Case study of the Southwest Airlines

Presented by:
Achman Maheshwari 22PGP314
Gayatri Nartu 22PGP325
Kajal Dewangan 22PGP266
Sushma Lakkeri 22PGP280
 • Southwest Airlines co., is a Texas corporation
organized in March 1967.

• The founder of this organization is Rollin W. King,

who had been president of an air taxi service
operating from San Antonio to various south Texas
Case study communities.

summary- The opportunity that has been seen by Southwest

Southwest airlines Airlines.
• There were 4 main cities in Texas, these were
Houston, Dallas-Fort Worth, and San Antonio.
Dallas and Fort Worth are considered to be a single
market even though it has two different airports.
The population of these areas was high and the
market demand was not fulfilled.
• The two main providers for this market were Braniff International Airlines and Texas International Airlines.

• Braniff had 69 jet and turboprop, which covered major US cities, Mexico and South America. The total
revenue of Braniff that year was $256 million and the airline carried 5.6 million passengers.

• Texas International Airlines was a regional carrier, serving southern and southwestern states and Mexico. It
had 45 jet, turboprops, and generated a revenue of $32 million that year.

• These carriers within Texas represented legs of much longer, interstate flights. The Braniff fights available
were those, which had just arrived from New York and were calling at Dallas on its way to San Antonio.
Braniff was holding 86% of the market share and the degree of dissatisfaction with existing services was
evident.
• King found similarities between Los Angeles- San Francisco market and this market. He contemplated
providing services like the Pacific Southwest Airlines.

Beginning of the journey.

• On Feb 20th, 1968, the Texas Aeronautics Commission granted a Certificate of Public Convenience and
Necessity to Southwest, permitting it to provide intrastate air service between Dallas, Huston, and San
Antonio. To this, Braniff and TI asked the Texas courts to enjoin the issuance of the Texas certificate.

• It ultimately was costly and time-consuming, but the final decision was ruled in favor of Southwest airlines.

• M. Lamar Muse, an independent financial consultant, who was the president of universal Airlines was taken
on board and was given the roles of president, treasurer, and director in a very short span of time.
• Southwest initiated high-pressure negotiations with McDonnell-Douglas,
Boeing, and several other airlines for the purchase of new or used jets.

• Boeing Company, having overproduced its Boeing 737 twin jets, offered
both a substantial price reduction. Southwest signed a contract for four
Boeing 737, which they considered better than Douglas DC-9s operated
by TI.

Preparing for take-off.

• Southwest had a tentative deadline set on June 18, 1971, which was
slightly over four months away.

• Southwest had a mere $183 in its bank. Between March and June 1971,
Southwest raised almost $58 million by selling convertible promissory
notes and common stocks.
• Airlines management teams had four executives with many years of experience, and three of them had
previously worked for either Braniff or TI.

• Initially the two routes Dallas-Houston and Dallas-San Antonio were focused, leaving the third leg
(Houston-San Antonio) unattended. They offered flights in each direction between Dallas and Houston at 75
minutes intervals, and between Dallas and San Antonio at 2.5hr intervals.

• From Monday to Friday, the southwest scheduled 12 daily round trips between Dallas and Houston and 6
daily trips between Dallas and San Antonio. Saturday and Sunday the flights were limited, due to the lower
demand on the weekends.

• Muse and King settled at a $20 fare on both routes. The break-even point was 39 passengers per flight. The
prices were less compared to Braniff and TI.
• Dick Elliot was the marketing vice president. Bloom Agency was chosen as the advertising agency,
which was a large regional advertising agency.

• Bloom prepared a 2-dimensional positioning diagram to understand the image of the airline perceived
by the market. TI was marked as dull and conservative, Braniff was reducing its advertising budget
from $10 million to $ 4 million thereby leaving a vacuum for southwest airlines to fill as Obvious and
fun.
• It has achieved the highest rank in FAA proficiency.
Service: First Six Months
• It began modestly with small teaser ads in the newspapers, containing provocative headlines such as
The 48-Minute Love Affair,” “A Fare to Remember” etc with a telephone number for the reader to
call.
• These ads increased telephone calls to approximately 25,000.
• Southwest airline started printing the tickets and introduced pedal oriented tape recorder to enter
names of the passengers.
• Display of bill boards on all the 3 major airports.
• This resulted in spending half of the year’s promotional budget in just first month of operation.
• Once the advertisement was done, Southwest inaugurated operations publicly.
• To compete with southwest airlines, the competitors Braniff and TI introduced price reduction
matching with south west and other offers like free beverages and increase in services.
South west response to competitors and increase
revenue
• Southwest responded to the competitor's promotion saying, “The Other Airlines May Have Met Our
Price But You Can’t Buy Love.” Thus, indicating that it values the costumer comfort.
• It started with direct-mail campaign targeted 36,000influential business executives in Southwest’s
service areas. Each received a voucher worth half the cost of a round-trip ticket; about 1,700 vouchers
were redeemed.
• A survey conducted by Southwest revealed that Passengers used William P. Hobby Airport in Houston
than Houston International Airport. Hence, Southwest shifted 7 of it 14 round trip flights between
Dallas and Houston were transferred to Hobby Airport.
• The 3rd leg of the route Houston-San Antonio was started by reducing 4 round trips from each
weekday of Dallas-San Antonio flights.
• Unprofitable Saturday flights were eliminated.
• All these steps helped the Airlines to increase it’s revenue in that quarter.
The Second Six • This is the second phase of advertising and the major object of
it was to sustain southwest’s presence in the market after 8
months. months of its service.
• Marketing activities included in this phase were:
 TV ad featuring the air hostesses, pocket time tables, point
of sales materials for travel agents & promotional
brochures.
 Sales through travel agents – provided commission of 7%
on credit card sales & 10 % on cash sales.
 Corporate account – Company personnel who frequently
used Southwest were provided with ticket stock and singly
monthly billing.
• The marketing strategies applied had increased the number of
passengers from 18/flight to 26/flight. But it was still below the
necessary to cover the rising total cost/trip.
Steps taken by • Considering the situation, the Southwest decided to serve only
William P. Hobby Airport and not Houston International Airport as
the later had lesser passenger preference than the former.
South west to • Introduced new schedule for flights operation on the Dallas –
increase profit. Houston route I,e 9:30AM to 3:30PM, as a result number of trips
from 29 to 22 and flights flew in the interval of every 2 hours.
• After analyzing, southwest management realized that Dallas-Houston
route needed only 2 flights to provide service. Hence, one Boeing 737
flight was sold.
• Friday 9:00PM flight at $10 experiment was extended on daily
9:00PM flights. This helped in attracting more travelers.
• Specialized promotion like provision of sweetheart stamp to each
secretaries in southwest market made reservation for the boss. For
each 15 stamps, a free rode on southwest airlines was offered.
• All these helped the company to increase revenue and reduction in
net loss.
Introduction of new fare price

• Southwest decided to increase the fare from $20 to $26 and roundtrip fare of $50.
• The introduction of new price to the customers was done by offering new amenities to the passengers
like increase in legroom by removing 2 rows of seat thereby reducing the capacity from 112 to 104
and also offering free drinks to the passengers.
• Braniff took the advantage of the situation and increased services in all routes which southwest serves.
• With introduction of Braniff’s services and increase in price of southwest flight, cutbacks in southwest
flights reduced passenger count of southwest.
• To cope with the situation, southwest again decided to go for 60 days half-fare flights($13 one way, $
25 roundtrip) on their major routes during the weekdays after 8:00PM.
• Saturday flights were reintroduced and all weekend prices were reduced to half.
• The above measures resulted in 12% increase in passenger traffic.
Southwest’s attention towards other existing problems.

• The major source of profit to southwest is through Dallas to Houston route.

• Southwest experienced loss through Dallas & San Antonio route as the major portion of the market is
occupied by Braniff.
• The numbers are as follows:
Southwest:
• No. of passengers: 17/flight
• No. of flights : 8
Braniff:
• No. of flights: 48/flight.
• To increase the number of customers Southwest Airline introduced a 60 Days-half-price on Dallas-San
Antonio route.
• The above measure resulted in increase in passenger to 46/flight.
 PROBLEM STATEMENT: Possible measures taken by Southwest in
response to Braniff’s move.
• Discount for group bookings:  10 or more guests occupying seats, booked together, all
traveling on the same route, date, time, and flight on the same Booking. A 15%
discount on group booking is offered.

• Building awareness of existing features and benefits (Service quality, airfare fairness,
flight availability).

• Extensive Advertising Campaign with the slogan: “We will do whatever it takes to
continue giving our love and service to you, let others try to break our bond.”

• In the future, we will be introducing a frequent flyer scheme which includes one free
flight ticket to the family member accompanying on the trip.