The Market of Southwest Airlines - Term Paper Example

Running header: Marketing Report Student’s name: Name of institution: Instructor’s name: Course code: Date of submission: Marketing Report Executive Summary Marketing professionals in any organization usually find themselves tasked with the responsibility of supervising staff, planning and implementing marketing programs. These tasks are usually taken as normal tasks, especially with marketing personnel who have been on the job for many years. However, it is advisable that every once in a while, the marketing personnel take several steps back to gain perspective and seriously strategize about their marketing plans. The strategic planning should be broad enough so as to encompass all the products and services that a business offers to its customers, all the markets that the business serves, all the environmental and internal variables and the production, finance and research elements that are necessary for the success of the business. In the hospitality industry, the need for strategic planning should not be overlooked by the key players. Businesses and organizations in this industry should engage in strategic planning that goes beyond the obvious and immediate circumstances so that they can know where they want to be in future. This report will outline a strategic marketing plan for the Southwest Airlines. The report will analyze the market of Southwest airlines as well as the position of the airline in the market. This will be a basis for developing a strategic marketing plan as well as marketing objectives that will help the airlines to overcome its marketing challenges over the next five years. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Strengths 5 Weaknesses 7 Opportunities 9 Threats 9 Marketing Objectives 10 Target Market 10 References 13 Introduction The Southwest Airlines Company is a famous American airline that has its headquarters in Dallas, Texas. According to the New York Stock Exchange (NYSE, 2011), Southwest Airlines is the largest airline company in the United States of America as of 30th June 2010, in terms of the domestic passengers that it carries. As of March 2011, statistics show that the company operates more than 3,400 flights a day. This translates to the utilization of a fleet of 552 aircrafts. The airline was founded on March 15th 1967 by Herb Kelleher and Rollin King. The airline was originally intended to provide local services within the state of Texas (Simpson, 2011). It was originally known as Air Southwest Co. The company changed its name from Air Southwest Co. to Southwest Airline Company on March 29th 1971, while still operating from its headquarters in Dallas, Texas. The company soon began to offer customers service on June 18th 1971 by flying to major cities within Texas such as San Antonio, Dallas and Houston using three of the Boeing 737 aircrafts (Simpson, 2011). The company has had several professionals at the helm of its leadership such as former CEO Jim Parker and the current President, Gary Kelly who have kept it alive through its unprecedented streak of profitability. They have also guided its growth that has made it the largest domestic commercial carrier in the United States (Gentle, 2000). Southwest Airlines maintains its profitability, low-cost and low-fare business model while still being unionized. Unlike some of its major competitors such as JetBlue Airways, the company has managed to remain successful while organizing its labor in unions (Gentle, 2000). It has also made several acquisitions that have seen it grow the number of destinations it serves as well as its revenue base. The company has also managed to receive several awards as recognition for its exemplary performance. Examples include the American Brand Excellence Awards Strengths The Southwest Airlines has lots strengths on its portfolio. The company has been using several strategies to ensure that it remains a market leader within the air transport sector. One of the strengths of the company is the low cost structure that the company employs. The company ensures that its prices are always maintained at low levels so as to attract and retain its clients (Assael, Reed & Patton, 1995). That is why the company has been identified as one of the largest carriers in the United States. It has managed to attract new customers by the day and retain the old and loyal customers because of its pricing strategy. The company does not hike its fairs unnecessarily, even with the wake of the global financial crisis that is being experienced currently. When other airlines hike their prices, the company always maintains its low prices. This is a strategy that the company uses so as to ensure that the volume of customers is very high (Gentle, 2000). By ensuring that customers are many, the company is able to make a lot of profits because the number of customers who use their services is very high. The company therefore rakes its promises from the volume of clients who use its services. The company also has strength in the fact that it has been able to establish and maintain a big number of high frequency discount routes. The company has increased the number of destinations that it serves. This has ensured that its presence is felt in very many places that other airlines do not venture. The company has flights to the famous and remote destinations (Laermer, 2007). Where there are other competitors servicing other routes, the company uses the discount strategy whereby it offers prices cuts and low fares to its customers. These discounts and low fares have encouraged people to make use of the services of the Southwest Airlines as opposed to other airlines that offer their services to the same route (Gentle, 2000). The high frequency of routes that the company has established has also ensured that it remains in business throughout. The company always has routes to service even during off-peak seasons. The company has also remained efficient by ensuring that it has operational efficiencies which are in line with its large and low cost carriers (Port, 1999). This basically means that the company has a well established management team that is very effective and efficient. For example, the company has had several professionals at the helm of its leadership such as former CEO Jim Parker and the current President, Gary Kelly who have kept it alive through its unprecedented streak of profitability (Laermer, 2007). They have been the driving force behind the company’s success. They have also guided its growth that has made it the largest domestic commercial carrier in the United States. The Southwest Airlines has a modern and cost-efficient flight network model. The company has the latest and state of the art planes that attract customers to want to be served by them. The company has been in operation for very many years and has been able to ensure that it keeps up with modern trends that will make it remain very effective in the market. The company has been able to beat its competitors by ensuring that all its networks and plane models are up to standard and that they conform to the latest technological and quality requirements (Assael, Reed & Patton, 1995). This has been one of the areas where the management of the airlines has done exceptionally well. All in all, the Southwest Airlines has managed to remain very effective as a service provider within the hospitality sector (Port, 1999). The above mentioned are only a few of the company’s strengths that have seen it rise to the position that it stands today. The company has been using the above strategies to ensure that it remains a notch above the rest (Lloyd, 1999). The management has been on the forefront in ensuring that the employees work towards goal attainment. The profitability of the Southwest Airlines is attributable to all the above strategies that it has been using over the years. Weaknesses Despite the fact that the company has been using very many strategies to ensure that it remains a leader in the airline sector, it also has a few weaknesses. These are the shortfalls of the company that need to be addressed so as to ensure that it continues to lead the airline industry. One of the areas where the company is weak is in decreasing the differentiation in accordance to other low cost airlines (Lloyd, 1999). There are other carriers that have also begun using the low-cost or low-fares strategy. The Southwest Airlines needs to ensure that it reviews its pricing policy so that it can beat the other competitors who are now using the same strategy that the company has been using for years. The company has not decreased the differentiation of its prices in accordance to those being used by other flight carriers. This is because the company seeks cutting the prices too much if it decreases them further. The other companies have started using this strategy and the company needs to ensure that it undertakes steps to ensure that it remains effective despite this challenge (Port, 1999). Another weakness that the company has is with its type of aircrafts versus the long transcontinental routes. The company usually operates domestically. It offers domestic flights across the state of Texas by flying to major cities within Texas such as San Antonio, Dallas and Houston. The planes of the company are mostly designed and adapted to such flights. It has not heavily invested on aircrafts that can travel across very long transcontinental routes (Assael, Reed & Patton, 1995). The company therefore has not ventured into the very long transcontinental routes and is only known to operate domestic flights. This means that it has not utilized its full potential. The company also has to deal with the problem of dealing with challenges that come from automobiles that offer short trips for consumers (Lloyd, 1999). This is related to the above weakness whereby the company only offers short trip flights and has not yet ventured into the larger transcontinental market. As seen above, the company is known to usually operate domestically. It offers domestic flights across the state of Texas by flying to major cities within Texas such as San Antonio, Dallas and Houston. This is the company’s range. The planes of the company are mostly designed and adapted to such flights. It has not heavily invested on aircrafts that can travel across very long transcontinental routes (Assael, Reed & Patton, 1995). This is a major weakness of the company because customers can simple decide to use alternative means of transportation to reach their destination. They do not have to use the services of the company because most of them can simple drive to these destinations. The company needs to invest in other alternative transport routes that do not give customers the choice of simply driving there. Another weakness of the company is the aging company patriarch, visionary and founder, Herb Kelleher (Lamb, Hair & McDaniel, 1998). He is the one who founded the company and has managed to bring to where it is today. However, the founder is now old but is still employed in the company. This is another weakness of the company because it has kept very old employees up to date. Opportunities The company has a lot of opportunities. One of them is the expansion of the Pittsburg airport. This expansion means more flights, more customers and therefore, more profits (Lloyd, 1999). The repealing of the Wright Amendment is also an opportunity for the company to venture into wider markets and make more profits. Threats One of the threats to the success of the company is the long term fuel prices. The fuel prices have continued to rise globally. This rise in fuel prices have made the company’s operating costs to go up because the price of fuel has become very expensive (Lamb, Hair & McDaniel, 1998). This rise in fuels has threatened the operations of the company in the sense that profits have gone down because of the high cost of buying fuels for the aircrafts. The new low-cost carriers that have come up also threaten the Southwest Airlines. The company is now threatened by these new low-cost airlines because the company is no longer the cheapest airline to use (Assael, Reed & Patton, 1995). The rising labor costs have also been threatening the existence of the company. The company has to grapple with the high cost of labor and this has led to a decrease in profit because a lot of money is used to maintain the operations of the company. There are also new regional jets from other companies. This means that customers now have alternatives and options. Marketing Objectives The company has a marketing department that has set some marketing targets for the company. One marketing objective of the company is to increase the number of daily departures that it makes from Pittsburg by 350% in the next 18 months (Gentle, 2000). The company strives to capitalize and rake in maximum profits from the Pittsburg airport. Another objective of the company is to increase its penetration by 20% within the key ATA code-sharing markets. These markets include Boston, New York and Newark. Another major objective of the company is to improve the overall load factor of the company. The company aims at increasing its load factor to 71% (Gentle, 2000). Target Market The Southwest Airlines’ target market consists of the following groups of customers. The first group is the medium- to high-frequency business travelers. These are the people who make 1-3 roundtrips per month. The company seeks to serve this group of people because of the nature of its flights. The other target group of the Southwest Airlines is male/female professionals who are aged 24-55 years (Kotler, Armstrong, Brown & Chandler, 1998). The company has identified this group of people as a target market because they are professionals who frequently travel from time to time and from place to place for activities such as business trips. Another target group of the company is those customers who are price/cost conscious. This is because the company uses the low-cost strategy to attract and retain its customers. This therefore means that the people who are keen on paying low fares are attracted to the company because of its prices. The company also targets those customers who commute distances ranging from 750 - 1700 miles. These are usually not very long distances, usually within the states or interstate journeys. The internet or technology savvy are also targeted by the company because of the web presence of the company(Kotler, Armstrong, Brown & Chandler, 1998). The company is said to be the first airline to have a website. This means that it has been able to improve its web presence over the years. It therefore targets those who use the internet frequently. The other target group of the company is those who plan trips for 30-60 days. Competitive Strategies The Southwest Airlines can use the following marketing and competitive strategies as a starting points: 1. The company can stress the fact that the Southwest Airlines is one company that offers one of a kind experiences. The company can emphasize on 'Southwest Experience' which offers travelers low-cost journeys, convenience and enjoyment while utilizing the services of the airlines (Kotler, Armstrong, Brown & Chandler, 1998). 2. The company can also differentiate on scheduling convenience. It can ensure that it differentiates on the frequency that is relative to what its competitors are doing. 3. The Southwest Airlines needs to differentiate with consumer services that are connected to the revamped Rapid Rewards Program. By doing this, the company can be able to offer more and better services to its customers. Implementation The marketing strategies used by Southwest Airlines can be put into action through ensuring that the following components are implemented. 1. The company can expand its web-based service architecture that provides which is meant to offer advanced services to Rapid Rewards customers. 2. The company can also invest in modernization/refreshment of long running regional services 3. The company can also revamp its Rapid Rewards program so as to entice short-distance, high frequency business travelers. Evaluation The evaluation of the Southwest Airlines should focus on the travelers found in major Southwest markets. The evaluation will also measure the pre-, during-, and post-program implementation periods. The marketing plan is intended to measure consumer identification and awareness before the marketing campaign begins. It should also measure it after implementation. The evaluation program is simply meant to correct any situation that may go wrong. Conclusion In conclusion, the Southwest Airlines is one of the most effective and profitable Airlines in the world. The company has managed to lead the airlines market within the United States of America. Even though the company has very many challenges and some weaknesses, it can use the market plan outlined in this report. If the suggested marketing plan seems to have some loop holes, the company should use the evaluation program to ensure that the marketing strategies are implemented as they are supposed to. References Assael, H, Reed, P & Patton, M 1995, Marketing: Principles and Strategy Harcourt-Brace, Sydney. Gentle, N 2000, "Light Beer To Cost More Under Bill To Scrap Subsidy", Canberra Times, vol. 25, pp.1-2. Kotler, P, Armstrong, G, Brown, L & Chandler, SA 1998, Marketing, (4th edn), Prentice Hall, Sydney. Laermer, RS 2007, Punk Marketing, Harper Collins, New York. Lamb, W, Hair, J & McDaniel, C 1998, Marketing, (4th edn), South-Western College Publishing, Cincinatti. Lloyd, S 1999, ‘Liquor Companies Find A Pre-Mixed Blessing’, Business Review Weekly, vol. 20, pp.1-2. Port, J 1999, "Creative License", Business Review Weekly, vol. 26, pp.1-2. Simpson, W 2011, "Sweet Surrender", Sydney Morning Herald, vol. 2, pp.16. Appendix Appendix 1 Marketing plan outline for Southwest Airlines In preparation for the creative portion on WVU IMC project, a basic marketing plan outline for Southwest Airlines was created. This is the first rough outline. Southwest Airlines - Marketing Plan Outline The following is a marketing plan outline for Southwest Airlines, the US's current dominant low-cost domestic air travel carrier. SWOT Analysis Strengths - Low cost structure relative to large carriers. - High number of established, high-frequency discount routes. - Operational efficiencies relative to large and low-cost carriers. - Modern, cost efficient flight network model. Weaknesses - Decreasing differentiation relative to other low-cost-carriers. - Aircraft type versus long, transcontinental routes. - Aging company patriarch and visionary - Herb Kelleher. - Overcoming the automobile for short, consumer trips Opportunities - Repeal of the Wright Amendment. - ATA Domestic Code-Sharing Agreement. - Pittsburgh Airport Expansion. Threats - Long term fuel prices and hedge activities. - Rising labor costs. - New low-cost carriers. - Dallas Fort-Worth Airport/ the Wright Amendment. - New regional jets Marketing Objectives These marketing objectives will serve as targets for Southwest: 1) Increase the number of daily Pittsburgh departures 350% in 18 months. Pittsburgh is scheduled to go into service in May 2005 and is expected to become a strong city for the company. 2) Increase penetration by 20% within key ATA code-sharing markets,  including New York, Newark, and Boston. 3) Improve overall company Load Factor to: 71%. Target Market The target market for Southwest Airlines consists of the following: - Medium- to high-frequency business travelers. (1-3 roundtrips per month) - Male/female professionals aged 24-55 years of age. - Price/cost conscious - Commuting distances ranging from 750 - 1700 miles - Internet/technology savvy - 30-60 day trip planners For the purpose of this marketing plan, target consumers living within the following key, high-density population centers will receive particular attention: - Chicago - Las Vegas - Houston - New York/LaGuardia - Baltimore/Washington - New Jersey/Newark - Dallas - Boston - Pittsburgh/Philadelphia Competitive Strategies The following strategies represent starting points: 1) Stress the 'Southwest Experience' that offers travelers cost, convenience and enjoyment while utilizing the carrier. 2) Differentiate on scheduling convenience and frequency relative to competitors. 3) Differentiate with consumer services connected to revamped Rapid  Rewards Program. Implementation To put Southwest's strategy into action, the following components will be implemented: 1) Expansion of Southwest's web-based service architecture that provides  advanced services to Rapid Rewards customers. 2) Modernization/refreshment of long running 'Wanna Get Away' campaign  using regional/local versioning. 3) Revamping of the Rapid Rewards program to entice short-distance, high frequency business travelers. Evaluation The evaluation will focus on travelers in key Southwest markets, and measure the following items pre-, during-, and post-program implementation. The plan will measure consumer identification and awareness before the campaign begins, and then measure it after implementation. Factors that the program will outline - such as load factor targets, etc - will be able to be objective measured after the campaign. Appendix 2 Marketing practitioners often find themselves so preoccupied with the hard work of running marketing programs, supervising staff and sales force, and attending to the day-to-day grind that they lose sight of the Big Picture. However, it is essential every once in a while to step back, gain a little perspective, and engage in some serious strategizing. The broad scope of strategic planing encompasses: All the products/services your company offers All the markets you serve Both environmental and internal variables Production, research, finance, and other organizational elements needed for success Strategic planning looks beyond the immediate circumstances, in the process clarifying where you want to be in the future. This strategic perspective can be contrasted to the tactical level (which looks at performance of specific products or markets over a shorter time frame) and operational planning (which focuses on the nitty gritty of getting the job done). Following is a somewhat oversimplified but hopefully useful overview of the strategic planning process. Some Basics Start with a thorough analysis and clear understanding of the strategy and objectives of your company. What is the corporate development strategy? This broad understanding is essential for at least three reasons. First, marketing expertise is required to implement abstract corporate strategy. Second, key marketing decisions such as which market niches to address, product distribution channels, and direct marketing tactics flow directly from business strategy. And third, top management philosophy and mindset should provide the foundation for developing the strategic marketing plan. Begin by identifying your strategic business unit (SBU). This might be an entire company, a division, a product line, or a single product, as long as that unit is a separate entity for planning purposes (i.e., has its own management, access to resources, competitors, positioning strategy, and customers). An SBU must be large enough to be a meaningful unit for strategy formulation and evaluation, yet small enough for effective planning and marketing management. There are four key elements to strategic planning at the SBU level: Identification of the business Situation Analysis Selection of strategies Establishment of controls What business are you in? In "Marketing Myopia", his classic 1975 article published in Harvard Business Review, Theodore Levitt pointed out that many companies have gotten themselves in deep trouble because they failed to understand just exactly what business they were in. Railroads went under in the states in part because they stubbornly kept thinking of themselves as being in the railroad business, when in fact they were in the transportation business. Don't make that mistake yourself! Focus, analyze, reflect, and come to a consensus about what business you are really and truly in. After clarifying the nature of your business, move to a Situation Analysis, which might also be referred to as a marketing audit. You should conduct such reviews regularly to capture a "snapshot" of your current status. Your situation, of course, includes both external and internal components. External Review A periodic review of the business environment is essential.. Typically you would want to cover the following areas. Economic-demographic variables. Economic forces are always important; for example, an expanding economy has fundamentally different implications than one that is in retrenchment. You must also understand demographic factors, and especially demographic shifts. Technological variables, which now change at warp speed. New processes, new products, and new markets for previously unimagined products are the norm. Indeed, the demand for new products/service can force you into obsolescence if you don't keep up. You simply can't afford to ignore this dimension. Political-legal variables, including regulatory and tax issues, reporting requirements, and the myriad other issues that impact your business. The relative impact depends on your sector, as government policies that are good for one sector can do significant harm to another sector. Sociocultural variables, the subtle market and psychological forces that alter demand patterns and market dynamics. Internal review. Then turn to a comprehensive review of internal processes, including information systems, product lines, competition, distribution channels, market planning, sales compensation, marketing costs, and expense budgets. This "snapshot" gives you an objective platform from which to dive into the meat of the strategic planning process. Marketing Strategy Analysis 1. Customer analysis answers important questions about each specific product/service market. Among the factors you should assess are: Estimated annual purchases Projected annual growth rate Size of market (# of customers/organizations/purchasing units) Demographics/socioeconomics of customers Geographic concentration or dispersion Customer buying motivations Information they base purchase decisions on Purchasing practices 2. Key competitor analysis for each major competitor: Estimated business strength Market share and market trend Financial strengths and weaknesses Profitability Quality of management Technology position Marketing strategy (target market strategy, program/product positioning, product line strategy and distribution, pricing strategy, promotions strategy) 3. SWOT analysis: What are your own distinctive competencies? Whether in a group context or sitting alone at your desk, work your way through your strengths, weaknesses, opportunities, and threats. Enumerate them, reflect on them, analyze them, and evaluate how they interact with one another. Maximize your strengths, minimize your weaknesses, take advantage of your opportunities, and counteract your threats. What direction does your analysis lead you in? The output of a solid SWOT analysis will help you formulate your marketing objectives. Pulling the Plan Together As Hannibal Smith, the leader of the old A-Team television show used to say, "I love it when a plan comes together." The figure below provides one possible format you can use to pull together your own Marketing Plan. Add as many rows as you need for various products/services and marketing/promotional activities. By completing the information in the table, you address the key issues of product, populations, price, place, production, and promotion. Marketing Objectives: The first step in pulling your strategic marketing plan together is to use the output of your Situation Analysis and SWOT work to establish specific marketing objectives that are SMART: specific, measurable, achievable, relevant, and time-bounded. Enumerate those objectives in the first section of the worksheet. From there you move smoothly through the table, completing each section in turn. Marketing mix analysis for each product/service: Focus on each product/service category. For each one specify the target population, pricing, places for product/service delivery, any changes you'll need to make, and key features and benefits to promote. Log this information on the worksheet. Marketing activity analysis for each product/service: Focus on each marketing activity. Identify the responsible party, the timeframe, and the budget for each activity and record that information on the worksheet. Promotional activity analysis for each product/service: Repeat the process, but this time focus on specific promotions. Identify specific techniques, marketing/promotional messages, and actions you are trying to get your target markets to take. Make this planning process a team effort. Ask everyone involved in implementing the plan for suggestions. Strategic market planning must be a living, breathing process, so expect to periodically reevaluate your status. Keep all members of your marketing and management team informed about progress in implementation, and revise the plan as new opportunities and ideas emerge. You'll soon discover that the Big Picture approach can help you better manage your marketing activities and increase sales. Strategic Planning Worksheet Marketing Objectives What are your (SMART) marketing objectives? Marketing Mix Analysis For each product/service, what is your planned marketing mix?   Product/Service Target Populations Planned Price Place to Deliver Changes in Product Needed to Meet Demand Features and Benefits to Promote Product/Service A           Product/Service B           Product/Service C           Marketing Activity Analysis Activities Responsible Party Timeframe Budget Activity 1       Activity 2       Activity 3       Promotional Activity Analysis Promotional Activity Promotional Technique Message Desired Actions by Targets Activity 1       Activity 2       Activity 3       (This article was originally published in the Philippine Marketing Association newsletter.) Read More