Strategic Management presentation from MBA program, looking at several potential avenues that Southwest Airlines could consider to generative additional revenue. Interestingly, the airline has gone on to implement a few of the ideas we generated.

1. Southwest Airlines
STRATEGY ANALYSIS
Colyn Bruss
Shane Fairfield
Byia Martin
Marcus Sanford

2. Mission of Southwest Airlines
"Our people are our single greatest strength and
most enduring long term competitive advantage."
Gary Kelly, CEO Southwest Airlines

3. Mission Statement of Southwest Airlines
 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.

4. Mission Statement of Southwest Airlines
 To Our Employees: We are committed to provide our Employees a
stable work environment with equal opportunity for learning and
personal growth. Creativity and innovation are encouraged for
improving the effectiveness of Southwest Airlines. Above all,
Employees will be provided the same concern, respect, and caring
attitude within the organization that they are expected to share
externally with every Southwest Customer.

5. Mission Statement of Southwest Airlines
 To Our Communities: Our goal is to be the hometown airline of
every community we serve, and because those communities
sustain and nurture us with their support and loyalty, it is vital that
we, as individuals and in groups, embrace each community with
the SOUTHWEST SPIRIT of involvement, service, and caring to make
those communities better places to live and work.

6. Mission Statement of Southwest Airlines
 To Our Planet: We strive to be a good environmental steward
across our system in all of our hometowns, and one component of
our stewardship is efficiency, which, by its very nature, translates to
eliminating waste and conserving resources. Using cost-effective
and environmentally beneficial operating procedures (including
facilities and equipment) allows us to reduce the amount of
materials we use and, when combined with our ability to reuse and
recycle material, preserves these environmental resources.

7. Mission Statement of Southwest Airlines
 To Our Stakeholders: Southwest’s vision for a sustainable future is
one where there will be a balance in our business model between
Employees and Community, the Environment, and our Financial
Viability. In order to protect our world for future generations, while
meeting our commitments to our Employees, Customers, and
Stakeholders, we will strive to lead our industry in innovative
efficiency that conserves natural resources, maintains a creative
and innovative workforce, and gives back to the communities in
which we live and work.

8. External Analysis of Southwest Airlines

9. External Analysis of Southwest Airlines
 EFE Matrix for Southwest Airlines returned a total weighted score for
both opportunities and threats of 2.81
 What this score shows is that Southwest does an above average
job of effectively taking advantage of existing opportunities and
minimizing the potential adverse effects of external threats within
the industry
 Opportunity with highest weighted score was improvement to airplane
technology increasing profitability and decreasing environmental impact.
 Threat with highest weighted score was volatile fuel prices from political or other
causes that could increase profit pressures on the airline.

10. Porter’s Five Forces Analysis

11. Porter’s Five Forces Analysis
Porter’s Five Forces Threat
Bargaining Power of Consumers Low
Bargaining Power of Suppliers Low
Threat of New Competitors Low
Threat of Substitutes Medium
Rivalry Among Competing Firms High

12. Internal Analysis of Southwest Airlines

13. Internal Analysis of Southwest Airlines
 IFE Matrix for Southwest Airlines returned a total weighted score for
both strengths and weaknesses of 3.25
 What this score shows is that Southwest has a strong internal
position to capitalize on opportunities and minimize threats.
 Strength with highest weighted score was fleet of all 737’s to take advantage of
operational efficiencies which keeps maintenance and labor costs down, and
contributes to Southwest’s quick turn-around time for flights.
 Weakness with highest weighted score was losing out on additional revenue by
not charging ancillary fees.

14. Internal Analysis of Southwest Airlines
SWOT Matrix
Strengths (S)
1. Point-to-point strategy
2. Merger with AirTran
3. Corporate culture
4. Marketing & branding
5. Fleet of all 737s
6. Integration of new technologies
Weaknesses (W)
1. Challenge of integrating AirTran
2. Introduction of longer flights
3. Discontinuing service to airports
4. Growth into larger airports
5. Losing out on ancillary fees
6. No variety in classes on flights
Opportunities (O)
1. Industry profits estimated $6.3B
2. Ancillary fees for revenue
3. Availability of open gates
4. Airplane technology to save on
fuel & emissions
Strength/Opportunity
• Expand to new or gain access at
existing airports. (S3,S2/O3)
• Update existing fleet of 737s to
take advantage of new
technologies. (S4,S5,S6/O2,O4)
Weakness/Opportunity
• Implement new ancillary fees,
keeping in line with mission and
keeping up with industry. (W5/O2)
• Longer flights to take advantage
of lost opportunities. (W2/O3,O4)
Threats (T)
1. Increase in fuel prices
2. Noise regulations in urban areas
3. U.S. economic conditions
4. Environmental concerns
5. Decrease in business travel
demand due to technology
Strength/Threat
• Update existing fleet of 737s to
save fuel costs and take
advantage of new technologies.
(S7/T1,T4)
Weakness/Threat
• Implement new ancillary fees,
keeping in line with mission and
keeping up with industry. (W5/T3)

15. Strategy Recommendation 1
Priority Boarding Groups

16. Strategy 1: Priority Boarding Groups
 Unlike most airlines, Southwest has never used assigned seating.
 All seating is open, and passengers board by groups and position within
that group: A1-60, B1-60, C1-60, etc.
 The airline did recently add a “Business Select” service aimed at corporate
travelers to allow them to buy up to boarding group A, positions 1-15.
 There is an opportunity to raise additional revenue by allowing the
purchase of other boarding groups by all ticket purchasers.

17. Strategy 1: Priority Boarding Groups
 Allowing the purchase of slots throughout the A and B boarding groups
could help Southwest raise additional revenue.
 A sliding scale would be employed depending on how high in the
boarding system one wanted to “buy into”.
 With the existing Business Select group, we recommend adding four
additional boarding groups, for a total of five
 This would add some ancillary revenue at a very minimal cost.

18. Boarding Groups and Fees
Boarding Group Add-On Fee Passengers Total Revenue
A1-A15
(“Business Select”)
$25 15 $375
A16-A30 $20 15 $300
A31-A60 $15 30 $450
B1-B30 $10 30 $300
B31-B60 $5 30 $150
Totals 120 $1,575 Average ancillary revenue per passenger per flight = $13.13
Potential ancillary revenue per flight

19. Strategy 1 Effects on Revenue
 Southwest flies 3,200 flights daily and
carries 109 million passengers per year.
 At a 50% adoption rate, this could
represent a gain of between $715,312,500
and $919,800,000 each year.
 (Potential of $1,575 per flight) / (120 total
passenger slots) x (109M passengers per
year) x (50% adoption rate) = $715,500,000
 (3,200 flights daily) x (365 days per year) x
(Potential of $1,575 per flight) x (50%
adoption rate) = $919,800,000
Period Potential
Revenue Gain
Flight $1,575
Day $2,520,000
Annual $919,800,000

20. Strategy Recommendation 2
In-Flight Services

21. Strategy 2: In-Flight Services
 In-Flight Amenities include things such as food and beverage items as well
as entertainment, internet access and other items.
 Southwest’s current paid offerings include alcohol purchases at various
price points, and a fee of $8 for in-flight wi-fi Internet access.
 The airline does not currently offer any premium food or entertainment
offerings, unlike many of its competitors.

22. Expanding In-Flight Entertainment
 Southwest does not currently have screens built into its seatbacks.
 Our recommendation is to have tablets available for use during the flight
as an add-on fee to increase ancillary revenue for Southwest.
 These devices are relatively inexpensive and could provide many benefits
for passengers while providing a positive return for Southwest.
 Supplying 20 Apple iPads to each of Southwest’s 579 aircraft would require
an up-front investment of approximately $5,778,420.
 By charging only a $5 fee for use of the iPads, and figuring a 70% usage
rate per flight, the addition of available iPads for passengers to use could
net just under $76,000,000 in additional revenue per year for Southwest.

23. Premium Food Offerings
 Even though they do offer paid purchases of alcoholic beverages, there
are no premium food offerings available from Southwest.
 Complimentary offerings include peanuts, pretzels, or a small snack
package on longer flights.
 We recommend partnering with one or more food brands to offer a variety
of packages in price ranges from $3-$6 each.
 If 15 boxes at each price point were sold during each daily flight, this could
add $157,680,000 in annual revenue to the airline.

24. Strategy 2 Effects on Revenue
Tactic $/Flight $/Day $/Annual
Tablet Access $140 $448,000 $163,520,000
Premium Food $135 $432,000 $157,680,000
Total $321,200,000

25. Strategy Recommendation 3
Interline Baggage Transfer

26. Strategy 3: Interline Baggage Transfer
 Southwest has traditionally declined to offer any interline baggage transfer
services.
 Recently, other airlines have begun to follow suit and soon the industry
may have no carriers which offer this service.
 We see this as a prime opportunity for Southwest to make an “about face”
and start offering interline baggage transfer.
 Our recommendation is for Southwest to offer this service to passengers for
a fee of $25.

27. Strategy 3 Effects on Revenue
 At an estimated 5 percent of
Southwest passengers traveling
interline, we can make a revenue
estimate at a 50 percent adoption
rate for the interline baggage transfer
service.
Period Potential Revenue
Gain
Flight $58.33
Day $186,643
Annual $68,125,000

28. Summary of Recommendations

29. Potential Revenue Impact
Strategy Daily Revenue Annual Revenue
Boarding Group Priority $2,520,000 $919,800,000
Tablet Device Rental $448,000 $163,520,000
Premium Food Options $432,000 $157,680,000
Interline Baggage Transfer $186,643 $68,125,000
Totals $3,586,643 $1,309,125,000

30. QUESTIONS / COMMENTS?