Southwest Airlines is the industry leader in low cost airfare. They began its operation in 1971 with three Texas based routes and began interstate routes in 1978. When Southwest entered the market in 1971 they employed a market penetration pricing approach. They wanted to provide the best service for the lowest possible price. They saw that if they cut out certain unnecessary benefits they could lower their ticket price to a level far below that of the competition. They do not have in flight movies, meals, or first class sections. This strategy has been very cost effective and Southwest passes the savings on to the customer.
They chose to focus on pleasure travelers and low-income travelers opposed to business travelers. This allowed them to take advantage of a market, which was often ignored by other airlines. Southwest is not concerned with the prices of other airlines. They do not engage in pricing to meet competition, or pricing below competition. CEO Herb Kelleher stated, “We’re not competing with other airlines. We’re competing with ground transportation. ” This philosophy has led them to be very successful because they are priced below the competition, but don’t raise their prices when the competition does.
Cost controlling is very important in the airline industry. Southwest is very good at controlling their costs. They offer a no frills service for people who want to get to their destination for as little as possible, and are not concerned about the bells and whistles like in-flight movies. Southwest also realized that when their planes are on the ground, they aren’t making money. They decided to keep their planes in the air as much as possible and have worked hard to keep a low turnaround time. They manage to unload passengers and load new passengers for the next flight within twenty minutes, which is shorter than the industry average.
Southwest also uses only one kind of plane, the Boeing 737, in order to reduce costs of parts and training employees to use different types of planes. All of these methods have lowered the cost of operations for Southwest and allowed them to have a profit of $4. 7 billion, which is twice that of United Airlines. And because they are so efficient they can pass the savings on to customers. There is no first class at Southwest and therefore all the customers are treated the same. They all receive the same level of attention and care. All customers feel special because they all receive the same high level of attention.
Southwest has segmented the market and decided that their target market would be pleasure travelers who are looking for low cost flights. Their positioning is a low cost airline with great customer service. This sets them apart from the competition because airlines that are low cost usually lack good service, where as, Southwest prides itself in good customer service. Colleen Barret, executive vice president of customers, says, “We are not an airline with great customer service. We are a great customer service organization that just happens to be in the airline business. This clearly shows Southwest’s feelings towards their customers and is a big reason for their continued success. Southwest carries their tradition of treating people right over to their employees.
Southwest was the first airline to develop a profit-sharing initiative in 1973, which motivates employees to perform their best. Southwest’s employees are encouraged to have fun on the job. Their uniforms are also more casual than the industry standard. The laid back atmosphere and quality management is what make Southwest number one on Fortune’s list of the “100 Best Companies to Work for in America. Many online travel agencies were taking some of the business away from airlines. They buy tickets in bulk than sell them for cheaper than the airline does. Southwest has also added online purchasing of tickets to their web site to compete with these travel agencies. Southwest’s website is easy to navigate and only took 11 clicks and less than 5 minutes for me to book a flight from Baltimore to West Palm Beach, Florida. Online ticket discounters are more complicated and harder to navigate then Southwest’s website.
I don’t believe these online ticket places will take away much of Southwest’s business because Southwest has entered the market too and has as low or lower costs than travel agencies. Since the tragedy of September 11th, there has been a drastic drop in airline travel and many industry leaders have taken massive hits. The other major airlines catered mainly to business travel, which has reduced the most since the terrorist attacks. “Almost all the airlines had focused on business travelers because they bought the high-price tickets. When there was a big cutback in business travel after 9/11, one airline – Southwest Airlines Inc. fared well. Because it had catered to the economy traveler and effectively managed expectations, Southwest’s business bounced back quickly.
The business of the other airlines didn’t,” says Maqbool Dada, a professor at the Krannert School of Management. Southwest has also taken steps to improve safety after 9/11. They are more aware of passengers’ movement in the front of the plane. The captain greeting each passenger as they board assures that anyone seen as a problem can be removed from the flight. And most importantly there have been modifications to the cockpit door to prevent forced entry.
All of theses measures will do something to improve safety and the feeling of well being of the passengers. Southwest should communicate the new security measures in advertisements so the customers can see what Southwest is doing to improve safety, which would make the customer feel more comfortable to fly. I would propose that a reduction in prices would generate more business, but Southwest is still in good shape financially. I would suggest that other major airlines drop prices temporarily until business picked up, but then they would be going head to head with Southwest.
It might be a better idea for other airlines to utilize pricing above competition and raise prices. This might give potential passengers a greater feeling of security because of the increased costs. They might feel that it is a superior product and safer because of the higher cost. Southwest should expand their product line and offer some international flights. Southwest should open an international route to Cancun, Mexico. College students going on spring break would definitely buy Southwest’s inexpensive tickets.
College students also aren’t concerned about in-flight movies, meals, or other perks. Southwest would crush the competition in that route and make a large profit. Even families going on vacation would fly Southwest Airlines to Mexico. It is cheaper than other major airlines and it is a respected airline, unlike some no name airlines that run flights to Mexico. Advertising would be best done on television because America has become lazy and watches too much TV. They should advertise their great customer service by having customer testimonials and pictures of smiling customers and employees.
They should also advertise during family oriented shows, because they are a form of inexpensive travel that a family could take advantage of. In conclusion, I feel that Southwest has taken advantage of its inexpensive flights and family oriented atmosphere to prevail despite the September 11th tragedy. Southwest has been a profitable business for 26 consecutive years and has twice the profits of United Airlines. They have been doing a great job providing customer service and will continue to be successful as long as they continue with their current plan.