in the U.S was recorded as

$139,236 million. The revenue growth was reported as 8.3%, while the industry’s gross profit

was recorded as $20,155.2 million.

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Market ShareSouthwest Airlines (LUV) is the largest domestic carrier in the US by total passengers, carrying

over 114 million passengers in 2010 on over 1.14 million flights. A key component of the

Southwest business strategy is its low cost structure, which is designed to allow it to profitably

charge low fares. The company has lower unit costs, on average, than most major carriers. Based

on the most recent data available from the U.S. Department of Transportation, as of September

30, 2010, the company was the largest domestic air carrier in the United States, as measured by

the number of originating passengers boarded.

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%

Southwest competes against many low-cost carriers or low-cost subsidiaries of larger carriers.

Southwest's main low-cost carrier competitors are AirTran Holdings and JetBlue Airways. Its

other competitors include American Airlines (in Chicago, Texas, Los Angeles, and Miami),

Continental, United, and US Air. Because of its efficient cost-saving strategies, Southwest's

37year streak of profitability is unmatched in the airline industry.

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Macro-Environmental FactorsA company’s Macro environment consists of the company and all of the other actors operate in a

larger macro environment of forces that shape opportunities and create threats to the company.

We will now focus on two main macro environmental factors affecting Southwest Airlines’

operations.

Political Environment

Political environment includes laws and regulations, and war or other military actions by the

U.S. or others. One of the major concerns in the American airline industry is terrorist attracts.

For the airline industry and air travelers, 2002 was a year of dramatic change in airport security,

resulting from the terrorist attacks on America in 2001. Concerned public started questioning

their safety and efficiency of air travel. Industry results were so bad in 2002 that despite federal

cash grants two major airlines filed for bankruptcy protection. During the 15 months since the

terrorist attacks of September 11, virtually every major U.S. air carrier has downsized, laid off

workers, grounded aircraft, and/or disrupted its air service.

Economic Environment

General economic conditions could adversely affect the demand for travel in general and

consumer ticket purchasing habits, as well as decisions by major freight Customers on how they

allocate freight deliveries among different types of carriers.

For example, in 2009, the airline industry faced another tumultuous year. The turbulence of the

“Great Recession” led companies to restrict travel and forced leisure travelers to tighten their

budgets, leaving little discretionary spending. The decline in business travel reduced the

percentage of full fare ticket purchases, and many airlines, including Southwest Airlines,

responded to the decline in travel demand by cutting capacity and aggressively discounting fares.

Volatile fuel prices, in the midst of the worst recession, had a lasting impact on the airline

industry.

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SWOT Analysis

Strengths

One of their major strengths is the fact that they use all their resources to maximum usage, they

have a very high capacity usage which gives them a slight competitive edge from their

competitors. They also have earned many recognition awards one of the most important being

the best low cost airliner for the last few years, this helped them strengthen their advertising

when it comes to low cost air lining which yielded more customers flying with them. Another

noticeable strength is their consistency in the business in early 2003 they published their profit

for the 31st consecutive year.

Furthermore, another major strength Southwest Airlines has adopted is its flexibility and the

various types of packages they have. They were the first in the country to offer air freight

services, discounts to older people and also ticketless traveling. Their flexibility gives them the

edge when it comes to handling customers; they carefully select different employees to deal with

different type of customers to make sure everyone is offered the maximum best of the service.

One of their most famous types of travel deal is where they offer credit in terms of the number of

trips the customer has had with them whereas other Airline’s offer credit on the number of miles

traveled. Many believe the flexibility of the Airlines to be the best strength they have and also

not to forget the fact that the strong culture which exists in the company leads to excellent

employee relationship which generates great ticket sales. Another notable strength of the

Southwest Airlines is the way they cut down cost of repairs, maintenance and also obtained a

bulk discount in their airplane purchasing when they bought it from Boeing.

Weakness

The biggest weakness they are facing is the fact that they don’t offer international flights.

Another would be the part where they do not offer segmented seating which means everyone sit

together in the same place without any difference so there is no difference between a higher class

and lower class individual whatsoever. Another fact is that they do not advertise much online

they don’t bother much about offering online ticket booking services so they tend to lose

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potential clients in that way. They also depend on a single airplane producer which is risky when

something threatening happens to the producer.

Moving on, they also can carry on a limited amount of freight for a flight since they also have to

accompany passengers which tend to be a drawback to them at certain times. Another important

point to notice here is that when they employ people to work for them they choose personality

over skills; this can be dangerous at some point. For example, when an employee gets stuck in a

situation where their skills are required to help him/her out. Another drawback Southwest

Airlines face is that they do not offer morning flights, this must be an odd thing for any Airliner

to do but we believe they have their reasons.

Opportunities

They have the chance to enter into the wide and huge national and international market. Their

stack of resources and financial wealth can back them up immensely if the decide to do so. It

should also be said that they have the resources to carry out any research and development they

wish to do on their products and expand their company and offer new products to grab more

market share. The growing Hispanic population inside the country results in more people

travelling back and forth from places meaning longer flights. Furthermore, they also have the

chances to include business and leisure classes in their flights since they have attractive packages

like the Disneyland package for example which will attract more passengers to fly with them.

Threats

The major threat they face is the rising prices in the economy of the United States and the

increase in terrorist attacks around the world. The amount of flights have dropped down after

recent terrorist attacks people do not wish to fly as like willingly want to fly main people claim

to take long car drives instead of risking their life on a plane. Other threats are obviously the

competitors, since Southwest Airlines doesn’t bother much about online ticketing solutions their

competitors tend to take the lead here and over take them. Government introducing new rules

and regulations has driven up costs and other operation costs for the firm such as gas and oil

which play a major role in the activities of the firm. Another major threat to Southwest Airlines

is the gradual increase in airline security costs, the cost increased slowly year by year adding

more to the burden of the firm.

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Marketing Mix

Product

Southwest Airlines basic product consists as flights within the United States taking more

than 32,000 persons each day. They provide service to 32 different states and 63 cities, but their

products transcends beyond just mere flying. SOUTHWEST.COM is another one of Southwest’s

products where its significance is that it was the first airline to have a home page.

They also have merged with other companies and provided car rental services, hotel and

cruise reservations such as complete vacation package deals, one out of the many frequently used

packages is the group travel package it’s a separate line in Southwest's product mix. This airline

offers special reduced rates to groups of 10 or more traveling. This option is marketed to people

that have common interests in terms of where they want to go, speaking of groups south western

airlines also have another package called gay travel, it caters to the gay and lesbian community

through there gay travel site. This site offers bookings and offers to gay-friendly destinations,

apart from these two they have their standard vacation programs that takes customers to Vegas

and Disney land where they give special offers and discounts.

They also offer credit cards with rewards based on a point system. Issuing “Southwest

Airlines Rapid Rewards Visa Business” and “Visa Signature card” where for every time they use

southwestern some of the cost involved for subsequent flights are waivered as well as they get

discounts in certain malls and eateries and special privileges.

Another product would be its cargo service; Southwest Cargo will transport items with a

weight limit of 200 pounds anywhere around the United States throughout Canada. Items that

they do so are food items and commercial items.

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Price

Product Line Pricing

SWV vacation packages where transport, lodging and destinations are all included. You

can literally make your own alterations, such as customizing it so it fits your own preference.

You could select what type of vehicle, hotel and destinations you want to end up at within the

package. And from vehicle to vehicle, hotel to hotel and destination to destination prices differ.

This way you could come up with your own combination and pay the price that best fits you.

Product Buddle Pricing

Many companies use product/service bundle pricing in order to reduce price and attract

more customers. SWA introduce some awesome discounts in their holiday travel package. Such

as special vocational deals, up to 30% discount on transport, up to 50% discount on

accommodation and settlements such as last minute flight changes being done with no extra

charge, bags fly free and also pets are welcome on-board and off-board.

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Place

Southwest leads the industry in Customer satisfaction, particularly the ease with which

Customers can buy seats on Southwest Airlines. Southwest uses Direct channel method – no

intermediaries – and Agent/Broker channel method. Southwest operates nine reservations centers

with more than 4,000 Southwest Reservations Sales Agents, who handle a variety of different

Customer Service tasks. Thirty percent of Southwest’s sales are handled through Southwest

reservations centers. Travel agents are valued partners of Southwest and handle almost 20

percent of sales, earning a five-percent commission, the highest in the airline industry.

Southwest’s newest sales distribution avenue is the Internet, via southwest.com, which now

accounts for almost 50 percent of Southwest sales. Customers find the low fares they desire in a

user-friendly, cost effective way.

Promotion

Promotional advertisements done for Southwest air lines are pretty multiform use. They

advertise on television such as TV commercials, internet and magazines such as printed ads. For

the most part the promotional measures SWA implements and adheres to its special package

deals, doing so they combine their product with other elements to add a sense of value and

promote all of them as one such as a product that include, car rental, airfare and hotel

reservations for one affordable price .

Southwest TV commercials where they take pride in itself on its low fares that come along with

their no frill services. And also they have introduced a frequent flyer mileage program for their

customers, where frequent fliers are given concessions and first preference.

Another innovative creation that’s intended for promotion is DING. It’s a tool for conveniently

finding and reserving flights, it is also an advertisement on customer’s desktop tool bar giving

them updated information on SWA’s rates and extended services.

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Furthermore, they have sponsored in many sports events that involves baseball, hockey,

basketball and also the grandiose sport such as classic golf tournament and Party golf tournament

as well as affiliating with the NFL.

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Segmentation

Target Market

Southwest Airline is a low fare, no-frills airline that targets the general middle income

population that practices frugality. Their goal is to make flying as inexpensive as possible so

everyone can be a potential customer. When researching there target market , figures have shown

that the market consists of relatively more male then female customers, However, to balance

out and variegate their demographic, Southwest is also using new product integration strategies

that are cost effective.

Positioning

As there positioning strategy south western air lines through all its advertising,

sponsoring and promoting, they placidly give out the message that there product is highly

economical, through the many vivid endorsement conducts they do. They do not endeavor to

provide lavish upscale services, even if they do so they do not pursue it in a strict consistent

manner targeting the majority that consists of the middle income groups. They keep their

services simple and by doing so there whole attempt of providing a low costing journey to a

customer is done with much effect.

Being in a market abound with competitors trying to offer something better than the other, SWA

has successfully positioned themselves in the minds of their customers to the extent that as soon

as they descry of the SWA logo discount, tons of special offers, fun filled destinations and most

importantly a supper awesome cheap trip comes into their minds .

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Appendix

Main competitors

AirTran Holdings (AAI): AAI is one of America’s largest low-fare passenger airlines. The

airline has managed to achieve low operating costs despite relying on a hub-and-spoke system, in

which most of its flights originate and terminate at its hub in Atlanta, Georgia. Given AirTran's

continued reliance on the hub and spoke system, airline management has cited other operational

factors as cause for the airline having a cost structure that is among the lowest in the industry.

American Airlines (AMR): AMR is the parent company of American Airlines, the second

largest airline in the world based on available seat miles and revenue passenger miles on an

average day. American Airlines flies approximately 3,400 flights between 250 countries. The

company recorded a net loss of $1.5 billion in 2009 compared to a net loss of $2.1 billion in

2008. In 2009, AMR experienced very weak demand for air travel driven by the continuing

severe downturn in the global economy.

Delta Air Lines Inc. (DAL): Delta Air Lines is the 2nd largest passenger airline in the world by

available seat miles. In recent years, the company has faced financial difficulties due to price

competition from discount airlines like JetBlue and Southwest. This has limited Delta's ability to

raise prices to their natural supply/demand and cost reflective levels. As a result, Delta was

forced into bankruptcy in September of 2005. Since exiting bankruptcy on April 30, 2007, the

company has followed a revised operating strategy calling for a network shift towards more

profitable international routings.

JetBlue Airways (JBLU): JetBlue Airways is the 8th largest airline in the U.S. by revenue

passenger miles. JetBlue differentiates itself from other airline travel companies with its low

fares, made possible by low distribution and operating costs - largely due to the fact that it has

the youngest fleet in all domestic airlines. JetBlue Airways specializes in cheap point-to-point

flights with high levels of customer service to 52 destinations in 19 states.

Continental Airlines (CAL): CAL is the world's fifth largest airline by revenue passenger

miles. CAL serves 242 destinations worldwide, offering 2000 daily flights. Continental's cost per

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available seat mile of 10.75 cents is among the lowest in the airline industry. The company

recently announced that they were being acquired by United Airlines.

United Airlines (UAUA): With hubs in Los Angeles, San Francisco, Denver, Chicago and

Washington D.C., United operates approximately 3,300 flights per day to over 230 destinations

domestically and internationally. As a result of high operating expenses and declining consumer

demand for travel, United has significantly reduced its capacity or Available Seat Miles (ASM)

recently. UAUA announced in April 2010 that it is acquiring Continental Airlines.

Southwest.com

Southwest.com becomes useful to customers when it comes to finding the lowest fare based on

the customer availability. Since its establishment, Southwest.com has successfully attracted

many viewers rendering southwest airlines the largest airline site as well as the, number one

airline review site. The customer has the convenience of selecting the desired days and time that

the customer wishes to fly, the server then gives out flights, times, and prices that corresponds to

the customers traveling preferences, the main idea behind this is the convenience involved, of not

having to ever experience the many matters involved in going through a travel agent or sales

representative.

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Questionnaires

Product Life Cycle

1. At what stage of the PLC do you think your product is in? why?

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

Pricing Strategies

1. Which pricing strategy does your company follow?- Product / Service Line Pricing – Setting the price steps between various products in

a product line based on cost differences between the products, customers evaluations of different features and competitors’ prices.

Prices are different from destination to destination vehicle to vehicle hotel to hotel

- Product / Service-Bundle Pricing - Many companies use product/service bundle pricing in order to reduce price and attract more customers.

Travel Deals Air – Special Vacational Deals (Disneyland, Las Vegas and etc) Car – upto 30% discount Hotel – upto 50% discount

No flight changing fee – even if your change the flight at the very last moment, there are no extra charges.

Bags Fly Free – in some airlines you have to pay extra for your luggage. Pets are welcome – In-cabin or off-cabin pet kennels are available.

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2. Do you think the price of your product is too high, too low, or just right? Explain.- Low. Because comparing with other airlines, southwest is known as United States’

most successful low-fare carrier.

Place

3. Give an overview of the placement strategies of your chosen company.

Southwest Airlines Co. is the United States’ low-fare, high Customer Satisfaction airline. It is a service business. They primarily serve short haul city pairs, providing Single-class air transportation which targets the business traveler as well as leisure travelers.

Southwest leads the industry in Customer satisfaction, particularly the ease with which Customers can buy seats on Southwest Airlines. Southwest uses direct channel method – no intermediaries – and Agent/Broker channel method. Southwest operates nine reservations centers with more than 4,000 Southwest Reservations Sales Agents, who handle a variety of different Customer Service tasks. Thirty percent of Southwest’s sales are handled through Southwest reservations centers. Travel agents are valued partners of Southwest and handle almost 20 percent of sales, earning a five-percent commission, the highest in the airline industry. Southwest’s newest sales distribution avenue is the Internet, via southwest.com, which now accounts for almost 50 percent of Southwest sales. Customers find the low fares they desire in a user-friendly way. And it is cost-effective for Southwest, as well.

Promotion

4. Discuss the promotional strategies adopted by your company

Advertising – TV, Magazines, Internet and Sponsorships for events

TV – Commercials

Magazines – Printed Ads

Internet – Emails, downloadable application called DING, Online promotions in their site

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Sponsorship – golf tournaments

References

1. About Southwest. (n.d.). Retrieved 03 15, 2011, from Southwest Airlines | Book Flights,

Airline Tickets, Airfare: http://www.southwest.com/html/about-southwest/index.html

2. Fact Sheet. (2011, March 27). Retrieved March 30, 2011, from southwest.com:

http://www.southwest.com/html/about-southwest/history/fact-sheet.html

3. Southwest Airlines Newsroom: Releases . (n.d.). Retrieved 04 19, 2011, from Southwest

Airlines Newsroom: Welcome: http://www.swamedia.com/releases/c1a68949-6001-84fc-

2795-e5004daca652

4. Domestic Airlines Industry Research in the US by IBISWorld . (n.d.). IBISWorld USA -

Industry and Company Research Reports and Information . Retrieved April 19, 2011,

from http://www.ibisworld.com/industry/default.aspx?indid=1125

5. Regional airline - Wikipedia, the free encyclopedia. (n.d.).Wikipedia, the free

encyclopedia. Retrieved April 19, 2011, from http://en.wikipedia.org/wiki/Regi

6. © 2010 Southwest Airlines Co, (2010), Retrieved from: http://www.southwest.com/

7. Wendy Zellner, (February 21, 2005), Southwest: Dressed To Kill... Competitors,

BusinessWeek, Retrieved from:

http://www.businessweek.com/magazine/content/05_08/b3921090_mz017.htm

8. Kelly G. C, (March 10, 2010), Southwest Airlines Co. 2009 annual report to

shareholders, Retrieved from: http://phx.corporateir.net/External.File?

item=UGFyZW50SUQ9NDA3OTd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

9. Southwest Airlines Corporation Annual Report, 2009, , Retrieved from:

http://216.139.227.101/interactive/luv2009/luv2009ar.pdf?print_pages=true

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