1.Introduction on Southwest Airlines
2. U.S. Airline Industry
3. Southwest Airlines Strategies
3.1. Market Research (Past and Current)
3.2 Marketing Strategy
3.3 Operational Strategy
4. Air-Tran Acquisition (Case Question 1 & 2)
5. Current Updates (Case Question 3)
Introduction/Background On June 18, 1971, Southwest Airlines began service with just three Boeing 737 aircraft serving three Texas cities: Dallas, Houston, and San Antonio. Today, the company serves 96 markets in 41 different states, and five nearby international markets. Southwest Airlines is one of the only airlines that are able to maintain profitability. As reported in Southwest Airlines Annual 10-K (2014), “For the 41st consecutive year, the Company was profitable, earning $754 million in net income” (part I, item 1). In 2013 the company reached a significant milestone by completing the joining of Southwest and AirTran networks. This merger enabled Southwest to become the largest domestic passenger transport service in the United States. Data retrieved from the U.S. Department of Transportation as of September 30, 2013 reports: Southwest Airlines is the largest domestic air carrier in the United States, as measured by the number of domestic originating passengers boarded of 115,322,785. The merger of Southwest and AirTran Airlines created a huge operating fleet. For example, in their 10-K (2014), Southwest reported, “At December 31, 2013, Southwest’s and AirTran’s combined active fleet consisted of 680 aircraft, including 614 Boeing 737s and 66 Boeing 717s (part I, item 1). By providing point-to-point service, rather than hub-and-spoke service, Southwest is able to maximize key assets, including aircraft, gates, and employees.
The North American Industry Classification System (NAICS) classifies business establishments into industry codes. Southwest Airlines falls within the scheduled air passenger transportation industry with an NAICS code of 481111. NAICS categorizes this industry as follows: Providing passenger transportation by air from one point to a different point on a flight operated on a regular basis according to a published timetable. The scheduled air passenger transportation industry uses basic measurements to report flight performance. Revenue passenger miles (RPM) reflect demand for passenger services and are calculated by taking the number of revenue paying passengers multiplied by miles flown. Any increase reflects greater demand for schedule passenger air transport services. The following graphs were created from data obtained from the United States Department of Transportation website from January 2010 through March 2015. The first graph shows demand within the scheduled air passenger industry:
This graph shows a seasonal demand for air transport service with highest demand in summer months. Additionally, demand is steadily increasing within the industry. The next graph show Southwest Airlines demand:
Southwest Airlines appears to be following the industry standards for demand of scheduled air passenger transport services, with a seasonal demand higher in summer months with steadily increasing demand. Within this industry, Southwest Airlines is the market leader with market share with 17.3 percent as depicted in the following chart obtained from the United States Department of Transportation Website.
The airline industry has historically been an extremely volatile industry subject to numerous challenges. Southwest Airlines has met the challenges of the industry by dealing with cyclical demand, energy and labor intensity, a highly regulated and heavily taxed industry, as well as an extremely competitive environment.
Market Research Within the airline industry passengers are divided into business travelers and leisure travelers. Leisure travelers are further divided into the pleasure traveler (vacations)