IntroductionSouthwest strives to be the new generation offlight transportation while providing convenience, friendly atmosphere at aprice anyone can afford. The growing airline industry in the United Statesmakes Southwest focus on differentiation and cost leadership. However,Southwest needs to maintain a competitive advantage among competitors thatprovides international flights to popular destinations in Canada to improve itsmarket share.
The purpose of this paper is to outline theMarketing Plan for Southwest Airlines for the five-year period from 2019 to2023. The objective is to increase the company’s competitiveness through theexpansion in the international market to Canada and by providing new servicesoption for first-class seating for both business and leisure customers. Inaddition, the marketing plan will include the upgrade of the Southwest’sreservation system that is dated back to the 1980s. The aspects that influencedthe creation of the marketing plan: 1. The Mission and Goals 2. SituationalAnalysis that includes SWOT Analysis, Industry Analysis, and the CompetitorAnalysis that provides sustainability and competitive advantage for SouthwestAirlines.
Situational AnalysisThe following SWOT analysis provides a summaryof the strengths, weaknesses, opportunities, and threats for SouthwestAirlines. The key points were identified for both internal and externalcomponents to develop a marketing plan based on the information learned. SWOTAnalysisSouthwest internal strengths consist of aniconic “LOVE” branding and Southwest Spirit that are highly recognized throughclose bond and friendly approach with customers, a great working culture amongemployees, and a key strategy for their ultimate mission of serving the highestquality of customer service at the lowest price. Southwest Airlines continuesto develop a strong leader in the airline’s industry through its winningstrategy. The weaknesses of the company are the limitedinternational destinations, reservation systems being outdated, and the lack offirst-class seats particularly in long flights and international flights. Takinginto consideration of the company’s weaknesses, Southwest has a lot ofopportunities in the growing U.S. Airline Industry primarily in the expansionof the international market and to include services for first-class businesstravelers.
Some of the driving force in the externalenvironment are the socio-economic and regulatory factors that can potentiallyincrease operational cost including airplane fuel are the major threats that Southwestfaces on a daily basis. IndustryAnalysisBased on the IATA 2017 Mid-year report,airline CFOs and heads reported in April 2017 that they were positive aboutfuture growth in the airline industry. The airline industry is a huge market,and the strongest financial performance is being delivered by the airlines inNorth America. The capacity being offered by the airlines in North America isexpected to grow by 2.6% (IATA, 2016). Despite the potential growth, theairline industry has been historically volatile subject to numeroussocio-economic forces, regulations, and detrimental events such as terrorism,weather, and natural disasters.
SouthwestAirlines is not exempted from these various factors that can hinder growth andsuccess in the marketplace. Southwest must continue to expand and re-createvalued services for its customers to maintain its competitive lead in theairline industry.In North America, there are 23 officially recognizedindependent states and the largest of them is Canada which is followed by theUnited States. The two occupy more than 79% of the whole continent. In therecent years, Southwest has increased available seats and added internationalflights 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, andTurks and Caicos ending 2016 with 14 international destinations.
In addition, Southwest Airlines need to keepup with the growing competition in domestic and international market toincrease company’s sustainability and competitive advantage. CompetitorAnalysis Southwest’s closest rival is American Airlines. SouthwestAirline’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 marketshare is at 16.
9% as shown in Figure 1. American Airlines provides seats thatare subject to availability and are classified as Business Class, First-Class,Premium Economy Class, and Choice Class. Delta and American Airlines provideboth connecting and direct flights ensuring customers convenience. Marketing PlanningThis section explains the marketing plan forSouthwest Airlines for the five-year period from 2019 to 2023. The Marketingplan includes the new market and new services which outlines the expansion ininternational flights to Canada, the upgrade of the reservation system toaccommodate code sharing, and additional services such as first-class seats forlonger domestic flights and international destinations.
MarketingObjectiveBased on the Southwest’s Annual Report for2016, approximately $383million, approximately $287 million, and approximately $226 million of theCompany’s operating revenues in 2016, 2015, and 2014, respectively, were attributableto foreign operations and the remainder of the Company’s operating revenues, approximately$20.0 billion, approximately $19.5 billion, and approximately $18.4 billion in2016, 2015, and 2014, respectively, were attributable to domestic operation (SouthwestAirlines Co., 2016). The acquisition of the AirTran Airways in 2011has provided Southwest a direct access into foreign markets. The acquisitionplaced Southwest’s profit to increase by 75% per year to $946 million in thefirst three quarters (Southwest Airlines Co.
, 2016). In addition, Southwest’sthird quarter 2017 total operating revenue increased 2.6%, year-over-year, to$5.3 billion which consist of passenger revenue and freight, service fees, andother revenue. (Southwest Airlines Co.
,2016). The acquisition proved an immediate success and endless possibilities ofgrowth in the international market. Based on Statistics Canada, Canadian residentsspent $1.
3 billion and stayed 9.7 million nights in New York State, $3.6billion in Florida, and stayed 53.9 million nights (Statistic Canada,2016). Internationalpassengers contributed to a higher revenue for transportation carriers, hotels,restaurants, and other travel-related businesses. Furthermore, United Statesresidents made over 11.
7 million overnight trips to Canada in 2010. The UnitedStates had a 7 percent share of all international visitors in 2000 and a 17percent share of worldwide international visitor receipts. (Bureauof Transportation Statistics, 2016). IATA mentioned in the 2016 Press Releasethat the net margin is expected to be the strongest at 8.5% with an averageprofit of $19.58/passenger (IATA, 2016). Thus, international expansion toCanada will increase available seat miles in the US, passenger yield,profitability, and market share.
The equation used in the underlying model canbe found in the Appendix. According to the Bureau of TransportationStatistics, about half of international travel (travel spanning more than oneday) involving the United States is to and from Canada and Mexico (2016). Thebureau recorded about 51 million international trips that were made to theUnited States, 29 percent from Canada and another 20 percent from Mexico asshown in Table 14. As shown in Table 15, U.S.
residents made 61 million trips to Mexico as the top destination followed byCanada (Bureau of Transportation Statistics,2016). In response to the growing demand for International flights to/fromCanada, Southwest Airlines will begin to expand international services topopular cities in Canada particularly in Toronto (Toronto Pearson InternationalAirport), Montreal (Montréal–Pierre Elliott Trudeau International Airport),Calgary (Calgary International Airport), Ottawa (Ottawa Macdonald–CartierInternational Airport), Edmonton (Edmonton International Airport), Winnipeg(Winnipeg James Armstrong Richardson International Airport, and Vancouver(Vancouver International Airport). The expansion in the international marketwill include the upgrade of the existing reservation system that will supportcode sharing for international and connecting flights.
The transition from a30-year old platform will give Southwest the same ability as competitors toaccept foreign currency, change schedules more easily, and accommodateconnecting flights including luggage transfers.In addition, Southwest will launch first-classseats that are more appealing for both leisure and business travelers similarto American Airlines Business Class while maintaining a lower cost. The newinternational market and new services will put Southwest Airlines on the pathof growth and diversification; increasing profit by 80% per year and $100million in the first three quarters of 2020. CEO Garry Kelly mentioned in hisinterview with ABC on October 31, 2016, two years after starting itsinternational flights to North America that “Five years from now I’d love forSouthwest to be in Hawaii, serving Canada, more destinations in the Caribbeanand no doubt we’ll have more flights into Mexico” (Whitely, 2016). Mission:Southwest’smission is to provide excellent customer service delivered with warmth,friendliness, individual pride, and company spirit. Southwest’s goals for thecoming five years are the following:· Maintainthe brand image as low-fare travel· Expand services to Canada particularly to themost populated cities like Toronto, Montreal, Calgary, Ottawa, Edmonton,Winnipeg, and Vancouver.· Improve customer service by improved RevenueManagement · Provide first-class seating to attract morebusiness and leisure travelers who are willing to pay more for convenience.
· Increase profit by 80% per year and $100million in the first three quarters of 2020. TargetMarketsSouthwest Airlines will target male and femaleadults aged (18-25, 26-45, and 46+) who travel from/to US and Canada using allother forms of transportation including motor vehicles, personal vehicles, andrailroads. Southwest will also increase the market share of customers that travelfor business between the United States and Canada. This segmentation is forprice-conscious business consumers who travel for professional reasons. Canadians cite pleasure as the most common reason fortheir travel to the United States, accounting for 53 percent in 1999 as shownin Table 10. Canadians cited that 7% aretravel for business as their main reason, while another 11 percent came tovisit friends and relatives (Bureau of Transportation Statistics, 2016).
The first-classseating will target the business and leisure travelers that are willing to paymore than the average travelers for extra convenience. This group segmentation consistsof customers who are more concern about quality, safety, and convenience overlower price. The new and developed reservation system targetsthe employees, consumers, and other shareholders by providing a better toolthat will enhance customer experience and employee’s efficiency. MarketingMix This section will explain indetails the decisions for marketing mix and selected strategic planning for anew market and services for a 5-year period. The 4Ps will cover the coming yearup to 2023. ProductStrategySouthwest will maintain the creation of the”LUV” brand with the emphasis on building good relationships with thepassengers and attendants. Southwestwill still compete with all other forms of transportation including automobilesby providing a low-cost fare to/from Canada without compromising the high levelof customer care. Southwest will continue to be the only major U.
S. airlinethat offers two checked-in bags that fly for free with weight and size limitsapply. This differentiation from its competitors will drive an increase in thecompany’s market share and maintain its unique brand image.
Southwestunderstands that plans can change and therefore does not charge a change fee.In addition, the upgraded reservation system will increase the level ofcompetency of employees with a new tool compared to the manual reservationsystem. This new platform will also help employees provide better customerservice to its consumers and shareholders.
PromotionStrategy Southwestwill continue to promote many reasons to fly with Southwest from its low fares,network size, exceptional care for the people first. Southwest will usedifferent media, advertisement, and programs to promote different destinationsin Canada. “Fly with Southwest, Eh?” ad campaign will promote the launch of thenewly 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 itand it weakens the speaker position and place the power to the listener(Nosowitz, 2017). The message of the “Fly with Southwest, Eh?” campaign ad conveysthat Southwest understands and listens to the needs of its customers byproviding services to Canada and that the decision has been made and agreedupon by its consumers. Southwest’s “Transfarency” campaign promotestransparency in treating its customer by being fair, honest, and respectfulwhile maintaining the low fare and no baggage fees, other fees, and hiddencharges (About Southwest, n.d.).
The company will continue to promotedifferentiation from its competitors with the “Bags Fly Free” promotion ad. Southwestwill still increase connection to its customers through social media, TV ads,direct mail, magazine, newspapers, blogs, website and Southwest App. Southwestwill also maintain the Business Select, First-class Program, and Rapid RewardProgram to emphasize its commitment to customer service. DistributionStrategy Southwest tickets can be purchased directlythrough the company’s internet website, Southwest.com. In addition, mobileusers can access the mobile application for any time for both iOS and Android usersto transact with Southwest. PricingStrategySouthwest consistently provides affordableairfare with on domestic flights and several international flights. In terms ofcompetition, a 7-day roundtrip ticket from January 19 to January 25, 2018 from Tucson toToronto has a price range of $430 to $663; Delta Airlines $473, United Airlines$457, American Airlines $404, WestJet $663, Air Canada at $457.
Southwest willmaintain the low fare possible within the range of $283 to $380 free seating,free check-in bags. The price model for the first-class seatingwill be added to the company’s existing price segmentation like “Wanna GetAway”, “Anytime”, and “Business Select.” The price segmentation carries additionalbenefits such as priority boarding, bonus reward points, meals, beverages, andseating with more comfort and convenience. Implementation and Control ofthe Marketing PlanSouthwest’s head of Marketingand Advertising will be responsible for the implementation of the marketingplan, strategic planning, and decision making. The department heads will be incharge of the campaigns organization and sales promotion. Internal audit willbe conducted to analyze operating results in order to control performance metricsand quality. Southwest’s executive head of digital will be responsible foradding Canada to the list of destinationthe company serves and other improvements to support the new operation andinitiatives. In addition, project managers will be assigned for the implementationof the upgrade of the Southwest’s reservation system.
The upgradeimplementation will ensure the functionality of the operational capabilitiessuch as check-in, boarding, and baggage check-in on the new system. A 2ndphase for the revenue enhancement will be implemented for further scheduleoptimization, and additional operational functionalities add ons. A smooth transition that will nothamper the existing operation functionalities is crucial for the transition.The IT Department, Project Managers, and IT Analysts are responsible for theproject which will require a separate strategic planning, scheduling, and performancereport. Assessment tools will beprovided in the evaluation of the marketing mix, the rationale is to ensurethat performance does match the outlined objectives. Cost analysis, cash flowevaluation, sales profits, total revenue per seat, return on equity, passengernumbers, market share, andcustomer satisfaction index will be measured on a quarterly basis. These reportswill be utilized for the Quarterly Business Review for each department. Thecontrol on performance criteria will be based on the weighted score for eachcriterion shown in Table 17.
Performance Improvement Plan will be generatedfrom the performance results on a quarterly basis and a plan of action will bediscussed should there be any challenges that may hinder the success of themarketing plan. Southwest’s Marketing Plan Work Breakdown Structure (WBS) witha specific timeline will be prepared on each project cycle per department inorder to produce the deliverables in a timely manner. Summary Southwest Airlines is committed to remain competitive andsustainable in the airline industry. In doing so, the company continues toresearch and plan strategically on how to make decisions in improving theirproducts and services that can result in a foundation of growth. The excellentfinancial situation of Southwest Airlines being in its 44thconsecutive years of profitability can finance the cost of the integration ofthe reservation system, the international expansion to Canada, and theinternational marketing campaigns and promotions.
The cost of the new fleetsfor the new market in Canada is not added to the financial cost analysisbecause of the existing acquisition of the Boeing 737 Max 8 on October 1, 2017.Southwest’s continuousadherence to the company’s mission and goals set them apart from itscompetitors. Southwest must continue to revise strategies as applicable giventhe expansionand international growth.
The marketing leadership must focus on continuousgrowth in the international market by filling the gap on what is lacking in theinternational service. Theexpansion in the 7 most populated cities in Canada will provide growth forSouthwest Airlines in the international market and improve profitability andmarket capitalization. In order to strengthen Southwest’s competitiveness, the companymust stay abreast with the changes in the market conditions, technologies, andtheir own strengths and weaknesses. The upgrade of the current reservationsystem can enable Southwest to access it needs into the foreign market, improveemployee’s effectiveness, and maintain the highest level of customer service. Furthermore,Southwest Airlines has several unique qualities that help distance itself fromcompetition, however, to improve market capitalization and competitiveadvantage, the company need to expand in international operations, developmentof revenue management, product, and services, while maintaining its emphasis onpeople first.