Marketing and Management of Southwest Airlines

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23/09/19 Marketing Reference this

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Management

Part 1

 Southwest is one of the most admired companies in the world.  In fact, they are ranked 8th in 2017 as “Most Admired Companies in the World” and 13th “Best Employer in 2016.”  Their culture is all about not only keeping the customers happy but also keeping their employees happy.  They focus on keeping enthusiastic and determined employees.  They invest a lot of resources into different activities to keep their employees engaged and interested in their work.  According to the case study “Southwest Airlines: In a Different World,” “many of the projects were self-funded, with Employees raising money to buy T-shirts and other paraphernalia with bake sales and other events. Employees extended their team efforts when away from the job as well, engaging in community-based activities together” (Heskett and Sasser Jr. 3), Theses activities allowed a low-cost way for their employees to bond.  Southwest does not really have a traditional hierarchy which allows for more innovation.  This creates a sense of ownership because all employees feel equal. 

 “Southwest remained the most heavily unionized airline industry in the” (Heskett and Sasser Jr. 4).  This allowed them to keep great relationships with their managers and employees.  It also helped protect them if an issue came up.  Their goal was to maintain good compensation and flexible work weeks.  Southwest wants to keep their family fun attitude with all their employees. They make sure when hiring employees that they fit their fun culture.  Their culture is one of the main reasons for their success.  They are all about portraying a positive image to both their customer and their employee.  With their company values being about diversity and innovation, this allows employees to feel comfortable to offer their ideas and voice their opinions. 

Part 2.

    2015 was a very important year for southwest because they reached $1 billion in annual profit.  They also began focusing on their new international terminal that they opened in Houston. Southwest have begun plans to expand into fifty international cities.  Some of their first international flights included Cuba.   they also have been acquiring more small airports which allows them to flyout of more airports.  This will allow them to increase the number of routes they offer as well as offer their first international flights.  They are all about putting the customers first and this has kept them profitable.  They focus on their different processes and lowering their turnarounds.  They have risen to be one of the top US carriers.  They rose to the top by mostly serving the mid-tier market and staying in the US.  However, they now have plans to move past the US borders and offer more flights for more customers.  They know they have to keep constantly evolving and improving, as Heskett and Sasser Jr. state in “Southwest Airlines: In a Different World;” “we have to transform our business model and expand our revenue-generating capabilities. To do that, we have to transform or even construct our capabilities to offer new products and services” (Heskett and Sasser Jr. 5).  

Part 3

With Southwest ever growing fleet and routes it is imperative that they keep up their training program and most important that they keep their company culture.  They also can’t lose sight of what brought them this opportunity to be at the level that they are and that is their customer satisfaction.  Their organizational objectives and business model was built through their planning process.  Their planning processes met many goals like meeting customer needs, remaining profitable, and continually updating their strategy so their business can evolve.  Southwest always kept their fares low, so they can keep their organizational objectives the same.  These objectives include no hidden fees, keeping the lowest fares possible, and constantly keeping connected with both their customers’ and their employees’ needs.

 There is a lot of competition in the airline business. Heskett and Sasser Jr. explain, “Southwest’s business model, as it quickly evolved, became well known for its contrarian approach to air transportation – what it didn’t provide that other carriers did” (Heskett and Sasser Jr. 2). Some of the services Southwest doesn’t provide are no first class, no food served during flights (except for small bagged snacks) and no assigned seats.  By not providing these services this allowed Southwest to keep their prices competitive. However, they also had to address some important problems to remain competitive. One of the biggest problems is with rising fuel costs it is getting more and more expensive to fly.  There is also a he increases in the amount of competition they face.  With the rise of the internet and improvements to ground travel customers now have a lot less reasons to fly today.  Southwest has countered this competition with clear concise goals and an evolving strategy. 

OPERATIONS
             With the increase in competition, Southwest can not only rely on their low fares to attract new customers. With that said the idea of a business class has been offered. This would be a huge operational change as we would offer more comfortable seats with increased legroom, as well as other premium services such as complimentary movies, meals, Wi-Fi and a dedicated bathroom for this section only. There would need to be a lot of forecasting done to predict the number of business class seats we would offer per plane and if we would need to increase the number of staff members for this new section.

The largest investment would be a designed layout for a plane that can fit this new section.  Since we only use one type of plane, we would have to educate our pilots and mechanics if we change. There will have to be a lot of project planning to see what is required and how long we must achieve these goals.  An example would be how much profit would we have to gain from this new class, so we know what our break-even point is.  Scheduling would be a huge factor because it will bring money, people, and supplies together at the right time. We will have to monitor what supplies and resources we need because taking on a project like this will strongly affect our company’s revenue. Quality improves profitability, Southwest Airlines has always put customer service first.  It is very important that our service is not affected by this change.

With the introduction of this new section it would require us to create designs for new jobs.  There would be new job requirements for all employees and there would be new jobs created.  There would also have to be more research done on which flights this would be most profitable on.  If it’s a short flight most people are not going to want to spend more money to be in business class.  Southwest for the most part only offers United states flights, which restricts the number of long flights we offer.  As we expand into new markets this will be a great opportunity to utilize our business class.
             Our other business functions have important roles in figuring out if this proposal is feasible and how we can successfully implement it. Finance, marketing and human resource play a significant part in the completion of this project. Finance is directly involved in budgeting for this project since it deals with various costs and other financial elements that will both impact and be affected by this proposal. Our company’s profitability would be strongly affected by implementing this plan.  implementing it immediately would not be possible. It is very important to keep focused on our profits on financial statements.  Introducing a business class to the Southwest fleet would be a very expensive endeavor that would require a lot of time, resources, and research.  All this research and development will strongly alter our company’s bottom line.    

Marketing will also have a major role in implementing our new business class. A lot of market research will be required, to see if this is something our customers would want. There are multiple types of research we can do including cheaper options like surveys and more expensive options like focus groups.  Surveys can be given to everyone who buys a ticket.  The insight we gain from already existing customers can greatly benefit us on what we should and should not do.  We then will have to plan out a marketing campaign, so we can educate potential customers.  This can include marketing to different businesses and make it very easy for a customer to upgrade their existing ticket to a business class ticket.  This new idea would require a lot of advertising, so our customers would be educated on the fact that we offer this option.  The more we advertise this new option the better.

Human resource’s role will be to make sure we have all the right employees trained the right way.  With the new business class there might need to be more employees on the plane.  If there is a new plane that is introduced the mechanics will also have to be educated on the maintenance of the new plane.  The most important thing is keeping the company’s culture alive.  It is vital that the new employees are trained with the company’s culture in mind, to guard their excellent image and reputation.

Introducing a new business class will be an expensive endeavor that will require a lot of work form all 4 of our departments.  A lot of project management would be required due to how long and expensive this new project would be.  Once all the processes are complete and results show this project is possible it can be a great addition to our growing business.

FINANCE ASSIGNMENT                  
 To start a service that goes to Cuba is going to require a lot of resources. Financially, the three important items on the balance sheet that I think will be affected by this endeavor are net property and equipment, fuel hedge contracts, which both represent assets, and finally accounts payable which is a liability. As Southwest grows their options this will require them to have more planes which is where the asset net property and equipment comes into play. Fuel prices are only going up, so it will be important that they have their fuel hedge contracts set for their new longer flights.  Finally, the new international line will require hiring more employees, either to manage the operations or to work on the aircraft.  Elements from the income statement will be impacted as well. Total revenue, cost of revenue, and research and development will all be affected.  Getting into a new market and offering new flights will generates new revenue, but there will also be new costs as well.  Developing this new market will go under research and development expenses.
  The financial choices required with entering a new market in Cuba will also affect marketing, management, operations. Finance will budget all that goes into the other departments. For management, financial decisions are going to impact how much employees are going to be paid and how many are hired.  For marketing, finance will figure out how much should go into advertisements.  The cost of how the new route is implemented would operations. 

3.

I believe entering a new market in Cuba will have an important impact on the ratios presented on Table 1.0 below. Gross profit margin, operating margin, ROA and ROE measure a company’s profitability, as this new service will generate new profit (or loss), by evaluating these ratios, this will tell how the company is doing. The current ratio is the liquidity ratio which means if the company can pay off its short-term liabilities with its assets, this will give an estimate of the company’s health.  For their competitors I choose JetBlue and Delta because they too offer local flights at good rates. Southwest has most of the high ratios for gross profit margin and ROA as an example, They can however increase profits by cutting down on some of their costs. They are a very healthy company in order to stay this way they should keep hiring a friendly and helpful staff and keep the Culture they know and love.  They should also keep exploring new markets on the marketing side of things. For operations Southwest needs to figure out how to change how somethings are operated to decrease costs.

Southwest Airlines (LUV)

JetBlue (JBLU)

Delta Airlines (DAL)

2017

2016

2017

2016

2017

2016

Gross Profit Margin

 

14,740,000

14,293,000

4,533,000

4,528,000

23,886,000

23,699,000

     21,171,000

20,425,000

7,015,000

6,632,000

41,244,000

39,639,000

=69.62%

=69.98%

=64.61%

=68.28%

=58%

=59.79%

Operating Margin

3,515,000

3,760,000

1,000,000

1,312,000

6,114,000

6,952,000

21,171,000

20,425,000

7,015,000

6,632,000

41,244,000

39,632,000

=16.6%

=18.41%

=14.26%

=19.78%

=14.82%

=17.54

Current Ratio

4,815,000

4,498,000

1,206,000

1,567,000

7,844,000

7,451,000

6,905,000

       6,844,000

2,395,000

2,223,000

18,573,000

15,239,000

=0.70

=0.66

=0.50

=0.70

=0.42

=0.49

ROA

3,488,000

2,244,000

1,147,000

677,000

3,577,000

4,373,000

25,110,000

23,286,000

      9,781,000

8,644,000

53,292,000

51,261,000

=13.89%

=9.64%

=11.73%

=7.83%

=6.71%

=8.53%

ROE

3,488,000

2,244,000

1,147,000

677,000

3,577,000

4,373,000

10,430,000

8,441,000

4,834,000

3,210,000

13,910,000

12,287,000

=33.44%

=26.58%

=23.73%

=21.09%

=25.71%

=35.59%

Table 1.0 – Ratios
                    http://www.nasdaq.com/symbol/luv/financials?query=balance-sheet
 

Marketing:

Southwest Airlines SWOT Analysis – Weaknesses

SWA only caters to the Budget Traveler.

As vice president of Southwest airlines, I have taken the time to focus on some of our weaknesses and threats to see how we can improve these situations. Here are some steps I believe we can take.  One of our weaknesses is that we are looked at as a low budget traveler.  When customers think of Southwest they think cheap.  In order to fix this, I believe we should offer a different type of travel package for certain flights. We can call it Southwest elite.  For certain select flights we would provide a different experience for customers.  For example, high quality food, more entertainment and priority boarding and de-boarding.  This would only be for some flights like flights from LA to the east coast as an example.  By providing this service we would slowly change the way people think about Southwest.  We want people to think Southwest offers something for everyone at a great price.

Negative comments about SWA on Social Media due to overbooking of flights

Overbooked flights are going to happen it is just how airlines operate.  However, what we can do soften the blow.  We should have a social media task force ready to communicate with any customer that has an issue.  We should also use social media to focus on our positives for example we can focus on all the good reviews customers write.  We can also give customers real time updates if there are any delays.  This way when there are delays customers will be less likely to complain if they are educated on what is happening.

Southwest Airlines SWOT Analysis – Threats

Other airlines trying to imitate SWA strategies. 

 Our best option is to try to keep as much of our strategies disclosed as possible.  We should only allow the common knowledge parts of our strategy to be known.  The best way to do this is to have an elastic business strategy, meaning our strategy can change depending on the market situation and take a proactive approach on situations.

A possible decrease in business travel demand due to technology

 We can offer business packages for businesses that have to do a lot of flying.  We can give them a bulk discount depending on how many people and how often they are flying.  We can also offer discounts and special incentives for taking certain flights.  We can offer other incentives like free wifi and shuttle services when they arrive. 

Effects of weakness turned into strength on marketing, finance, management and operations:  

Marketing: It will be important for the Southwest to hire effective social media managers.  We will need everyone to know that Southwest is for everyone.  Social media is the best way to connect with people. 

Finance:  In order to promote these new strategies and hire the right people Southwest will incur more expenses.  They would also have to spend more to offer the Southwest Elite offerings.  Those flights will also have less customers on them which would require Southwest to charge more.

Management: It would be important that all staff is trained and put in the right positions to satisfy the customer’s needs.

Operations: It will be important that ground operations are planned out accordingly to keep the flow of passengers smooth.  With priority boarding this would require a new design and layout on how passengers board the plane.

 

Effects of threats turned into opportunities on marketing, finance, management and operations: 

Marketing: Again, it will be important for Southwest to hire the right people to do other types of research.  For example, they can do surveys and focus groups.  By getting to know what their customers are thinking they can develop a plan on how to combat the threats.  They also need to run advertisements to make sure they are attracting new and returning customers.

Finance:  Finance will always be involved when costs are associated with something.  It will cost money to hire the right people to help in the other departments.  They should also be researching new technologies to make air travel even better.  This type of research and development can cost a lot of money and strongly effect their revenue. 

Management: It will be important that the right people are put in the right situations to help the business grow.  With new technologies introduced there will need to be more training involved for each employee.

Operations: Southwest will have to do the proper forecasting to determine how to utilize the new technology.  They will also have to schedule plan and control all new ideas that are implemented.      

 

Sources

Heskett, James L, and W. Earl Sasser. Southwest Airlines: In a Different World. Harvard

  • Heskett, James L, and W. Earl Sasser. Case Flash Forward: Southwest Airlines. Harvard Business School, 30 May 2018
  • “LUV Finances | Southwest Airlines Company Stock.” Yahoo! Finance, Yahoo!, 13 Nov.
  • “DAL Finances | Delta Air Lines, Inc. Stock.” Yahoo! Finance, Yahoo!, 13 Nov. 2018.
  • “JBLU Balance Sheet | JetBlue Airways Corporation Stock.” Yahoo! Finance, Yahoo!,    


 

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