MARKETING 500

        May 24, 2012

        

MARKETING PLAN

        Submitted by Team 1

        Badritdinova, Roza

        Baisetova, Elmira

        Barnett, Kelli

        Wang, Yi

TABLE OF CONTENTS:

  1. EXECUTIVE SUMMARY        2

  1. U.S. AIRLINE INDUSTRY ANALYSIS        3
  1. Industry Definition         3
  2. Industry Size and Growth        3
  3. Industry SWOT Analysis        4
  4. Current Trends in U.S. Airline Industry        5

  1. SOUTHWEST AIRLINE        6
  1. SWA Brief History         6
  2. SWA Today’s Facts        6
  3. SWA Marketing Mix        7
  4. SWOT Analysis        8

  1. ENVIRONMENTAL ANALYSIS        11

  1. COMPETITOR ANALYSIS        12
  1. AirTran Airways        12
  2. JetBlue Airways        13
  3. Continental Airlines        14
  4. SWA’s Competitive Advantages and Disadvantages        15
  5. Egg Diagram        16

  1. CONSUMER ANALYSIS        17
  1. Who Flies SWA?        17
  2. Why Do They Choose to Fly SWA?        17
  3. Perceptual Maps        18

  1. STRATEGIC VALUES        19

  1. CONCLUSION        20

1. EXECUTIVE SUMMARY

Fortune magazine calls Southwest Airlines "the most successful airline... It provides great examples and keys elements to running a successful company.”  Southwest Airlines (SWA) recorded its 34th year of profitability in 2006, a feat unmatched in the airline industry.  Annual profits were up 40% that year despite high fuel costs, terrorist threats in London, and more restrictive carry-on regulations.  How has SWA differed from other major airlines in its ability to remain profitable in this notoriously unprofitable industry?  This paper is an analysis of the company and its marketing strategy. It examines the airline industry, Southwest’s place in this industry, the influences of environmental forces, the four elements of the marketing mix, and the SWOT analysis of the company. It also looks at Southwest’s biggest competitors and its consumers.  The paper will examine why SWA is the most successful airline in the industry today.


2. U.S. AIRLINE INDUSTRY ANALYSIS

2.1. Industry Definition

An airline provides air transport services for passengers or freight, generally with a recognized operating certificate or license. Airlines lease or own their aircrafts with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit.   The U.S. airline industry starts its history with Tony Jannus in St. Petersburg, who conducted the United State’s first scheduled commercial flight on January 1st 1914.  By the 1980s, almost half of all flying in the world took place in the U.S.

2.2. Industry Size and Growth

U.S. Airline Industry facts according to 2006 Economic Report prepared by Air Transport Association (ATA), the nation’s oldest and largest airline trade association:

  • 141 Airlines: 20 – Revenue above $1 Billion, 32 – Revenue between $100 Million and $1 Billion, 89 – Revenue below $100 Million
  • Passenger Enplaned - 744.1 Million
  • Average passenger load factor – 79.2%
  • Operating Revenues - $163.824 Million including $101.208 Million passenger revenue
  • Employment – 544.540 (8.8% of total U.S. employment)
  • Domestic traffic – 73.4%, Atlantic – 12.0%, Pacific – 7.7% and Latin – 6.7%
  • U.S. Fleet include 7626 aircrafts including 6629 passenger aircrafts
  • 59% of the 164.6 million domestic person-trips by airplane in 2005 were taken primarily for leisure purposes, versus 41% for business/convention travel or combined business/pleasure.

During the last 50 years, the airline industry has varied from reasonably profitable to devastatingly depressed. As the first major market to be deregulated in 1978, the U.S. airline industry has experienced more turbulence than almost any other industry. The deregulated U.S. airline industry has never matched the profitability of even the average U.S. corporation. Profitability in the good years is generally low, in the range of 2-3% net profit after interest and tax. In bad times losses can be dramatically worse (see Figure 1).  The airline industry is believed to be one of the most difficult industries to manage.

Figure 1.  U.S. Airline Industry Financial Results 1996-2006 ($ Millions)

The industry is cyclical and is greatly influenced by economic activities. It was also influenced by the tragedy of 9/11 in the following ways:

  • Product demand decreased
  • Product supply decreased, but less than demand
  • Costs (security, delays, labor) increased significantly
  • Revenues and profits decreased precipitously

2.3. Industry SWOT Analysis

According to the information on airline industry performance, one of the most important strengths is its effective cost management, which is important because of the industry’s low profitability.  Another strength of the industry is effective capacity management and its emphasis on safety. Among the weaknesses are seasonality of business, which influences price level and therefore revenues, and inconsistency of service quality.

The industry is highly influenced by external factors both favorable and unfavorable for business development. The U.S. airline industry has opportunities for further growth because of lifestyle and value changes, growth in demand for services, growth in consumer income, and global alliances with foreign airlines.  However, the analysis shows that the industry has more threats than opportunities. It is very sensitive to such uncontrollable factors as fuel prices and tax regimes, economy recessions and exogenous shocks, and competition is high.  

2.4. Current Trends in U.S. Airline Industry

  • After five consecutive years of net losses, totaling in $35.1 billion, U.S. passenger and cargo airlines recorded their first profitable year of the millennium in 2006. The industry posted $3.0 billion on $163.8 billion in revenues, yielding a profit margin of 1.9 percent.
  • While conditions have improved and the overall financial outlook is guardedly optimistic, debt levels remain high, leaving the airlines vulnerable to fuel spikes, recession or exogenous shocks (e.g., terrorism, pandemics, natural disasters), let alone ill-advised public policy decisions.
  • Airlines continue to simplify their operations, in part by reducing the number of aircraft types.  They have disposed of hundreds of older airplanes to curb not only fuel and labor expenses, but also maintenance costs and fuel-related emissions.
  • At key hubs, airlines continue to streamline schedules while simultaneously increasing their global presence both through their own flights and via expanded worldwide alliance arrangements.
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3. SOUTHWEST AIRLINES

Mission Statement:  The mission of SWA is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.

Toward the end of the 20th century, a new style of low cost airline emerged, offering a no-frills product at a lower price. Southwest Airlines (SWA) became the ultimate example of such an airline and continues to be successful after 36 year of operation.

3.1. SWA Brief History

1967        SWA was founded by Texas businessman Rollin King and lawyer Herb Kelleher

1971        SWA was incorporated in Texas and started service ...

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