This document analyzes Southwest Airlines and provides recommendations to address profitability issues. It begins with an introduction to Southwest Airlines and outlines the problem of a 34% drop in earnings due to increased competition from other low-cost carriers. It then performs a SWOT analysis and concludes that low prices alone are not enough for a competitive advantage and that Southwest should adopt a target pricing strategy to redefine its product offering. The recommendations suggest ways for Southwest to differentiate itself, such as adding new classes of service and larger aircraft while continuing its focus on low costs and good customer service.

1. AIRLINES
SWOT & Pricing Analysis

2. INSIGHTS
Introduction
Case analysis
problem statement
Why the problem occurs;
SWOT analysis
Conclusion
Recommendations

3. Introduction
 Founded In March 9, 1967
 Provides scheduled air transportation
 Serves approximately 100 destinations in over 40 states
 Operates a total of approximately 704 Boeing 737 aircraft
 180 weekday departures to over 50 nonstop destinations
 Current average fair is $49 dollars.

4. Case analysis
“40 Years of Profitable Service: A Case Study on Southwest Airlines and
Target Pricing”
This case is taken from “THE WIGLAF JOURNAL” magazine written by ‘Tim.J
Smith’ a Ph.D. chief editor. He stated, only low prices alone are not enough to
gain a competitive advantage.
First of all, we need to identify that why after 40 years of profitable service
there is sudden 34% drop in southwest airline earnings.

5. PROBLEM STATEMENT
“In 2010, southwest airlines were facing profitability crises due to low
prices, and why they need to redefined the product concept through
target pricing to win the market profitably”

6. Why the problem occurs?
So the only reason is Competition from 'ultra low-cost carriers’ by
American, delta and united airlines. They starts offerings ULCC discounts.
As one of the original "low-cost carriers," Southwest has long battled major
rivals like American, Delta and United. But the growth of a new breed of
ULCC discounters -- airlines like Spirit and Frontier -- is opening up a second
front of competition for Southwest. Tammy Romo, chief financial officer,
said average fares were down $7 during July, August and September. The
airline carried 4% more revenue passengers compared to the same period a
year earlier, but the fare decline reduced the yield per passenger nearly 5%.

7. SWOT analysis
Southwest tries to be the low price leader. It focused on four
main strategies:
 Being low-cost
 Employee-driven
 Future-minded
 Differentiated
However, they are facing more competition today with other
low cost carriers like Jet Blue.
Take a look at the Southwest Airlines SWOT analysis below.

8.  More departures than any other US airlines
 High capacity usage (few unfilled seats)
 Dominates the short haul segment of the airline industry
 Is one of the most profitable airlines, while many other
airlines are unprofitable
 Low-cost, efficient operations equates to low fares/great
value
 SWA has only one basic type of aircraft/reduces training
times
INTERNAL ANALYSIS-strengths

10. EXTERNAL ANALYSIS-OPPORTUNITIES
 Growth of Hispanic population and the elderly generation -
potential markets
 Overall air travel is predicted to increase pretty rapidly this
decade
 International markets are not yet served by Southwest
 New technology - opportunities for new services and products
 Better use of the Internet for marketing, ticketing, etc.
 Longer flights are a growing market
 New plane technology, such as the Dreamliner, will increase air
travel

11.  Fuel price increases could reduce air travel
 Decline of leisure travel due to terrorism and/or a depressed
economy
 New government regulations could make air travel more costly
 Cost will likely rise since there is not many more areas for cost-
cutting
 High-speed rail could someday hurt short and medium length
air travel
 Increased competition would likely hurt industry profitability
EXTERNAL ANALYSIS-THREATS

12. CONCLUSION
EXISTING PRICING STRATEGIES
During past 40 years they were following two kind of pricing strategies.
Cost-Based Pricing
Product >> Cost >> Price >> Value >> Customers
In contrast, value-based pricing begins by seeking to understand the value customers demand
and the price they are willing to pay to achieve that set of benefits. Only after the price is
determined does the firm then work to uncover means to produce the product at a cost
below the willingness to pay of its customers.
Value-Based Pricing
Customers >> Value >> Price >> Cost >> Product
In the marketing orientation of the firm, the firm exists only to serve a customer need
profitably. If it cannot serve that need profitably, the firm should choose not enter that
industry or consider exiting the industry if it is already in it.

13. RECOMMENDED PRICING STRATEGY
“To gain its dominancy back and win the market profitability it
needs to redefine the product concept through target pricing.
Because only low prices alone are not enough for a competitive
advantage.”
Target pricing
In keeping with the marketing orientation of the firm, the price
of a product will guide the definition and development of the
product. This is sometimes known as target pricing, where the
price becomes the target and the product is then designed to fit
that target profitably.

14. RECOMMENDATIONS CON….
Removed Included or Added
Reduced reservations flexibility: Reservations primarily made
directly Southwest Airlines as they eschewed working with
travel agents.
Simplicity in Pricing: Flat rate of $49 per leg of the journey. Also
reduced the cost of price management, as no yield management
system was needed initially.
No connections between airlines: Southwest Airlines would
not transfer baggage between flights.
Higher convenience in terms of on-time arrivals. With a
simplified fight route between lesser used airports, Southwest
was able to operate more reliably.
No long-haul flights: Southwest Airlines customers could only
take Southwest between a city-pair, not across the country nor
even across state lines initially. This greatly reduced cost of
compliance with CAB rulings, as Southwest’s operations were
not subject to interstate commerce rulings.
Higher convenience in flight frequency: With point to point
flights, Southwest could offer service between Houston and
Dallas with the same plane roughly every 2.5 hours.
No in-flight meals: Southwest Airlines only offered peanuts
and beverages.
Fun: Friendly flight attendants provided jokes, costumes, and
made flying comfortable with warm and caring service.
No seat assignments: First come, first seated. Faster boarding times leading to faster flight turnarounds.
No first class: One-class service. More seats: With one class of service, Southwest Airlines could
put 137 seats in a 737 versus 128 in a United Airlines 737.
No frills. None valued for a 30 minute flight.

15. FURTHER RECOMMENDATIONS
Following marketing recommendations, including pricing recommendation,
we would make to south west as a moves into the next decade?
Add more classes (like Economy plus etc.) Increase its Fleet by Adding
Airbus 320 with capacity of 150 passengers, which is a new technology.
Increase advertising and promotion Budget.
Introduce internet facilities.
Bags Fly Free‛ program
Operating larger aircraft can be more profitable
operating the aircraft efficiently.
Continue to cut costs and minimize commitments
Providing best Service than competitors
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