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 Contents
Executive 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 Summary
Southwest 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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Introduction
In 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.” [ CITATION Fac11 \l 1033 ]

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 Operations
The 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 Background
Regional 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 Share
Southwest 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 Factors
A 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

Southwest Airlines Newsroom: Releases . (n.d.). Retrieved 04 19, 2011, from Southwest Airlines
Newsroom: Welcome: http://www.swamedia.com/releases/c1a68949-6001-84fc-2795-
e5004daca65

3.

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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