Fortune magazine calls Southwest Airlines “the most successful airline… It provides great examples and keys elements to running a successful company. ” Southwest Airlines (SWA) recorded its 34th year of profitability in 2006, a feat unmatched in the airline industry. Annual profits were up 40% that year despite high fuel costs, terrorist threats in London, and more restrictive carry-on regulations. How has SWA differed from other major airlines in its ability to remain profitable in this notoriously unprofitable industry?
This paper is an analysis of the company and its marketing strategy. It examines the airline industry, Southwest’s place in this industry, the influences of environmental forces, the four elements of the marketing mix, and the SWOT analysis of the company. It also looks at Southwest’s biggest competitors and its consumers. The paper will examine why SWA is the most successful airline in the industry today.
An airline provides air transport services for passengers or freight, generally with a recognized operating certificate or license. Airlines lease or own their aircrafts with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit. The U. S. airline industry starts its history with Tony Jannus in St. Petersburg, who conducted the United State’s first scheduled commercial flight on January 1st 1914. By the 1980s, almost half of all flying in the world took place in the U. S.
Industry Size and Growth U.S. Airline Industry facts according to 2006 Economic Report prepared by Air Transport Association (ATA), the nation’s oldest and largest airline trade association: The airline industry is highly competitive in fares, frequent flyer benefits, routes, and service. SWA is one of the most successful companies in this market and the key of its success is its positioning as a low-fare, short-haul, high-frequency carrier that is fun to fly. SWA uses point-to-point route system, which compared to hub-and-spoke, provides for more direct nonstop routings for customers.
It, therefore, minimizes connections, delays, and total trip time. Other important keys of SWA’s success are efficient cost management and internal marketing system. SWA keeps its operations simple: offers a single class, open seating, and no meals; uses one type aircraft fleet (Boeing 737) to minimize training and maintenance costs; and offers a ticketless travel system to avoid paying travel agents’ commissions. SWA has some weaknesses compared to its main competitors. SWA does not provide some in-flight amenities, like full meals or in-flight entertainment.
Instead of assigning seats, SWA assigns each passenger a boarding section based on the “first come, first serve” theory at time of purchase. This type of “open seating” can be considered both a weakness and a strength. Other airlines have larger fleets, wider name recognition, and stronger code-sharing alliances with each other. Current and future success of SWA depends on many external factors.
Favorable factors for future development include the travel culture of the U. S., the growth of consumer income, and possibilities for new destinations in regions not yet covered by SWA. However, there are also many threats which are uncontrollable and heavily influence SWA’s future success, such as fuel prices and tax regimes, weather and natural disasters, political situations, and high competition both from air and ground transportations. Economic: The economic stability of the country greatly influences the viability of the airline industry through discretionary income levels and production costs.
After the 9/11 attacks, the airline industry suffered on two levels: renewing trust of customers and battling high costs of fuel. Fortunately, the incomes of the US have steadily increased and air travel has become less of a luxury. The labor talks currently in progress with pilots will have a profound impact on the future business of SWA. Regulatory: In 1978, deregulation opened the door for many new airlines but had little effect on already-profitable SWA. Currently the FAA regulates and oversees all aspects of civil aviation.
Its roles include regulation of commercial space transportation, development of new aviation technology, programs to control noise pollution and environmental effects, and with the dept of homeland security, development of programs that address safety and security issues. Social: In the 21st century, lifestyle and values (i. e. time and price sensitivity, family) influence how people choose to travel. SWA offers less expensive options than leading competitors and have the best on-time statistics. They were the first airline to offer families with young children the option of boarding first.
The recent elimination of “family first” boarding and “cattle call” boarding may affect customers perceptions of the company. Experts predict that given their value and convenience, there will be little fall-out from the first and little gain from the latter. Competitive: The airline industry is currently considered an oligopoly. It has stable number of familiar competitors and the barriers to entry are high. SWA has been the most profitable of all airlines, mainly due to their consistency and cost control.
See competitors section. Technologic: SWA took advantaged of the increased use of the internet over the past 10 years by becoming the first airline to have an online website and the first to offer ticket-less travel and online boarding passes. This allows customers to avoid long ticket lines and keeps company cost low. The website was the most visited website on the internet in 2000 and includes email notifications of airfare sales. They continue to use advancements in technology to increase customer convenience and safety.
Generally airlines compete on the basis of price, service offered, markets served, schedule (frequency and flight times), amenities, and frequent flier programs. As show in Figure 4, SWA is second in market share behind American Airlines, but ahead of other bigger and more established airline companies, like United and Delta. The basic criterion to differentiate among competitors of SWA is a low cost structure.
Other low cost competitors to the airline industry include ground transportation (i. e.bus, train, and car) but these competitors fall short in their time efficiency. The three main competitors in the airline industry based on low fares include Air Tran Airways, Jet Blue Airways, and Continental Airlines. Between them, SWA has the biggest market share at 12%, compared to Continental Airlines at 8%, Jet Blue at 4%, and Air Tran Airways at 3%. In this paper, we examined why Southwest Airlines is considered the most successful airline in business today. Success is defined as having a favorable outcome or having obtained something desired or intended.
SWA is successful in terms of profitability, employee satisfaction, and customer satisfaction. The first goal of most businesses is to make a profit. Southwest has been profitable 34 of its 36 years in business. It has done so by offering a product that is easy to access, is targeted to specific demographics, and is affordable. But low fares are not the only strategy. A low-cost business model, including using a single type of jet, operating an efficient point-to-point route system, and using assets in a highly efficient manner, was crucial to early and continued success.
The other major airlines compete by adding benefits and luxury, resulting in added costs. Their proposition has been, and still is, ‘We have something more over what other airlines are offering. ‘ SWA was able to think outside the box: they identified consumers interested in service and convenience, not additional frills. The company further lowers cost and increases profitability with direct marketing through their award-winning website, low turn-around time facilitated by efficient employees and an open-seating policy, and the best fuel hedge program in the industry.
Southwest’s model business plan is preserved by its employees and the company emphasizes putting employees first. The airline’s chairman states, “You put your employees first and if you take care of them, then they will take good care of you. Then your customers will come back, and your shareholders will like that. ” Because of this commitment, there is trust and respect that is not found in the competitors hallways. The pilots earn the highest salaries in the industry and there has never been a salary cut or layoff.
In return, the employees exhibit a dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit, which is the company’s mission statement. The company’s symbol of freedom is not just an advertising phrase. It symbolizes the company’s effort to provide customers with friendly, frequent, convenient, point-to-point, punctual, and low cost flights. As a result, the company has the lowest customer complaint rating and the highest profit margin, making it the most successful airline in the industry.
Southwest Airline’s low-priced fares are a brand equity, which it “owns” in the mathematical sense of being the only major airline with a strong score on this attribute based on consumer research. However, it cannot survive on the basis of price competition alone, especially with the competition from airlines like JetBlue and AirTran. Fortunately, while focusing on competitive prices, it also emphasizes other factors, such as frequency and convenience of scheduling, facilities, transportation safety and security procedures, customer service, and cost controlling.
This gives the company a strong competitive advantage. The future is unpredictable. Even with forecasting and hedging, it is difficult to predict which airline will continue to be successful. Continuous environment scanning and adaptation will be a key factor for future success. With the current success of Southwest Airline’s business plan and marketing strategy, their future success is certain and will make them a company worth watchin