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Lester                                                                 February 8, 2010

TO:            Students in Prin...
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Lester                                                                    February 8, 2010

created as a low-fare commer...
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Lester                                                                  February 8, 2010


The average trip length of a ...
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Lester                                                                  February 8, 2010

operations.

According to the ...
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Lester                                                                             February 8, 2010

airline to offer a ...
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Southwest Airlines

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Southwest Airlines

  1. 1. 1 Lester February 8, 2010 TO: Students in Principles of Marketing FROM: Amanda Lester DATE: Monday, February 8, 2010 SUBJECT: Four P’s Report – Southwest Airlines (11am class) Southwest Airlines is ranked 246th in Fortune Magazine’s Top 500 Corporations for 2009. The following memo discusses the logistics behind Southwest’s success by examining how the company operations as well as the four p’s: product, price, promotion, and place. SOUTHWEST AIRLINES TODAY Based out of Dallas Texas, Southwest Airlines is a passenger airline that provides air transpiration throughout the United States. Southwest is currently the 6th largest U.S. airline by revenue. It currently operates more than 3,100 flights a day, making it the largest U.S. carrier based on domestic passengers carried as of June 30, 2009. Southwest provides reliable and low-fare service to 64 cities in 32 states with more than 500 Boeing 737 aircrafts. It currently provides employment for 35, 499 people. In terms of revenue, Southwest recorded $11,023 million during the fiscal year ended December 2008. It had increased 11.8% since 2007. The operating profit was $449 million during 2008, decreasing 43.2% over 2007. Their total net profit was $178 million in 2008 decreasing 72.4% from 2007. Southwest just recently began new nonstop air service between Denver and Boston Logan, Denver and Reno/Tahoe in 2009. The company also added service to Minneapolis-St.Paul in March of 2009. According to Datamonitor Southwest’s top competitors include AMR Corporation, Northwest Airlines Corporation, UAL Corporation, UAL Corporation, MAIR Holdings, JetBlue Airways Corporation, Continental Airlines Inc, American Airlines Inc, and AirTran Holdings Inc. Southwest’s Chairmain, President, and CEO is Gary C. Kelly. Kelly has served as the airlines CEO since 2004. Kelly replaced the former woman president of Southwest, Colleen Barret in 2008. HISTORY OF SOUTHWEST AIRLINES Rollin King and Herb Kelleher founded Southwest Airlines in 1971. Originally, it’s name was Air Southwest but was then changed to Southwest Airlines. Southwest Airlines was
  2. 2. 2 Lester February 8, 2010 created as a low-fare commercial airline that made transportation possible between Dallas, Houston, and San Antonio. The company started out with only three Boeing 737 aircrafts. Southwest’s first intrastate flight was on June 18th, 1971. Just after five years of running a successful business, the company expanded its fly zones across the southwest. Two years later, in 1977 Southwest Airlines began being traded under the symbol “LUV” on the New York Stock Exchange. By 1979, Southwest flew to all of the cities in Texas that they currently provide airfare for including El Paso, Amarillo, Beaumont, Corpus Christi, Harlingen, Lubbock, and Odessa. Southwest started service to New Orleans in 1979 and the following year added Albuquerque, Oklahoma City, and Tulsa to it’s possible flight destinations. In 1982, Southwest started service to the West Coast, adding Phoenix, Las Vegas, and San Diego. In 1985 the company spread out to the Midwest by beginning service to Chicago Midway and St. Louis. When Southwest exceeded the billion-dollar revenue mark in 1989 it became a major U.S. airline. Southwest topped the monthly domestic originating passenger rankings for the first time in May 2003. A committee that included the same person who selected the flight attendants for Hugh Hefner’s Playboy jet chose the original flight attendants that worked for Southwest Airlines. The selected flight attendants wore hot pants and go-go boots. THE SOUTHWEST PRODUCT Southwest Airlines mission statement is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Southwest provides services in the following areas: domestic flights, arrival suites, frequent flier loyalty program, cargo transportation services, contract flight training, online ticket booking services, airport lounge. The top 10 major airports that Southwest serves in order of highest number of departures and nonstop cities served are Las Vegas, Chicago Midway, Phoenix, Baltimore/Washington, Houston Hobby, Dallas (Love Field), Los Angeles (lax), Denver, Oakland, and San Diego. Southwest Airlines runs their business out of three business sectors. The passenger sector generates 95.5% of revenues that is equivalent to $10,549 million. The freight division is another 1.3% or $ 145 million of revenue cost, and the other sector makes up 3.2% of revenue or $329 million. For the fiscal year of 2008, Southwest increased revenues in 2008 by 11.8%.
  3. 3. 3 Lester February 8, 2010 The average trip length of a Southwest airlines flight is 640 miles with an average duration of one hour and 54 minutes. Southwest aircraft fly an average of 6.25 flights per day, or almost 11 hours and 45 minutes per day. Also Southwest Airlines has one of the most efficient turnaround of planes in the industry, averaging 20 to 30 minuets. THE REASON FOR SOUTHWEST’S SUCCESS: LOW COST Southwest has branded themselves as low-fare airline and it has worked. The average airfare for a southwest passenger is $112.76. According to the Bureau of Transportation, the average domestic airfare for 2009 costs $315. In comparison to the prices of other airlines, Southwest is dominating the air transportation market. This is why Southwest Airlines has carried more customers than any other U.S. airline since August 2006 for combined domestic and international passengers. By providing such low fares Southwest is a leading competitor for many airlines. The recent addition of the two Chicago airports and the Twin Cities for example is forcing other airlines to drive their costs down to be competitive. In addition to it’s low fares, Southwest also is the only airline that has not implemented a baggage fee. In the airline industry, Southwest stands alone in putting customer service first. Continental and Delta, have both raised their checked bag fees to $25 for the first bag and $35 for the second bag. In comparison, Southwest allows each passenger to check two bags for free as long as it adheres to their weight requirements. Southwest also allows two carry ons per passenger. While many other airlines charge for more than one carry on. Struggling with soaring fuel costs, many airlines have been forced to create fees for the service of drinks, food, blankets, and pillows to make up for the lost revenue. Jet Blue has recently added a $7 fee for the use of blankets. Southwest however provides complimentary in-flight service. Southwest serves complimentary coffee, juices, and cold drinks on all flights. Southwest also provides Premium Drink coupons for frequent flyers. For a flight less than 600 miles in length, one is served peanuts or pretzels. On longer flights, Southwest provides a select snack box. Southwest still doesn’t charge for making a change to one’s flight. Southwest also is the only airline that provides an open-seating policy. Many customers of other airlines pay for preferential seating near the front of the plane. At Southwest every customer is issued a boarding pass and is grouped by an “A”, “B”, or “C” based on when the customer checked in. To hold down operating costs, Southwest has stayed within the Boeing 737 fleet of planes. By doing so, Southwest is able to simplify training, maintenance, and ground
  4. 4. 4 Lester February 8, 2010 operations. According to the Department of Transportation, Southwest Airlines has received the lowest ratio of complaints per passengers boarded of all major U.S. airlines. Along with Low costs, Customer satisfaction is a priority of Southwest Airlines. “WANT TO GET AWAY”: EFFECTIVE PROMOTION OF SOUTHWEST AIRLINES Effective promotion is what sets Southwest Airlines apart from other airlines. The laugh out loud advertising is a signature of Southwest Airlines. Advertising is so important to the company that it spent nearly $199 million on advertising, or about 2 percent of its budget. The company was one of the big spenders on the 2009 Super Bowl ad campaigns, spending a total of $66 million to reach the maximum amount of viewers. Ad-Campaigns From early on, “love” has been the theme in Southwest Airlines early ad campaigns. Southwest’s first ad was “How do we love you? Let us count the ways” and “We’re spreading love.” Complimentary in-flight beverages such as love potions (drinks) and love bites (peanuts) have been a staple of a typical Southwest flight. Another classic ad was from 1972 in which a pretty woman tells viewers, “Remember what it was like before Southwest Airlines? You didn’t have hostesses in hot pants.” Such a campaign is typically used by Southwest to promote their airline as a fun through the use of dry humor. Recent ad campaigns by Southwest aim at their company’s insistence on no extra fees for basic elements of service. It’s new slogan is “fees don’t fly with us” is a way to differentiate Southwest from other competitor airlines which are adding $25 baggage fees. Online advertisement Online advertisement has been a successful endeavor for Southwest Airlines. Southwest.com is the most-visited airline site on the web. More than half of Southwest passengers check in to their flights online. The homepage of the website is very easy to use because of it’s logical layout. “Click n’ Save” is a way for Southwest.com to provide information about car rentals, hotel offers, cruises, and vacation packages right on the website. “Ding!” is the first ever-downloadable discount update that is available directly on a customer’s desktop. Southwest has been a cutting edge leader in the airline industry. They were the first
  5. 5. 5 Lester February 8, 2010 airline to offer a ticketless travel option, and senior discounts. The company has also added a frequent flyer program called “Rapid Rewards”, which offers customers credit based on the number of flights taken with the airline instead of the number of miles flown. Southwest announced in August of 2009 that it will begin to add wi-fi service to its fleet in the beginning of 2010. Charities Southwest Airlines holds an annual Classic golf tournament whose proceeds go to the Ronald McDonald House program, which is the primary corporate charity of Southwest Airlines. Proceeds have totaled close to $11 million. WHERE IS SOUTHWEST AIRLINES LOCATED? Southwest is headquartered at 2702 Love Field Drive, adjacent to the Love Field Airport in Dallas Texas. ____________________ 1 "Southwest Airlines." Datamonitor Company Profiles Authority. EBSCO. Cushwa- Leighton Library, Notre Dame, IN. 4 Feb. 2009 2 Southwest.com 3 “Southwest Airlines Co.” Hoovers.com 4 "Continental and Delta Lead Baggage Fees, Southwest Stands Alone." Industry.bnet.com. 5 . Frazier, Mya. "Southwest Airlines." Advertising Age Vol 79, Issue 43 (Nov. 2008): 018-021. Business Source Premier. Cushwa- Leighton Library, Notre Dame, IN EBSCO. 4 Feb. 2010 6 CompareAirlines.com

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