PowerPoint Presentation

Southwest Airlines Strategic PlanAlexandra Berkey, Peter Cozzi, John Driscoll, Michelle Weinman

AgendaCompany OverviewExternal Analysis Industry OverviewPorters 5 ForcesCompetitive AnalysisInternal AnalysisSWOT AnalysisValue ChainRecommended Strategy Development3-5 Year PlanDefense of PlanTimeline of ImplementationExpected OutcomesExecutive Summary

Company Mission, Values, and VisionMission: Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.Vision: To become the World's Most Loved, Most Flown, and Most Profitable Airline.Values: Warrior SpiritServants HeartFun-LUVing AttitudeWork the Southwest WayFinancial HighlightsHistorical Stock Performance

Financial Highlights

Airline Industry OverviewGeneral information2013 market volume: 747.3 million total passengers (United States)2013 market value: $195 billion (United States)2018 projection: $214 billion (United States)Airline Industry Financials (2012)Profits: $7.6 billion (Fact)Revenues: $638 billion (Fact)1.2% profit margin (Fact)Current challengeReassure passengers of efforts being made to further airline safety (post-Malaysia incidences)Note rising oil prices 2009-2012 (Fact)o 2009: $61.5 per barrelo 2010: $79.4 per barrelo 2011: $111.1 per barrelo 2012: $111.8 per barrelNeed for improved safety/improved technology that will help achieve that end Robert Mann, former American Airlines executive:o The entire industry is going in the direction of fitting planes with broadband satellite connections for passenger uses and yet for operational purposes theyre kind of stuck in the 1950s (Johnsson)

6Threat of New EntrantsThreat of SubstitutesBargaining Power of BuyersBargaining Power of SuppliersCompetitive RivalryRating: LowRating: MediumRating: Med-lowRating: HighRating: High-High up-front cost of investment

-High oil prices

-Need to develop distribution system

-Consumers concern about flying on less acclaimed airlines

-Airport congestion-Situational lack of alternatives

-Few other options for international travel from the US

-Flight is a huge time-saving option

-Increased awareness of environmental sustainability

-Low fairs associated with bus travel

-Advent of virtual meetings minimizes need for air travel (to a certain extent)-Loyalty

-In-flight features

-Large number of buyers

-Development of online comparison sites

-Rise of low-price airlines

-Low (even negligible) switching costs for buyers

-Lack of diversity for manufacturers

-Airline alliances

-Total of 2 primary aircraft supplier companies: Boeing and Airbus

-Very few suppliers of aviation fuel

-Generally volatile nature of fuel costs -Lack of diversity in revenue streams

-Low switching Costs for customers

-Threat of storage costs (costs associated with empty seats)

-Presence of low-cost carriersSmall AirlinesLarge AirlinesSouthwestJetBlueAmericanDeltaUnitedMarket Share0.126.0280.1990.180.16Domestic Revenues (2013)$17.5 billion$5.44 billion$27.2 billion$24.9 billion$22.1 billionOperating Income (2013)$1.3 billion$428 million$1.7 billion$2.2 billion$707 millionCustomer Satisfaction (2014 ACIS Score)787966 (AA and US)7160 (United Airlines)Source: IATA

8SouthwestJetBlueSpiritDeltaFirst 2 checked bags: freeFirst checked bag: freeCarry-on:35First checked bag: $30Second checked: $40First checked bag: $25Second checked : $35No change fees

$75+ change fee

$120+ change feeApplicable change fees24 hour wifi pass: $8Fly-fiWifi: $9/hourNo wifi options at this pointNo Frills24-hour wifi pass: $16Free live and on-demand TV via dish (19 channels + 75 on-demand shows)36 channels of free TVNo entertainment options at this pointNo FrillsAs of July: free, unrestricted access to in-flight entertainmentTickets are bought directly through SouthwestTop Airline in Customer LoyaltyCheap base price for flightsCramped and uncomfortable seatsInnovative entertainment integrationSWOT Analysis OverviewStrengths

-Brand image-Strong domestic demand-Low cost approach-Great financial position-Strong hiring practicesWeaknesses

-Low international presence-Low ancillary revenue-No segmentation-Large dependence on one supplierOpportunities

-Additions to international service-Adding amenities-Using apps to making booking easier-Partnerships with foreign airlinesThreats

-ULCC airlines have begun to offer lower fares-Increasing costs-Disputes about employee wages-Alternate forms of transportationValue Chain- Primary ActivitiesPrimary Activities Not serving meals on flights in order to reduce turnaround time at gatesUse of bar-coding luggage to track and handle luggage more easilyFlying to less crowded airports in order to get off the runway faster First-come, first-serve boarding process saves time at the gatePilots encouraged to constantly work with air-traffic controllers to find fastest and most fuel efficient routes

Value Chain- Secondary ActivitiesSecondary Activities

Use of only one type of plane (Boeing 737) in order to simplify training, reduce parts inventory, and get better deals when buying new planesMajor use of the internet for ticket sales reduces costsStrong base of motivated and ambitious employees and fun company culture leads to great customer serviceStrong relationship with the pilots union

Recommended Strategy DevelopmentIntegrate AirTran with Southwest to increase their market shareImplement marketing campaigns that furthers brand differentiation Continue their simple, low-cost approachIncrease their airport locationsAlex introduce this 133-5 Year Plan: Implement marketing campaigns that further brand differentiation 1. Build upon a well-developed social media strategy by introducing a social media contest for fliers, adhering to the following guidelines :

Time-frame: 1 year (starting in December 2014), broken into four 3-month periods

The contest: For each of the first 3 periods, fliers will be encouraged to use Twitter and Instagram to show why they appreciate a specific factor that differentiates Southwest. For the last period, they will be encouraged to focus on all threePeriod 1: 2 free checked bags per passenger (#BagsFlyFree)Period 2: No change fees (#SwitchForFree)Period 3: Free TV (#FreeTV)Period 4: Combination of all 3 (Use all hashtags)

Winners: One winner to be selected at the end of each period Periods 1-3: Winners receive $200 vouchers to be used within next 6 monthsPeriod 4: Grand Prize Winner to receive free flight for self and guest during holiday season to any domestic location of choice

Southwest is already committed to having a strong social presenceIts important to keep up with the pace of technology as well as the pace of the social landscape as a whole, said Alice Wilson, a social media adviser at Southwest. We want to make sure we are a social business (Mulvaney)Pre-existing differentiating factors2 free checked bags per passengerNo change feesRelatively low cost of flights (or maybe Free TV)Purpose of the contest Encourage fliers to Tweet about positive experiences with Southwest, using hashtags that call attention to the companys differentiating factors (see hashtags on slides)

14Implement traditional media campaign to promote most recent differentiating factors Commitment to being as green as possibleIntroduction of international destinationsFull-scale integration with AirTran (particularly ensuring that all AirTran tickets are purchased through Southwest instead of through third parties)

Your story is our story conceptThis tagline is the culmination of the marketing efforts we outline in our plan Puts the factors addressed by the social media contest in conversation with the factors addressed by the traditional marketing campaignSouthwest is, and always has been, committed to meeting consumers needs Fosters identificationIntroduce Your Story is Our Story tagline in December, 2016 Goal: 75% of consumers in the industry to recognize tagline as belonging to Southwest one year later3-5 Year Plan: Implement marketing campaigns that further brand differentiation -stay green - waste minimizationIntroduction of international destinationsAs of July 1, 2014: Jamaica (Montego Bay), The Bahamas (Nassau), and Aruba (Oranjestad) (Mutzabaugh)Not only does this reflect Southwests desire to accommodate consumers interests, but it Southwest is, and always has been, committed to meeting consumers needs As a result, Southwests story truly mirrors its consumers storySouthwest understands that flyers need to have luggage with them, that they are committed to environmental sustainability, and that vacationing/spending time with their families is of great importance to them

153-5 Year Plan: Continue their simple, low-cost approachFleet Modernization (Year 3 and Year 5)The Company currently has efforts underway to replace its older aircrafts with newer aircrafts that are less maintenance intensive and more fuel efficient and that also have greater range Provides substantial flexibility in managing fleet needs in a variety of economic conditionsBoeing 737 Max 7s and 8s represent a major opportunity for cost reductionLowest operating unit costs in the single-aisle segmentGoalAcquire 100 Boeing 737 NextGen aircrafts by end of Year 3Acquire 50 Boeing 737 Max aircrafts by end of Year 5

3-5 Year Plan: Continue their simple, low-cost approachRequired Navigation Performance System (Year 3)Required Navigation Performance represents an area of change and opportunity in the airline industryRNP is a more precise air traffic control system that allows airplanes to handle their own navigation capabilities, fly more efficiently, and improve the passenger experienceSouthwest has already made efforts to embrace this new system and officially began its shift to RNP in 2010Southwest is currently the largest airline to use the system and by pushing ahead more aggressively with its implementation we believe that Southwest can further differentiate itself from its competitorsCurrent ProgressNearly 6,000 of Southwests approximately 6,200 pilots have been trained in RNPAt of the end of 2013 Southwest had conducted close to 14,000 RNP approaches3-5 Year Plan: Continue their simple, low-cost approachRNP System ContinuedRNP BenefitsEnables aircraft to carry navigation capabilities rather than relying on airportsImproves operational capabilities by opening up many new and more direct airport paths to produce more efficient flight patterns Conserves fuel, improves safety, and reduces carbon emissionsMore graceful landings to improve passenger comfortNarrower flight paths reduce overlap between airports in congested citiesSignificant cost savings due to shorter flight timeRNP System ContinuedRNP ImplementationIn 2013 Southwest conducted roughly 4,000 RNP approaches representing just 0.3% of the flights flown by Southwest that yearWhile growth in RNP approaches is partially limited by the rate of approaches introduced by the FAA, Southwest should focus on increasing the number of approaches conducted annuallySimilarly, Southwest should continue to work with the FAA to develop potential approachesGoalConduct an additional 20,000 RNP approaches by the end of year 3

3-5 Year Plan: Continue their simple, low-cost approachImprove existing profitability management tools to manage capacity and route expansion through optimization of flight schedules for:Addition of new markets and routesAdjustment of frequencies in existing marketsExiting of unsustainable markets Redeployment of aircraft to other marketsContinue to leverage these tools in the integration of AirTran and SouthwestExploit these systems to drive even higher yields, strong load factors, and improved revenues Southwest has already experienced

3-5 Year Plan: Increase Network Optimization 3-5 Year Plan: Increase Network Optimization

Focus on both mainstream and secondary airportsContinue to boost market share at select high-traffic destinationsIncrease routes to specific secondary/downtown airports, while decreasing total number of airportsStay aligned with low cost structure

International expansion aligned with network optimizationPrecise management of new revenue streams Evaluation of broadening reach abroad

3-5 Year Plan: Increase Network Optimization

3-5 Year Plan: Further integrate AirTran with Southwest Streamline their online presence Continue to replace AirTrans smaller Boeing 717s with 737s Expand on AirTrans past success in the Caribbean and Mexico by adding more flights and destinationsStrengthen united brand identity

Room to expand on what driscoll said Focus on carribbean puerto rico , mexico

23Basic Timeline of ImplementationJanuary 2015 - Streamline their online presence w/ AirTran

February 2015- begin social media campaign

July 2016- Work on integrating AirTran with Southwests brand identity

December 2016- Begin to implement traditional social media campaign

January 2017- Aim to have fully replaced Boeing 717s with 737s

December 2017- Aim to have an additional 20,000 RNP approaches

January 2019- Expand into 20 new international airports

December 2020 - Aim to have acquired 150 new Boeing 737 aircrafts24Expected OutcomesProjected Financial PerformanceEBITDAR CAGR: 9.87%Revenue CAGR: 3.45%Executive SummaryAs the nations largest domestic carrier, Southwest distinguishes itself through superior customer service, fun-loving brand image, and low pricesSouthwest is already in a great financial position as the holder of the largest share of the domestic market (16.3%), but the intense competition in the airline industry means they have to constantly improve their strategiesBy improving their integration with AirTran, increasing their use of differentiating marketing campaigns, continuing their simple, low-cost approach, and lastly adding more airport locations Southwest will be able to continue to growWorks Cited"Airline Industry Analysis." Google Sites. N.p., 2013. Web. 21 Oct. 2014"American Airlines." American Airlines. N.p., 2014. Web. 02 Nov. 2014.Ausick, Paul. "America's Best and Worst Airlines." USA Today. Gannett, 26 Apr. 2014. Web. 18 Oct. 2014. "Delta." Delta. N.p., 2014. Web. 02 Nov. 2014."Fact Sheet: Industry Statistics." IATA. N.p., June 2014. Web. 18 Oct. 2014. " Global Airline Industry Program." MIT, 2013. Web. 18 Oct. 2014.GlobalData,. (2014). Southwest Airlines Co. - Financial and Strategic Analysis Review."JetBlue." JetBlue. 2014. Web. 02 Nov. 2014. Johnsson, Julie, and Thomas Black."Malaysia Air Incident Will Spur Airline Industry Technology Changes." Skift. N.p. 15 May 2014. Web. 26 Oct. 2014. "Major Companies." IBISWorld. N.p., 2014. Web. 20 Oct. 2014.McKenzie, D. (2014). Southwest Executing Well; Lifting Valuation. The Buckingham Research Group.Mouawad, Jad. "The Challenge of Starting an Airline." The New York Times. 25 May 2012. Web. 18 Oct. 2014. Mulvaney, Erin. "Staying Social Is Key to Southwest Airlines' Strategy." Houston Chronicle.N.p., 11 Sept. 2014. Web. 29 Oct. 2014. Mutzabaugh, Ben. "Southwest's 1st Day of International Flying Is in the Books."USA Today. N.p., 02 July 2014. Web. 01 Nov. 2014. Southwest Airlines Co.,. (2014). 2013 Annual Report. Dallas, TX."Spirit Airlines." Spirit. 2014. Web. 25 Oct. 2014. "Spirit Airlines Incorporated." One Source. 2014. Web. 25 Oct. 2014Tuttle, Brad. "America's Cheapest Airline Looks to Make Flights Even Cheaper."Time. 29 Oct.2014. Web. 02 Nov. 2014. "United Airlines." United Airlines. N.p., 2014. Web. 02 Nov. 2014."United States - Airlines." MarketLine. 6 May 2014. Web. 24 Oct. 2014.