Southwest strives to be the new generation of flight transportation while providing convenience, friendly atmosphere at a price anyone can afford. The growing airline industry in the United States makes Southwest focus on differentiation and cost leadership. However, Southwest needs to maintain a competitive advantage among competitors that provides international flights to popular destinations in Canada to improve its market share.
The purpose of this paper is to outline the Marketing Plan for Southwest Airlines for the five-year period from 2019 to 2023. The objective is to increase the company’s competitiveness through the expansion in the international market to Canada and by providing new services option for first-class seating for both business and leisure customers. In addition, the marketing plan will include the upgrade of the Southwest’s reservation system that is dated back to the 1980s. The aspects that influenced the creation of the marketing plan: 1. The Mission and Goals 2. Situational Analysis that includes SWOT Analysis, Industry Analysis, and the Competitor Analysis that provides sustainability and competitive advantage for Southwest Airlines.
The following SWOT analysis provides a summary of the strengths, weaknesses, opportunities, and threats for Southwest Airlines. The key points were identified for both internal and external components to develop a marketing plan based on the information learned.
Southwest internal strengths consist of an iconic “LOVE” branding and Southwest Spirit that are highly recognized through close bond and friendly approach with customers, a great working culture among employees, and a key strategy for their ultimate mission of serving the highest quality of customer service at the lowest price. Southwest Airlines continues to develop a strong leader in the airline’s industry through its winning strategy.
The weaknesses of the company are the limited international destinations, reservation systems being outdated, and the lack of first-class seats particularly in long flights and international flights. Taking into consideration of the company’s weaknesses, Southwest has a lot of opportunities in the growing U.S. Airline Industry primarily in the expansion of the international market and to include services for first-class business travelers.
Some of the driving force in the external environment are the socio-economic and regulatory factors that can potentially increase operational cost including airplane fuel are the major threats that Southwest faces on a daily basis.
Based on the IATA 2017 Mid-year report, airline CFOs and heads reported in April 2017 that they were positive about future growth in the airline industry. The airline industry is a huge market, and the strongest financial performance is being delivered by the airlines in North America. The capacity being offered by the airlines in North America is expected to grow by 2.6% (IATA, 2016). Despite the potential growth, the airline industry has been historically volatile subject to numerous socio-economic forces, regulations, and detrimental events such as terrorism, weather, and natural disasters. Southwest Airlines is not exempted from these various factors that can hinder growth and success in the marketplace. Southwest must continue to expand and re-create valued services for its customers to maintain its competitive lead in the airline industry.
In North America, there are 23 officially recognized independent states and the largest of them is Canada which is followed by the United States. The two occupy more than 79% of the whole continent. In the recent years, Southwest has increased available seats and added international flights to Aruba, Belize, Cabo San Lucas/Los Cabos, Cancun, Grand Cayman, Havana, Liberia, Costa Rica, Mexico City, Montego Bay, Nassau Bahamas, Punta Cana, San Jose Costa Rica, and Turks and Caicos ending 2016 with 14 international destinations.
In addition, Southwest Airlines need to keep up with the growing competition in domestic and international market to increase company’s sustainability and competitive advantage.
Southwest’s closest rival is American Airlines. Southwest Airline’s domestic market share from September 2016 to August 2017 is 18.4% compared to American Airline’s market share of 18.5, while Delta’s market share is at 16.9%. American Airlines provides seats that are subject to availability and are classified as Business Class, First-Class, Premium Economy Class, and Choice Class. Delta and American Airlines provide both connecting and direct flights ensuring customers convenience.
This section explains the marketing plan for Southwest Airlines for the five-year period from 2019 to 2023. The Marketing plan includes the new market and new services which outlines the expansion in international flights to Canada, the upgrade of the reservation system to accommodate code sharing, and additional services such as first-class seats for longer domestic flights and international destinations.
Based on the Southwest’s Annual Report for 2016, approximately $383 million, approximately $287 million, and approximately $226 million of the Company’s operating revenues in 2016, 2015, and 2014, respectively, were attributable to foreign operations and the remainder of the Company’s operating revenues, approximately $20.0 billion, approximately $19.5 billion, and approximately $18.4 billion in 2016, 2015, and 2014, respectively, were attributable to domestic operation (Southwest Airlines Co., 2016).
The acquisition of the AirTran Airways in 2011 has provided Southwest a direct access into foreign markets. The acquisition placed Southwest’s profit to increase by 75% per year to $946 million in the first three quarters (Southwest Airlines Co., 2016). In addition, Southwest’s third quarter 2017 total operating revenue increased 2.6%, year-over-year, to $5.3 billion which consist of passenger revenue and freight, service fees, and other revenue. (Southwest Airlines Co., 2016). The acquisition proved an immediate success and endless possibilities of growth in the international market.
Based on Statistics Canada, Canadian residents spent $1.3 billion and stayed 9.7 million nights in New York State, $3.6 billion in Florida, and stayed 53.9 million nights (Statistic Canada, 2016). International passengers contributed to a higher revenue for transportation carriers, hotels, restaurants, and other travel-related businesses. Furthermore, United States residents made over 11.7 million overnight trips to Canada in 2010. The United States had a 7 percent share of all international visitors in 2000 and a 17 percent share of worldwide international visitor receipts. (Bureau of Transportation Statistics, 2016). IATA mentioned in the 2016 Press Release that the net margin is expected to be the strongest at 8.5% with an average profit of $19.58/passenger (IATA, 2016). Thus, international expansion to Canada will increase available seat miles in the US, passenger yield, profitability, and market share. The equation used in the underlying model can be found in the Appendix.
According to the Bureau of Transportation Statistics, about half of international travel (travel spanning more than one day) involving the United States is to and from Canada and Mexico (2016). The bureau recorded about 51 million international trips that were made to the United States, 29 percent from Canada and another 20 percent from Mexico. U.S. residents made 61 million trips to Mexico as the top destination followed by Canada (Bureau of Transportation Statistics, 2016). In response to the growing demand for International flights to/from Canada, Southwest Airlines will begin to expand international services to popular cities in Canada particularly in Toronto (Toronto Pearson International Airport), Montreal (Montréal–Pierre Elliott Trudeau International Airport), Calgary (Calgary International Airport), Ottawa (Ottawa Macdonald–Cartier International Airport), Edmonton (Edmonton International Airport), Winnipeg (Winnipeg James Armstrong Richardson International Airport, and Vancouver (Vancouver International Airport). The expansion in the international market will include the upgrade of the existing reservation system that will support code sharing for international and connecting flights. The transition from a 30-year old platform will give Southwest the same ability as competitors to accept foreign currency, change schedules more easily, and accommodate connecting flights including luggage transfers.
In addition, Southwest will launch first-class seats that are more appealing for both leisure and business travelers similar to American Airlines Business Class while maintaining a lower cost. The new international market and new services will put Southwest Airlines on the path of growth and diversification; increasing profit by 80% per year and $100 million in the first three quarters of 2020. CEO Garry Kelly mentioned in his interview with ABC on October 31, 2016, two years after starting its international flights to North America that “Five years from now I’d love for Southwest to be in Hawaii, serving Canada, more destinations in the Caribbean and no doubt we’ll have more flights into Mexico” (Whitely, 2016).
Southwest’s mission is to provide excellent customer service delivered with warmth, friendliness, individual pride, and company spirit. Southwest’s goals for the coming five years are the following:
Southwest Airlines will target male and female adults aged (18-25, 26-45, and 46+) who travel from/to US and Canada using all other forms of transportation including motor vehicles, personal vehicles, and railroads. Southwest will also increase the market share of customers that travel for business between the United States and Canada. This segmentation is for price-conscious business consumers who travel for professional reasons. Canadians cite pleasure as the most common reason for their travel to the United States, accounting for 53 percent in 1999. Canadians cited that 7% are travel for business as their main reason, while another 11 percent came to visit friends and relatives (Bureau of Transportation Statistics, 2016).
The first-class seating will target the business and leisure travelers that are willing to pay more than the average travelers for extra convenience. This group segmentation consists of customers who are more concern about quality, safety, and convenience over lower price.
The new and developed reservation system targets the employees, consumers, and other shareholders by providing a better tool that will enhance customer experience and employee’s efficiency.
This section will explain in details the decisions for marketing mix and selected strategic planning for a new market and services for a 5-year period. The 4Ps will cover the coming year up to 2023.
Southwest will maintain the creation of the “LUV” brand with the emphasis on building good relationships with the passengers and attendants. Southwest will still compete with all other forms of transportation including automobiles by providing a low-cost fare to/from Canada without compromising the high level of customer care. Southwest will continue to be the only major U.S. airline that offers two checked-in bags that fly for free with weight and size limits apply. This differentiation from its competitors will drive an increase in the company’s market share and maintain its unique brand image. Southwest understands that plans can change and therefore does not charge a change fee. In addition, the upgraded reservation system will increase the level of competency of employees with a new tool compared to the manual reservation system. This new platform will also help employees provide better customer service to its consumers and shareholders.
Southwest will continue to promote many reasons to fly with Southwest from its low fares, network size, exceptional care for the people first. Southwest will use different media, advertisement, and programs to promote different destinations in Canada. “Fly with Southwest, Eh?” ad campaign will promote the launch of the newly added destinations to Canada bringing a fun element of using the word “Eh”. According to Elaine Gold, the founder of the Canadian Language Museum, the word “Eh” is a command but also explains that the listener agreed with it and it weakens the speaker position and place the power to the listener (Nosowitz, 2017). The message of the “Fly with Southwest, Eh?” campaign ad conveys that Southwest understands and listens to the needs of its customers by providing services to Canada and that the decision has been made and agreed upon by its consumers.
Southwest’s “Transfarency” campaign promotes transparency in treating its customer by being fair, honest, and respectful while maintaining the low fare and no baggage fees, other fees, and hidden charges (About Southwest, n.d.). The company will continue to promote differentiation from its competitors with the “Bags Fly Free” promotion ad. Southwest will still increase connection to its customers through social media, TV ads, direct mail, magazine, newspapers, blogs, website and Southwest App. Southwest will also maintain the Business Select, First-class Program, and Rapid Reward Program to emphasize its commitment to customer service.
Southwest tickets can be purchased directly through the company’s internet website, Southwest.com. In addition, mobile users can access the mobile application for any time for both iOS and Android users to transact with Southwest.
Southwest consistently provides affordable airfare with on domestic flights and several international flights. In terms of competition, a 7-day roundtrip ticket from January 19 to January 25, 2018 from Tucson to Toronto has a price range of $430 to $663; Delta Airlines $473, United Airlines $457, American Airlines $404, WestJet $663, Air Canada at $457. Southwest will maintain the low fare possible within the range of $283 to $380 free seating, free check-in bags.
The price model for the first-class seating will be added to the company’s existing price segmentation like “Wanna Get Away”, “Anytime”, and “Business Select.” The price segmentation carries additional benefits such as priority boarding, bonus reward points, meals, beverages, and seating with more comfort and convenience.
Southwest’s head of Marketing and Advertising will be responsible for the implementation of the marketing plan, strategic planning, and decision making. The department heads will be in charge of the campaigns organization and sales promotion. Internal audit will be conducted to analyze operating results in order to control performance metrics and quality. Southwest’s executive head of digital will be responsible for adding Canada to the list of destination the company serves and other improvements to support the new operation and initiatives. In addition, project managers will be assigned for the implementation of the upgrade of the Southwest’s reservation system. The upgrade implementation will ensure the functionality of the operational capabilities such as check-in, boarding, and baggage check-in on the new system. A 2nd phase for the revenue enhancement will be implemented for further schedule optimization, and additional operational functionalities add ons. A smooth transition that will not hamper the existing operation functionalities is crucial for the transition. The IT Department, Project Managers, and IT Analysts are responsible for the project which will require a separate strategic planning, scheduling, and performance report.
Assessment tools will be provided in the evaluation of the marketing mix, the rationale is to ensure that performance does match the outlined objectives. Cost analysis, cash flow evaluation, sales profits, total revenue per seat, return on equity, passenger numbers, market share, and customer satisfaction index will be measured on a quarterly basis. These reports will be utilized for the Quarterly Business Review for each department. The control on performance criteria will be based on the weighted score for each criterion. Performance Improvement Plan will be generated from the performance results on a quarterly basis and a plan of action will be discussed should there be any challenges that may hinder the success of the marketing plan. Southwest’s Marketing Plan Work Breakdown Structure (WBS) with a specific timeline will be prepared on each project cycle per department in order to produce the deliverables in a timely manner.
Southwest Airlines is committed to remain competitive and sustainable in the airline industry. In doing so, the company continues to research and plan strategically on how to make decisions in improving their products and services that can result in a foundation of growth. The excellent financial situation of Southwest Airlines being in its 44th consecutive years of profitability can finance the cost of the integration of the reservation system, the international expansion to Canada, and the international marketing campaigns and promotions. The cost of the new fleets for the new market in Canada is not added to the financial cost analysis because of the existing acquisition of the Boeing 737 Max 8 on October 1, 2017.
Southwest’s continuous adherence to the company’s mission and goals set them apart from its competitors. Southwest must continue to revise strategies as applicable given the expansion and international growth. The marketing leadership must focus on continuous growth in the international market by filling the gap on what is lacking in the international service.
The expansion in the 7 most populated cities in Canada will provide growth for Southwest Airlines in the international market and improve profitability and market capitalization. In order to strengthen Southwest’s competitiveness, the company must stay abreast with the changes in the market conditions, technologies, and their own strengths and weaknesses. The upgrade of the current reservation system can enable Southwest to access it needs into the foreign market, improve employee’s effectiveness, and maintain the highest level of customer service. Furthermore, Southwest Airlines has several unique qualities that help distance itself from competition, however, to improve market capitalization and competitive advantage, the company need to expand in international operations, development of revenue management, product, and services, while maintaining its emphasis on people first.
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