Southwest Airlines

Strategic Plan

Alexandra Berkey, Peter Cozzi,

John Driscoll, Michelle Weinman

Agenda
Company Overview
External Analysis
Industry Overview
Porters 5 Forces
Competitive Analysis
Internal Analysis
SWOT Analysis
Value Chain
Recommended Strategy Development
3-5 Year Plan
Defense of Plan
Timeline of Implementation
Expected Outcomes
Executive Summary

Company Mission, Values, and

Vision
Mission: Dedication to the highest quality of
Customer Service delivered with a sense of
warmth, friendliness, individual pride, and
Company Spirit.
Vision: To become the World's Most Loved,
Most Flown, and Most Profitable Airline.
Values:
Warrior Spirit
Servants Heart
Fun-LUVing Attitude
Work the Southwest Way

Financial Highlights
Historical Stock Performance

Financial Highlights

Airline Industry Overview

General information
2013 market volume: 747.3 million total
passengers (United States)
2013 market value: $195 billion (United
States)
2018 projection: $214 billion (United
States)
Airline Industry Financials (2012)
Profits: $7.6 billion (Fact)
Revenues: $638 billion (Fact)
1.2% profit margin (Fact)
Current challenge
Reassure passengers of efforts being made
to further airline safety (post-Malaysia
incidences)

Threat of
New
Entrants

Threat of
Substitutes

Bargaining
Power of
Buyers

Bargaining
Power of
Suppliers

Competitive
Rivalry

Rating: Low

Rating:
Medium

Rating:
Med-low

Rating:
High

Rating:
High

-Lack of diversity
for
manufacturers

-Lack of diversity
in revenue
streams

-Airline alliances

-Low switching
Costs for
customers

-High up-front
cost of
investment
-High oil prices
-Need to develop
distribution
system
-Consumers
concern about
flying on less
acclaimed
airlines
-Airport
congestion

-Situational lack
of alternatives

-Loyalty
-In-flight features

-Few other
options for
international
travel from the
US
-Flight is a huge
time-saving
option
-Increased
awareness of
environmental
sustainability
-Low fairs
associated with
bus travel
-Advent of virtual
meetings

-Large number of
buyers
-Development of
online
comparison sites
-Rise of low-price
airlines
-Low (even
negligible)
switching costs
for buyers

-Total of 2
primary aircraft
supplier
companies:
Boeing and
Airbus
-Very few
suppliers of
aviation fuel
-Generally
volatile nature of
fuel costs

-Threat of
storage costs
(costs associated
with empty
seats)
-Presence of lowcost carriers

Small Airlines

Large Airlines

Southwest

JetBlue

America
n

Delta

United

Market
Share

0.126

.028

0.199

0.18

0.16

Domestic
Revenues
(2013)

$17.5 billion

$5.44 billion

$27.2
billion

$24.9
billion

$22.1
billion

Operating
Income
(2013)

$1.3 billion

$428 million

$1.7 billion

$2.2 billion

$707
million

Customer
Satisfactio
n (2014
ACIS Score)

78

79

66 (AA and
US)

71

60 (United
Airlines)

Source:
IATA

Southwest

JetBlue

Spirit

Delta

First 2 checked
bags: free

First checked bag:

free

Carry-on:35
First checked bag:
$30
Second checked:
$40

First checked bag:

$25
Second checked :
$35

No change fees

$75+ change fee

$120+ change fee

Applicable
change fees

24 hour wifi pass:

$8

Fly-fi
Wifi: $9/hour

No wifi options at
this point
No Frills

24-hour wifi pass:

$16

36 channels of free
TV

No entertainment
options at this
point
No Frills

As of July: free,
unrestricted
access to in-flight
entertainment

Top Airline in
Customer Loyalty

Cheap base price

for flights
Cramped and
uncomfortable
seats

Innovative
entertainment
integration

Free live and ondemand TV via

dish (19 channels
+ 75 on-demand
shows)
Tickets are bought
directly through
Southwest

SWOT Analysis Overview

Strengths
-Brand image
-Strong domestic
demand
-Low cost approach
-Great financial
position
-Strong hiring
practices

Weaknesses
-Low international
presence
-Low ancillary revenue
-No segmentation
-Large dependence on
one supplier

Opportunities

Threats

-Additions to international
service
-Adding amenities
-Using apps to making
booking easier
-Partnerships with foreign
airlines

-ULCC airlines have

begun to offer lower fares
-Increasing costs
-Disputes about
employee wages
-Alternate forms of
transportation

Value Chain- Primary Activities

Primary Activities
Not serving meals on flights in order to reduce
turnaround time at gates
Use of bar-coding luggage to track and handle
luggage more easily
Flying to less crowded airports in order to get off
the runway faster
First-come, first-serve boarding process saves
time at the gate
Pilots encouraged to constantly work with airtraffic controllers to find fastest and most fuel
efficient routes

Value Chain- Secondary

Activities
Secondary Activities

Use of only one type of plane (Boeing 737) in

order to simplify training, reduce parts
inventory, and get better deals when buying
new planes
Major use of the internet for ticket sales
reduces costs
Strong base of motivated and ambitious
employees and fun company culture leads to
great customer service
Strong relationship with the pilots union

Recommended Strategy
Development
Integrate AirTran with Southwest
to increase their market share
Implement marketing campaigns
that furthers brand differentiation
Continue their simple, low-cost
approach
Increase their airport locations

3-5 Year Plan: Implement marketing

campaigns that further brand
differentiation
1. Build upon a well-developed social media strategy by introducing a
social media contest for fliers, adhering to the following guidelines :

Time-frame: 1 year (starting in December 2014), broken into four 3month periods

The contest: For each of the first 3 periods, fliers will be encouraged to
use Twitter and Instagram to show why they appreciate a specific factor
that differentiates Southwest. For the last period, they will be encouraged
to focus on all three
Period 1: 2 free checked bags per passenger (#BagsFlyFree)
Period 2: No change fees (#SwitchForFree)
Period 3: Free TV (#FreeTV)
Period 4: Combination of all 3 (Use all hashtags)

Winners: One winner to be selected at the end of each period

Periods 1-3: Winners receive $200 vouchers to be used within next 6
months
Period 4: Grand Prize Winner to receive free flight for self and guest
during holiday season to any domestic location of choice

3-5 Year Plan: Implement marketing

campaigns that further brand
differentiation

Implement traditional media campaign to promote most recent differentiating

factors
Commitment to being as green as possible
Introduction of international destinations
Full-scale integration with AirTran (particularly ensuring that all AirTran
tickets are purchased through Southwest instead of through third parties)
Your story is our story concept
This tagline is the culmination of the marketing efforts we outline in our
plan
Puts the factors addressed by the social media contest in
conversation with the factors addressed by the traditional marketing
campaign
Southwest is, and always has been, committed to meeting
consumers needs
Fosters identification
Introduce Your Story is Our Story tagline in December, 2016 Goal: 75% of
consumers in the industry to recognize tagline as belonging to Southwest one
year later

3-5 Year Plan: Continue their

simple, low-cost approach
Fleet Modernization (Year 3 and Year 5)
The Company currently has efforts underway to
replace its older aircrafts with newer aircrafts that
are less maintenance intensive and more fuel
efficient and that also have greater range
Provides substantial flexibility in managing fleet
needs in a variety of economic conditions
Boeing 737 Max 7s and 8s represent a major
opportunity for cost reduction
Lowest operating unit costs in the single-aisle
segment
Goal
Acquire 100 Boeing 737 NextGen aircrafts by end
of Year 3
Acquire 50 Boeing 737 Max aircrafts by end of
Year 5

3-5 Year Plan: Continue their

simple, low-cost approach
Required Navigation Performance System (Year 3)
Required Navigation Performance represents an area of
change and opportunity in the airline industry
RNP is a more precise air traffic control system that
allows airplanes to handle their own navigation
capabilities, fly more efficiently, and improve the
passenger experience
Southwest has already made efforts to embrace this new
system and officially began its shift to RNP in 2010
Southwest is currently the largest airline to use the system
and by pushing ahead more aggressively with its
implementation we believe that Southwest can further
differentiate itself from its competitors
Current Progress
Nearly 6,000 of Southwests approximately 6,200 pilots
have been trained in RNP
At of the end of 2013 Southwest had conducted close to
14,000 RNP approaches

3-5 Year Plan: Continue their

simple, low-cost approach
RNP System Continued
RNP Benefits
Enables aircraft to carry navigation capabilities
rather than relying on airports
Improves operational capabilities by opening up
many new and more direct airport paths to
produce more efficient flight patterns
Conserves fuel, improves safety, and reduces
carbon emissions
More graceful landings to improve passenger
comfort
Narrower flight paths reduce overlap between
airports in congested cities
Significant cost savings due to shorter flight time

3-5 Year Plan: Continue their

simple, low-cost approach
RNP System Continued
RNP Implementation
In 2013 Southwest conducted roughly 4,000 RNP
approaches representing just 0.3% of the flights
flown by Southwest that year
While growth in RNP approaches is partially
limited by the rate of approaches introduced by
the FAA, Southwest should focus on increasing
the number of approaches conducted annually
Similarly, Southwest should continue to work
with the FAA to develop potential approaches
Goal
Conduct an additional 20,000 RNP approaches by
the end of year 3

3-5 Year Plan: Increase Network

Optimization
Improve existing profitability management tools to
manage capacity and route expansion through
optimization of flight schedules for:
Addition of new markets and routes
Adjustment of frequencies in existing markets
Exiting of unsustainable markets
Redeployment of aircraft to other markets
Continue to leverage these tools in the integration of
AirTran and Southwest
Exploit these systems to drive even higher yields,
strong load factors, and improved revenues
Southwest has already experienced

3-5 Year Plan: Increase Network

Optimization
Focus on both mainstream and secondary airports
Continue to boost market share at select hightraffic destinations
Increase routes to specific
secondary/downtown airports, while decreasing
total number of airports
Stay aligned with low cost structure

3-5 Year Plan: Increase Network

Optimization
International expansion aligned with
network optimization
Precise management of new revenue
streams
Evaluation of broadening reach abroad

3-5 Year Plan: Further integrate

AirTran with Southwest
Streamline their online presence
Continue to replace AirTrans smaller Boeing 717s
with 737s
Expand on AirTrans past success in the Caribbean
and Mexico by adding more flights and destinations
Strengthen united brand identity

Basic Timeline of Implementation

January 2015 - Streamline their online presence w/ AirTran
February 2015- begin social media campaign
July 2016- Work on integrating AirTran with Southwests brand
identity
December 2016- Begin to implement traditional social media
campaign
January 2017- Aim to have fully replaced Boeing 717s with 737s
December 2017- Aim to have an additional 20,000 RNP
approaches
January 2019- Expand into 20 new international airports
December 2020 - Aim to have acquired 150 new Boeing 737
aircrafts

Expected Outcomes
Projected Financial Performance
$25,000

$20,000

Revenue CAGR:
3.45%

$17,699

EBITDAR CAGR:
9.87%

$19,618

$18,530

$20,267

$15,000

$10,000

$5,000

$0

$2,676

2013A

$3,666

$3,342

2014E

Revenue

2015E

EBITDAR

$3,899

2016E

Executive Summary
As the nations largest domestic carrier, Southwest
distinguishes itself through superior customer service,
fun-loving brand image, and low prices
Southwest is already in a great financial position as the
holder of the largest share of the domestic market
(16.3%), but the intense competition in the airline
industry means they have to constantly improve their
strategies
By improving their integration with AirTran, increasing
their use of differentiating marketing campaigns,
continuing their simple, low-cost approach, and lastly
adding more airport locations Southwest will be able to
continue to grow

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