Case study of the Southwest Airlines

Presented by:
Achman Maheshwari 22PGP314
Gayatri Nartu 22PGP325
Kajal Dewangan 22PGP266
Sushma Lakkeri 22PGP280
Case study summary- Southwest airlines
• Southwest Airlines co., is a Texas corporation organized in March 1967.

• The founder of this organization is Rollin W. King, who had been president of an
air taxi service operating from San Antonio to various south Texas communities.

The opportunity that has been seen by Southwest Airlines.

• There were 4 main cities in Texas, these were Houston, Dallas-Fort Worth, and
San Antonio. Dallas and Fort Worth are considered to be a single market even
though it has two different airports. The population of these areas was high and
the market demand was not fulfilled.
• The two main providers for this market were Braniff International Airlines and
Texas International Airlines.

• Braniff had 69 jet and turboprop, which covered major US cities, Mexico and
South America. The total revenue of Braniff that year was $256 million and the
airline carried 5.6 million passengers.

• Texas International Airlines was a regional carrier, serving southern and

southwestern states and Mexico. It had 45 jet, turboprops, and generated a revenue
of $32 million that year.

• These carriers within Texas represented legs of much longer, interstate flights. The
Braniff fights available were those, which had just arrived from New York and were
calling at Dallas on its way to San Antonio. Braniff was holding 86% of the market
share and the degree of dissatisfaction with existing services was evident.
• King found similarities between Los Angeles- San Francisco market and this market.
He contemplated providing services like the Pacific Southwest Airlines.

Beginning of the journey.

• On Feb 20th, 1968, the Texas Aeronautics Commission granted a Certificate of Public
Convenience and Necessity to Southwest, permitting it to provide intrastate air service
between Dallas, Huston, and San Antonio. To this, Braniff and TI asked the Texas
courts to enjoin the issuance of the Texas certificate.

• It ultimately was costly and time-consuming, but the final decision was ruled in favour
of Southwest airlines.

• M. Lamar Muse, an independent financial consultant, who was the president of

universal Airlines was taken on board and was given the roles of president, treasurer,
and director in a very short span of time.
• Southwest initiated high-pressure negotiations with McDonnell-Douglas, Boeing,
and several other airlines for the purchase of new or used jets.

• Boeing Company, having overproduced its Boeing 737 twin jets, offered both a
substantial price reduction. Southwest signed a contract for four Boeing 737,
which they considered better than Douglas DC-9s operated by TI.

Preparing for take-off.

• Southwest had a tentative deadline set on June 18, 1971, which was slightly over
four months away.

• Southwest had a mere $183 in its bank. Between March and June 1971, Southwest
raised almost $58 million by selling convertible promissory notes and common
stocks.
• Airlines management teams had four executives with many years of experience, and three of them had
previously worked for either Braniff or TI.

• Initially the two routes Dallas-Houston and Dallas-San Antonio were focused, leaving the third leg
(Houston-San Antonio) unattended. They offered flights in each direction between Dallas and
Houston at 75 minutes intervals, and between Dallas and San Antonio at 2.5hr intervals.

• From Monday to Friday, the southwest scheduled 12 daily round trips between Dallas and Houston
and 6 daily trips between Dallas and San Antonio. Saturday and Sunday the flights were limited, due
to the lower demand on the weekends.

• Muse and King settled at a $20 fare on both routes. The break-even point was 39 passengers per
flight. The prices were less compared to Braniff and TI.
• Dick Elliot was the marketing vice president. Bloom Agency was chosen as the advertising
agency, which was a large regional advertising agency.

• Bloom prepared a 2-dimensional positioning diagram to understand the image of the airline
perceived by the market. TI was marked as dull and conservative, Braniff was reducing its
advertising budget from $10 million to $ 4 million thereby leaving a vacuum for southwest
airlines to fill as Obvious and fun.

• It has achieved the highest rank in FAA proficiency.

Service: First Six Months
• It began modestly with small teaser ads in the newspapers, containing provocative
headlines such as The 48-Minute Love Affair,” “A Fare to Remember” etc with a
telephone number for the reader to call.
• These ads increased telephone calls to approximately 25,000.
• Southwest airline started printing the tickets and introduced pedal oriented tape
recorder to enter names of the passengers.
• Display of bill boards on all the 3 major airports.
• This resulted in spending half of the year’s promotional budget in just first month
of operation.
• Once the advertisement was done, Southwest inaugurated operations publicly.
• To compete with southwest airlines, the competitors Braniff and TI introduced
price reduction matching with south west and other offers like free beverages and
increase in services.
 South west response to competitors and increase revenue
• South west responded to the competitors promotion saying “The Other Airlines
May Have Met Our Price But You Can’t Buy Love.” Thus indicating that it values
the costumer comfort.
• It started with direct-mail campaign targeted 36,000influential business
executives in Southwest’s service areas. Each received a voucher worth half the
cost of a round-trip ticket; about 1,700 vouchers were redeemed.
• A survey conducted by Southwest revealed that Passengers used William P.
Hobby Airport in Houston than Houston International Airport. Hence, Southwest
shifted 7 of it 14 round trip flights between Dallas and Houston were transferred
to Hobby Airport.
• The 3rd leg of the route Houston-San Antonio was started by reducing 4 round
trips from each weekday of Dallas-San Antonio flights.
• Unprofitable Saturday flights were eliminated.
• All these steps helped the Airlines to increase it’s revenue in that quarter.
The Second Six months

• This is the second phase of advertising and the major object of it was to sustain
southwest’s presence in the market after 8 months of its service.
• Marketing activities included in this phase were:
TV ad featuring the air hostesses, pocket time tables, point of sales materials
for travel agents & promotional brochures.
Sales through trave agents – provided commission of 7% on credit card sales
& 10 % on cash sales.
Corporate account – Company personnel who frequently used Southwest were
provided with ticket stock and singly monthly billing.
• The marketing strategies applied had increased the number of passengers form
18/flight to 26/flight. But it was still below the necessary to cover the rising total
cost/trip.
 Steps taken by South west to increase profit
• Considering the situation, the Southwest decided to serve only William P. Hobby
Airport and not Houston International Airport as the later had lesser passenger
preference than the former.
• Introduced new schedule for flights operation on the Dallas – Houston route I,e
9:30AM to 3:30PM, as a result number of trips from 29 to 22 and flights flew in the
interval of every 2 hours.
• After analyzing, southwest management realized that Dallas-Houston route needed
only 2 flights to provide service. Hence, one Boeing 737 flight was sold.
• Friday 9:00PM flight at $10 experiment was extended on daily 9:00PM flights. This
helped in attracting more travelers.
• Specialized promotion like provision of sweetheart stamp to each secretaries in
southwest market made reservation for the boss. For each 15 stamps, a free rode on
southwest airlines was offered.
• All these helped the company to increase revenue and reduction in net loss.
Introduction of new fare price
• Southwest decided to increase the fare from $20 to $26 and roundtrip fare of $50.
• The introduction of new price to the customers was done by offering new amenities
to the passengers like increase in legroom by removing 2 rows of seat thereby
reducing the capacity from 112 to 104 and also offering free drinks to the passengers.
• Braniff took the advantage of the situation and increased services in all routes which
southwest serves.
• With introduction of Braniff’s services and increase in price of southwest flight,
cutbacks in southwest flights reduced passenger count of southwest.
• To cope with the situation, southwest again decided to go for 60 days half-fare
flights($13 one way, $ 25 roundtrip) on their major routes during the weekdays after
8:00PM.
• Saturday flights were reintroduced and all weekend prices were reduced to half.
• The above measures resulted in 12% increase in passenger traffic.
Southwest’s attention towards other existing problems
• The major source of profit to southwest is through Dallas to Houston route.
• Southwest experienced loss through Dallas & San Antonio route as the major
portion of the market is occupied by Braniff.
• The numbers are as follows:
Southwest:
• No. of passengers: 17/flight
• No. of flights : 8
Braniff:
• No. of flights: 48/flight.
• To increase the number of customers Southwest Airline introduced a 60 Days-
half-price on Dallas-San Antonio route.
• The above measure resulted in increase in passenger to 46/flight.
PROBLEM STATEMENT : Possible measures taken by Southwest in response
to Braniff’s move.
Discount for group bookings :  10 or more guests occupying seats, booked
together, all travelling on the same route, date, time and flight on the same
Booking. 15% discount on group booking is offered.
Building awareness of existing features and benefits (Service quality, airfare
fairness, flight availability).
Extensive Advertising Campaign with slogan: “We will do whatever it takes
to continue giving our love and service to you, let others try to break our
bond.”
In future, we will be introducing frequent flyer scheme which includes one
free flight ticket to the family member accompanying on the trip.
THANK YOU