Southwest Airlines Marketing Strategies - Essay Example

Case Study on Southwest Airlines Introduction: Southwest Airlines Co. has demonstrated a remarkable capability for maintaining profitability for over more than three decades, and that too in an industry that suffered the most, as a result of the September 11, 2001 incidents. The strategic initiatives of Southwest Airline Co. have enabled it to remain as the leading low-cost airline, and the fourth largest airline in the United States of America. Southwest Pricing Objectives: The pricing objectives of Southwest Airlines include maximizing returns by maximizing sales turnover, and to this end the fares are kept at a low level, and are extremely competitive. Just low fares would not attract the required customer level, and so value for money is another objective of Southwest Airlines. So though the service offered is a no frills one, Southwest Airlines has targeted excellence in customer service to provide an extra boost to the value of the service. This has paid rich dividends, as can be seen from the accolades that Southwest Airlines has received consistently received, and is the only business enterprise in its sector of industry to do so. The Fortune magazine in its annual ratings has consistently placed Southwest Airlines among the most admired companies in the United States of America. Actions Taken to Meet These Objectives: In essence it is the understanding, and utilization of the human asset in an organization that provides the capacity to an organization to maintain low cost levels in its operation. This factor of this strength of the human asset in Southwest Airlines enables it not just to maintain low cost levels, but also to meet the challenges that come with adverse times. Southwest Airlines has employee strength of approximately thirty-two thousand, and in keeping with the philosophy of their founder Kelleher, remain an asset that is accorded the highest priority. Kelleher believed that a high employee morale, reduces employee turnover, and that helps to maintain low costs. The employees of Southwest Airlines enjoy facilities of profit sharing and stock purchases, and are encouraged to make the working environment more pleasurable. The result of these actions could be seen in the aftermath of the September 2001, when the airline industry went through a crisis. The support of the employees enabled Southwest Airlines to be the only airline that did not cut the number of its flights and lay-off employees, and surprisingly offer lower fares too, despite the sharp drop in passenger traffic. By November of that year, while the airline industry reported a drop of sixteen percent in comparison to the previous year, Southwest Airlines reported a growth of seven percent. Managing Service Activities and Quality: The high employee morale and low employee turnover enable Southwest Airlines to manage their service activities and provide excellent quality in their customer service activity. No doubt that the efficient older staff that were recruited from competitors, as a result of excellent career prospects and benefits, do put an extra strain on the wages bill, the delivery of quality in customer service ensures that customers remain happy with Southwest airlines, and continue to do business with them. Impact of the Internet on Southwest Marketing Plan: The Internet has enabled Southwest Airlines to extend its reach to customers. This is especially valuable in a marketing strategy that uses low price as its selling strategy. The Internet enables customers to look around for the best fares without the effort of moving around, and in a short period of time too. This benefits Southwest Airlines, as their fares are the most competitive in the airline industry. The impact of the use of Internet by airline customers to hunt for the best fares, and the benefit that accrues to Southwest from this has hit the competitors sharply, and they have had to react to it. The reaction was to introduce programs or new low fare airlines to compete with Southwest Airlines. As a result, Delta launched Song Airlines in 2003, and United Ted Airlines in 2004. Both these are low fare airlines offering low fares that are competitive to Southwest Airlines. Southwest Airlines has the benefit that it is known to have maintained low fares all along, and is responsible for the drop in airfares that benefit customers, and so customer loyalty continues to remain with Southwest Airlines with their competitive pricing, and value for money services. In addition Southwest Airlines was one of the first airlines to realize the cost saving potential of the Internet in the sales of tickets, and utilize this mode of sales to cut down on sales costs. Impact of Fuel Price Increase on the Price Elasticity of Demand: The rice in price of any product or commodity should bring about a reduction in demand is the thumb rule. Fuel prices impact upon the transport industry, and the increase in prices have not seen the reduction in demand in keeping with the thumb rule, and the reason for this is that transportation is an integral part of modern life styles, and with no substitutes really available for oil, the demand has continued to surge. The airline industry should have been among the first that should have seen a decrease in demand for passenger seats with a proportional increase in fare that should have been the expected as a result. It is in this aspect that the role of Southwest Airlines becomes clear on scrutiny. Cross price elasticity is one of the kinds of price elasticity, and substitution is one of its components. In the airline industry cross price elasticity of demand for airline tickets is very high. Southwest Airlines has not responded with a proportional increase in passenger fares with the increase in fuel prices. This has caused other airlines to respond in a similar manner, as otherwise airline customers would use the substitution norm, and prefer using Southwest Airlines in place of any airline whose fares are found to differ in a very large manner. Thus Southwest Airlines has been responsible for cushioning the impact of fuel price increases on the price elasticity of demand in the airline sector in the United States of America. Pricing Strategies of Southwest Airlines Against Competition: Southwest follows an aggressive pricing policy to keep competition at bay. It can afford to do this as its productivity is high, with the minimal turnaround time for its aircraft, and as a result the aircraft of Southwest maintain the highest time in the air bringing in revenue. An example of its aggressive pricing policy can be seen in the manner in which it pushed an established competitor like US Airways out of Philadelphia. Philadelphia was an established base of US Airways. In 2004 Southwest decided to service Philadelphia. Prior to this decision of Southwest, US Airways charged $938 for a round-trip ticket between Philadelphia and Providence. Southwest priced the same ticket aggressively at $177, and $39 for a restricted one-way ticket, forcing US Airways to reduce their ticket costs, and as a result go into bankruptcy. With US Airways abandoning Pittsburgh as a base, Southwest was quick to grab the opportunity and operate out of Pittsburgh too. In this manner Southwest takes on competition with an aggressive pricing policy. Costs Associated with Being Competitive – Fixed or Variable: Costs associated with any business activity are both fixed and variable. However in being competitive it is the strategic decision of the business organization on whether the price to the customer includes all the variable and fixed costs. In the case of Southwest by keeping aircraft in the air for a longer period of time it pushes up its variable costs in terms of fuel, and by providing benefits to its employees it again pushes up its variable costs. By using the value-of service ratemaking, wherein prices are set by the calculations as to the extent of price that can be charged to remain competitive in the airline sector, Southwest converts the variables prices into a fixed price. Works Cited 1. “Southwest Airlines”. Cases for Part 4. 369-371. Read More