Introduction States makes Southwest focus on differentiation and

Introduction

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.

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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.

Situational Analysis

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.

SWOT
Analysis

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international destinations, reservation systems being outdated, and the lack of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.

Industry
Analysis

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.

Competitor
Analysis

            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% as shown in Figure 1. 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.  

 

Marketing Planning

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.

 

Marketing
Objective

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 as
shown in Table

14. As shown in Table 15, 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).

 

Mission:

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:

·     
Maintain
the brand image as low-fare travel

·     
Expand services to Canada particularly to the
most populated cities like Toronto, Montreal, Calgary, Ottawa, Edmonton,
Winnipeg, and Vancouver.

·     
Improve customer service by improved Revenue
Management

·     
Provide first-class seating to attract more
business and leisure travelers who are willing to pay more for convenience.

·     
Increase profit by 80% per year and $100
million in the first three quarters of 2020.

Target
Markets

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 as shown
in Table 10.  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.

Marketing
Mix  

            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.

Product
Strategy

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.  

Promotion
Strategy

 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.

Distribution
Strategy

 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.

Pricing
Strategy

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.

Implementation and Control of
the Marketing Plan

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 shown in Table 17. 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.

Summary

            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.