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I.

Current Situation

Following the Deregulation in 1978, a competitive price war ensued among the airline industry as a direct result of the new freedom for airlines to set their own fares as well as route entry and exits. This gave rise to the operating structure of the airlines as it exists today, consisting of the point-to-point system and the hub and spoke system. With this came the change of focus for major airlines to non-stop, cross-country routes in densely populated cities, which, in a regulated environment, would be profitable. This resulted in the obvious outcome of increased competition, thus lowering the average industry prices for non-stop cross country routes which were profitable. margins. This caused operating costs to increase, narrowing the profit

During the mid 80's, acquisition led to eight airlines capturing a

disproportionate share of domestic traffic. Due to a recession and increasing fuel prices in the 90's, bankruptcy and collapse were common to many carriers. As a direct result, new airlines were formed, and now position themselves as low fare, no frill airlines.

As a culture, American consumers seem to follow one obvious trend; the need and desire for maximum safety. This trend has seen a rapid rise in the wake of 9/11, and seems to show no sign of a decline. This can be further observed in the form of advanced airport/airline security measures and regulations.

In accordance with this, Southwest has always prided themselves on being the safest airline in the industry, adapting to the rapidly changing times. This has helped them soar over competition.

A.

Industry

1. Industry Defined and Total Volume

Southwest exists and operates within the air travel industry in the United States; an industry which has traditionally been based on a point-to-point flight system. However, this industry has been redefined, evolving into a hub-andspoke system which all airlines have adopted; all except Southwest. Hub-and-spoke flights, called feeder flights, are defined by long-haul, layover flights where consumers stop at a central hub city and can then either continue the flight on the same plane, or transfer onto a different plane flown by the same carrier. The point-topoint system, deployed by Southwest, is non-stop flights, called shuttle flights. The point-to-point system allows Southwest to cut down on fuel costs as well as allowing them to run more flights per day. This serves as a huge differential advantage.

This industry is heavily saturated with intense and rapidly evolving competition due to the relative ease of entry into the market. This accounts for why there are hundreds of airlines ranging from prominent well-known ones to virtually obscure and obsolete airlines. There are six primary airlines which compete fiercely and maintain the majority of the market share and total volume. The remaining fraction of the market share is then sub-divided and allocated amongst the hundreds of smaller, less relevant airlines. The only notable trend within the industry seems to be a total lack of consistency, as market shares and profits fluctuate regularly during any given time period.

The industry has taken somewhat of a beating economically following the disaster of September 11. That is, people have not been anxious to fly, regardless of price cuts across the boards. This is slowly changing, yet in the meantime, select airlines have been forced to seek government aid, even having to go as far as filing for chapter 11.

2. Company Volume and Market Share

As of December, 2004, Southwest Airlines was the top airline in terms of volume of business, accounting for 3,615,707 in sales. This is the equivalent of approximately 21% of the market share, making it the leader in the airline industry.

3. Competitors' Volume and Market Share 81% of the market is controlled by seven airlines. The breakdown in terms of market share held by these seven companies is as follows: Southwest leads the market with 21%, Delta accounts for roughly 20% of the market; US Airways accounts for 11%, American 10%, Continental and United having 6.5%, and Northwest has 6%. Delta, totaling 3,567,345 in sales, ranked just below Southwest, making them the primary competitor. The remaining 19% of the overall market is allocated almost evenly amongst the smaller carriers, which are all far behind the top seven.

4. Industry Pricing Because fares vary depending on many stipulations, typical industry rates will be analyzed using the following criteria: A roundtrip flight for one passenger departing from Newark, New Jersey on May 10, 2005 to Las Vegas, Nevada, and returning May 15, 2005. Using this criteria, the rates from the primary seven airlines in the industry from the lowest to the highest are as follows: Southwest- $ 208 US Airways- $ 208 American Airlines- $ 390 Northwest- $ 407 Delta- $ 517 United- $ 637 Continental- $ 688

It can be noted that Southwest has clearly dominated its competition in terms of pricing and being the low cost provider up until recently. US Airways has since

began a pricing campaign to directly compete for market share, going as far as lowering its fares to match those of Southwest to the dollar. Other airlines, however, have been unable to lower prices to such a drastic extent, falling victim to the recession of the airline industry and suffering from having too much inventory (planes, seats, etc.) and not enough business.

B.

Marketing Function

Southwest A. Product Southwest's product is an airline travel service for relatively low prices within the United States. The company prides themselves in being number one in safety and customer service. In addition, Southwest only uses Boeing 737 carriers to transport passengers, ensuring maximum safety while promoting fuel efficiency. The services offered by Southwest differ from those of other airlines because there are no class barriers; there is simply one section on the aircraft where passengers select their own seats based on a first-come-first-serve basis.

The target market ranges from individuals who are looking for maximum value for their money, to middle-class families looking to save money on vacation flights and package deals.

B. Pricing Southwest tires to offer the lowest industry prices available in order to remain competitive. Due to their fuel efficiency, Southwest is able to maintain low prices and stay ahead of competition. Prices start as low as $39 for a one-way ticket and can reach anywhere up to $300. These prices are determined based on the location of departure and ending destination. They are also determined and adjusted based on whether or not the ticket has an option for a refund redeemable at any time.

Another key aspect to Southwest's pricing strategy is their low costs for gate and landing fees due to their decision to not use commercial airports.

C. Place The channels of distribution include ticket purchases online, vacation packages via travel agent, or at the actual airport. As the top airline in the industry, Southwest maintains a high level of distribution. They offer non-stop flights only to smaller cities to and from secondary airports to cut costs. Distribution channels are direct, as there are typically no intermediaries other than a computer.

D. Promotion Advertising Southwest allocates very little of its overall costs (1.6%) towards advertising and promotion. The self-proclaimed 'all-time on-time airline'' bills themselves as being the most consistently on-time airline as well as the safest airline while promoting a unique style of air travel. Southwest does not use the traditional style of reserved seating aboard its flights, but rather operates under a first-come first-serve basis.

One of Southwest's biggest strengths is their continued ability to offer the lowest prices within the market due to their low advertising expenses and maximum usage of fuel efficiency jets. In an industry where advertising tends to be relatively low, Southwest advertises more than its competitors, thus reminding consumers of its intended advertising message. They make frequent use of billboards, television

commercials, and magazines to advertise to their target market of middle-class individuals and families. Southwest Airlines is the official airline of many NBA, NHL, and MLB teams. During these teams' nationally televised games, commercials are played as well as various ads on the courts, fields, and rinks.

Sales Promotion

Southwest offers 14 day in-advance purchase options within given states as well as geographical areas daily for a fraction of the normal cost. In addition, they also promote deals on car rentals, hotels, cruises, and other vacation packages. They also offer a credit card which works towards a rewards program where 'sky miles'' accumulate and are ultimately redeemable for free flights.

Southwest operates under a pull strategy, retailing their tickets and services directly to consumers. They do this by offering sales promotions and using successful

advertising campaigns to get their message of low cost and value out to the mass target market.

As indicated previously, media means of communication include television commercials, billboard ads, and magazines. With allocation of funds shifting toward strong advertising campaigns, Southwest has successfully achieved a stronger presence in the market and an awareness level never before enjoyed.

Sales Force Southwest runs 2,800 flights a day out of 60 airports in 59 cities and 31 states across the United States. This results in the employment of roughly 1,700 applicants a year. This includes pilots, stewardesses, sales associates, engineers, and executives. Southwest has the advantage of having employees who are trained to perform multiple tasks and functions. This drastically reduces the amount of cost needed to be allocated to salary expenses, as the number of employees can be highly reduced.

Public Relations Southwest has been consistently ranked by Fortune 500 as one of the top ten companies to be employed by. This comes as a direct result of their close

relationship among employees and impeccable relations with the media over the

years. Southwest has even dedicated a separate website to the posting of news events as well as a forum for answering any/all public inquiries.

Southwest maintains strong relationships with major public companies serving as a sponsor to not only increase their image of positive PR, but to spread brand awareness.

Competitors The six primary competitors to Southwest are trying to deploy similar strategies to be able to offer similar, if not better, prices to consumers as well as promotions to build on their public relations in order to directly compete with Southwest and thus, gain market share. Their marketing mixes are modeled after Southwest's. For example, Southwest was the first airline company to make use of an internet homepage. After seeing 59% of Southwest's sales came from online means, competition followed suit, and now the internet has become a staple in sales distribution. Competition now offers special deals that are positioned to compete directly with Southwest. This has even given rise to airlines dealing exclusively via online. In some areas, competition has been forced to discontinue routes and increase fares in head-to-head competition with Southwest. Competition within the airline industry remains intensely fierce. Specific differences between Southwest and its competitors are as follows:

Better at being on time due to the less amount of air traffic in the secondary

airports they use More efficient on fuel due to short-haul flights More flexibility with seating options, as they are the only airline which allows

customers to pick their own seats Their costs are typically lower than competitors Employees are able to do multiple jobs Don't offer any meals and very few amenities

Not hub-and-spoke oriented Operate off point-to-point system

Target Market Southwest's target market consists of high growth: price-conscious leisure travelers. Their core customers are small-business travelers looking to keep travel expenses low, and leisure travelers. Therefore, Southwest has positioned itself as an innovative and fun airline that takes passengers on short, inexpensive excursions. By doing this, Southwest will be able to directly connect with their target market and convey a message to their target audience that makes them want to use their service.

II.

SWOT Analysis

Strengths

Southwest maintains operating expenses per available seat mile at 15-20%

below average (www.southwest.com, 2005). The company has no baggage handling, no meals, no central reservations, and

no assisted seats to keep costs at a minimum (www.southwest.com, 2005). All of Southwest's planes are Boeing 737s making maintenance and training

costs low and turnaround quick (Maynard, 2002). Company's online booking tool lets business travelers plan, purchase, and

track travel (www.southwest.com, 2005). Southwest's direct call booking reservations save company from travel agent

commission (www.southwest.com, 2005). Southwest ranked # 1 in Customer Service for the 6th consecutive year

(www.southwest.com, 2005).

The company won the Department of Transportation's Triple Crown 3 years

consecutively for on time performance, baggage handling, and overall customer satisfaction (www.southwest.com, 2005). Southwest has an employee-oriented culture which is strong and fun loving.

This results in a loyal employee base, which is willing to work hard to achieve the company's goals (www.southwest.com, 2005). The company encourages employees to build relationships with the company,

with each other, and with customers to ensure the success of the business (Hollis, 2003). University for People provides Southwest's professional and personal

development for entire workforce through the Pathlore Learning Management System (Hollis, 2005). The company places emphasis on extensive training and continuous learning for its workforce (Training & Development, 1995). Southwest Airlines offers an Adopt-A-Pilot educational program where

Southwest pilots mentor students (www.southwest.com, 2005). Programs were implemented to retain employees, which include the first

profit sharing plan in industry (www.southwest.com, 2005). Southwest employees share responsibilities and have flexible work schedules

(www.southwest.com, 2005). Employee turnover is low compared to others in industry

(www.southwest.com, 2005). Southwest has enjoyed 31 straight profitable years (Hoover's, 2005). For the fiscal year ended 12/31/04 revenues rose 10 % to $6.53 billion

(www.yahoofinance.com, 2005). Southwest has consistently used unconventional advertising that incorporates

today's slang language. This has allowed for easy to remember, catchy slogans that consumers will remember when they are looking to fly (Thompson, 2004).

Sporadically, Southwest runs special fare promotions i.e. for its 30th

anniversary 2001, the company ran a special $30 one-way fare to 30 destinations offering $30 a day hotel rooms (Thompson, 2004). Southwest advertises its relationships with other businesses by designing and

painting their planes accordingly. For example, the company is connected to the Sea World of California and Texas; therefore some planes were painted to look like Shamu the killer whale (Thompson, 2004).

Weaknesses

Passengers sit wherever they like, on a first come first serve basis, and are not

offered any frills, while competitors cater more towards the business class (www.southwest.com, 2005). Southwest does not offer first class seating, which lowers its customer base

and excludes higher-end business travelers (www.southwest.com, 2005). For 2004, Southwest Airlines experienced its second-smallest profit in 8

years. 2005 profits do not look a whole lot bigger (www.southwest.com, 2005). Southwest has faced disagreements over pay. Pilots are said to be receiving

30 to 70% lower pay rates then other airlines (Maynard, 2002).

Opportunities

Southwest Airlines is one of the few in the industry that has not felt a large

negative impact from the 9/11 terrorist attacks. The company has managed to avoid layoffs and financial troubles, unlike other airlines (Hollis, 2003). Southwest currently operates in 60 cities in 30 states, but there is still room

for the company to enter new markets both domestically and internationally (Hoovers, 2005). Recently, the company has added its service to Pittsburgh and has

expanded nonstop flights between Houston Hobby and Los Angeles International (Beldon, 2005; www.money.cnn.com, 2005) The consumer continues to seek convenience and timesaving. Therefore,

flying rather than driving, will meet that need if the airline is reliable and the price is reasonable (Kalenoja, 2001). U.S. population is growing in the direction of leisure travel as an interest

(Kalenoja, 2001). Southwest Airline's new Boeing 737 has the ability to travel longer without

stopping (www.southwest.com, 2005). The company's new product, "DING!" is a downloadable product that lets

Southwest's customers know directly when hot, new deals are available. This product can be downloaded from the Southwest website directly onto your computer's desktop and will notify you when the airline is offering deals (www.southwest.com, 2005). A large capital investment is needed in order for a company interested in the

airline industry to begin operations (Beldon, 2005). Existing airlines continually launch counterattacks against each other. For

example, they significantly lower fares in response to new competitors (Beldon, 2005). Southwest is now the official airline of the Super bowl giving the company

worldwide recognition (www.southwest.com, 2005). ATA Airlines has joined Southwest in a partnership following the airline's

file for bankruptcy (Huettel, 2005). Southwest Airline's is offering its customers a chance to take a cruise with the

characters of AIRLINE, a new show on the A&E network (www.southwest.com, 2005).

Threats

81% of Southwest Airlines is unionized, making labor costs extremely high

(www.southwest.com, 2005). The cost of fuel has risen drastically and is expected to keep up this trend

(www.southwest.com, 2005). After September 11th, government has cracked down on safety regulations

which have become costly (Hollis, 2003). The Wright Amendment, currently, bans Southwest from offering long-haul

flights at Dallas Love Field (Okada, 2005). Southwest's business model is being adopted and followed by other airlines.

United Airlines, is just one example (Thompson, 2004). The airline industry is facing consolidation, where larger carriers buy

competitors. This allows them to gain access to markets without investing in aircraft or employees (Huettel, 2005). American Airlines is threatening to move a substantial number of flights to

Dallas Love Field to make it a congested airport and try to take away some of Southwest's customers (Banstetter, 2005). Some of Southwest's competitors, like JetBlue Airways for example, now

offer "personal" technology on planes. "Personal" technology refers to a television set for each seat, which includes movies and games, along with phones (www.jetblue.com, 2004). Southwest's emphasis on short-haul trips has resulted in considerable pressure

from ground providers like cars, trains, and buses (Thompson, 2004).

III. Key Marketing Issues

Southwest is not satisfying all the needs of key consumers.

The majority of airline consumers are business professionals and families. While Southwest offers a no frills flying experience, business professionals tend to want more. Over the years professionals have become price sensitive when choosing

airlines but remain having the same needs. Since there is no business or first class, those professionals lose the opportunity for more seat room and privacy even through a quick flight. While Southwest has no assigned seating during flights, families or groups may want to sit together. If there are small children or maybe a group of three or more, they are apt to have random seats on the plane which causes the group or family to be separated.

Southwest has untapped markets outside of the United States of America.

As of 2005, Southwest flies to over 60 cities in America. Because of the success it has due to a low pricing strategy, there is an opportunity to expand their market. All major airlines such as Continental, Delta, and American Airlines fly internationally. If Southwest expanded their business into other markets, their market share would increase immensely. This is to say that Southwest could operate a separate Southwest Airline flight service as well as the already successful U.S. operation.

Southwest is lacking the important partnership with travel agents/travel tours.

Southwest does offer ticket less service and gives consumers the ability to purchase tickets via travel agencies but there is still a lack of awareness from consumers. When a consumer goes to a travel agent, the agent gives the consumer the best airfare option. Since Southwest does deal with those agencies, they are gaining exposure to consumers. However, many tour groups and vacation packages offered under one company typically find the best airfare for their groups. Southwest has yet to be the official carrier for some of these groups and is losing a massive amount of free publicity and a new segment of consumers.

IV.

Marketing Objectives

To increase the awareness of Southwest's new services

Southwest has been typically known for its low fare, no frills airline service. To solve the issue of not satisfying all of the company's consumer needs, new services will be introduced in the year 2006. In order to increase the consumer awareness of the new services as compared to the current services, proper media vehicles need to be chosen. If the new services become a characteristic that is a part of the Southwest image, awareness will go beyond the existing customer base and reach the untapped markets. In return, the goal of satisfying all consumer needs will be achieved by an increase of sales and conversion.

To expand Southwest's operations into a foreign market

A low fare airline like Southwest has been a successful in the United States because of its economical pricing strategies. When evaluating new markets for entry it was important to find a lasting location of profitability. In some major markets, low fare airlines already exist and have been doing extremely well for decades. Although Southwest could compete in those markets, it would be more beneficial to be the first to enter and in turn dominate the market. If Southwest entered an untapped market that operated solely as an extension from the original Southwest, it would be easy to compare the two based on the fact that it is the same business operating in different markets.

To enhance the brand image of Southwest through partnerships

Southwest deals with travel agencies like their other competitors. However, other airlines do not go beyond that partnership by collaborating with travel tour companies. If Southwest did collaborate with travel tour groups that were well established in their industry and had a positive brand image, this could lead to an augmented image of the company. When a company participates in joint business efforts with another profitable company, the benefits are threefold. For example, Southwest will get free publicity, enhanced brand image, and more consumer segments. Evaluation of success will be done through comparing the sales volume of

business through the new partnerships to the sales volume of current travel agency dealings.

V.

Alternative Strategies

Market Penetration Strategy

Southwest has a range of consumers each with a homogenous characteristic. Their business segment seeks low cost travel but with some extra amenities. One way to satisfy their needs is to offer a business class. Within the layout of a plane, this section would have more seat room; possibly one seat for every two in the first two rows of the plane which would give more leg room and work space. Also, curtains would be helpful to give consumers privacy.

Families are considered to be two adults and at least one child. Groups are also considered to be an extended family of 4 or more. When traveling, this segment would presumably prefer to be seated together. Southwest does not have assigned seating that is bought through reservations in advance. Seating is first come, first serve. A concept Southwest should consider is offering families and groups that fit this segment priority seating. This would give the segment the chance to sit together and also allow other passengers to seat more quickly since a large amount of families and groups will already be seated.

Market Penetration Strategy

One way to satisfy the business segment of their market is to offer just business class flights in those secondary airports. Southwest can still satisfy those business

professional needs and also maintain their business and image of being a low cost commercial airline. To fulfill the family needs, Southwest could offer a two row reserve seating in the back of the plan for families with children. This would also be a first come, first serve option though.

Market Development Strategy

Southwest's untapped markets are also the major hub airports in America that their flights do not travel to. If Southwest did occupy those airport hub markets, then the company would have direct competition with those major airlines that are very expensive.

Market Development Strategy

The untapped markets for Southwest include Western Europe, Latin America, and Canada. With Southwest's low pricing strategy in America, their international pricing strategy may have to be slightly more expensive due to fuel and more employees. However, Southwest will gain international recognition and also higher market share. Southwest has the potential to steal competition away from those area's major airlines by offering a competitive pricing strategy.

Forward Integrative Growth Strategy

Travel agents tend to deal with tour companies and offer package deals. Southwest could take advantage of this partnership by being the official carrier for certain tour groups. Therefore, Southwest is guaranteed more sold seat tickets and also receives recognition among those consumers in the group which may use Southwest for their next travel needs.

Forward Integrative Growth Strategy

To gain more relationships that spur profit, Southwest could team up with one specific travel agency. This would limit the complexity of partnerships and rather focus attentively on one agency. By going with one agency that is well known with a positive brand image, there will be a lesser chance for Southwest to become associated with too many agencies that may make Southwest look negative.

VI.

Recommended Strategies

Market Penetration Strategy

As a group, we recommend that Southwest could achieve growth with in the company's current business by implementing an intensive growth strategy where the airline will create a business and family class section on its airplanes. Choosing a market penetration strategy will allow Southwest to increase the market share of its current products in their current markets. By doing this, the company will not only attract, but they will encourage and cater to more business class travelers as well as groups and families.

We chose this market penetration strategy instead of offering exclusive business class flights due to the fact that it is more economical. By providing room on existing airplanes for groups, families, and business people, Southwest can save money and continue to operate its flights on the company's existing airplanes. Southwest can apply this strategy to its already stable business. This way

Market Development Strategy

We recommend that Southwest could achieve growth inside the company by implementing an intensive growth strategy. The market development strategy that we recommend for Southwest Airlines will help the company reach new markets whose needs are not being met by the airline's current product offerings. Establishing a low price airline presence in Canada, will allow for Southwest to gain some international recognition with fewer competition. It would be easier for the airline to establish itself in Canada than in Latin American and Western Europe where there is more competition Having a presence in Canada will not only give Southwest the potential to gain new consumers, but it will also help aid the company in becoming a part of Canada's business world. Canada is a country known for business and commuter travel. Implementing the market penetration strategy along

with the market development strategy, Southwest will be able to establish itself as an economical way to travel within Canada. This is to say that Southwest should operate a separate airline service within Canada and still operate its United States operation.

Forward Integrative Growth Strategy

We recommend that Southwest Airlines could also achieve growth through an integrative growth strategy. Using this type of strategy will help the airline to acquire businesses that are related to company's current business. Our recommendation is for Southwest to team up with travel vacation companies in order for the airline to become a part of touring packages.

By offering group priority seating along with establishing Southwest as the primary carrier for the tour group; Contiki Tours, the airline will be able to reap the benefits of the touring agency without having to become a direct part of the travel agency. Southwest has been doing a very profitable job of being a low fare selling airline without having to share a large part of these profits with travel agencies.

In order to become a carrier for tours, the airline will have to work along with travel agencies who have these promotional tours. Doing so will help Southwest Airlines to expand into the market of touring travel, establish partnerships with travel agencies, and promote their new group seating arrangements. Working with these tour groups will help Southwest gain more exposure to a new market segment.

VII.

Marketing Tactics

New Services Advertising Campaign

Target Audience The new services Southwest will offer target strictly families and business professionals. Families are considered to be two adults and at least one child.

Groups are considered to be an extended family of 4 or more. This market segment tends to prefer to be seated together. The age range varies from infant to senior citizens. The demographics of this market are very scattered across the country. Their purchasing behavior is mainly based on family vacations or group activities. The business professional segment is males and females between 24-60 years of age. Most traveling businessman/women live near or in metropolitan cities therefore marketing will occur in those major cities across America.

Frequency The television commercials will run separately for each concept but will run simultaneously with each other on indicated channels and networks. The running schedule of the commercials will be set up according to high flying seasons. Tentatively, the schedule is for the months of March, April, June, July, August, November, and December. To compliment the television campaign, billboard

advertising will begin in January and will run all year long because we plan on buying the billboard space. Billboard advertisements only get the attention span of a couple seconds, which is why this type of advertising must be used as a reminder not as the sole method of advertising. Having the billboard throughout the year will reinforce the intended message and serve as a reminder when the other forms of advertising are in the off months.

Message Theme The theme of the television and billboard advertising will be the same two concepts.

To promote the new business class, the ad will tentatively show a new spacious business class area on a Southwest plane. The slogan will be, "Privacy. Comfort. All at a low price. Now that's Professional." Details about the new service will follow this tagline. For the family priority seating policy there will be a family getting on board their flight along with the flight crew. The tagline for this will be; "Priority Group Seating. Keeping the family together." Details will follow later as well. These concepts were based on the Hedonic Experiential Model which taps into the consumer's want and desires. The taglines are to make the consumer feel that if they are a professional, or a part of a vacationing family, they will need that Southwest experience.

Promotional Incentive & Personal Selling Strategy

Target Audience The customer base for Southwest Canada will be business professionals. The

targeted working class tends to travel often and their employers tend to be price sensitive. The consumer segment of business class professionals ranges from 24-60 years of age that live in Canada's metropolitan cities. These cities include: Quebec, Montreal, and Toronto.

Frequency Being that Southwest Canada represents a whole new market, heavy advertising must start at the beginning of the year in order to achieve maximum exposure. A

Southwest representative will visit major businesses throughout the country to promote Southwest Canada and to offer a rewards program in the form of a frequent flyer card which will be handed out to business professionals. The intervals for theses promotional efforts will take place starting in January then moving into February, May, June, September, and October visiting alternating cities.

Message Theme When a Southwest representative visits the Canadian businesses, they will be personally selling the Southwest name. The goal is to get Canadian

businessmen/women aware of the airline that has just entered the market. In hand, each representative will offer the business associates a frequent flyer mile card. The card will track each passenger's trip. The fifth time they have traveled with

Southwest, they will receive a free one way ticket to their destination of choice.

Promotional Partnership Tour

Target Audience Southwest should plan on partnering up with Contiki Tours. Those being sought for these tours are 17-24 year olds who are looking to vacation for an inexpensive price package. Contiki Tours mainly targets towards groups, but they also encourage individuals who are interested in vacationing with others and do not want to spend a lot of money. This promotional tour will visit college campuses across the United

States. These students will be seeking spring break packages as well as vacation packages throughout the year.

Frequency The promotional tour will begin in February and will end at the end of the school season in the month of May. A Southwest Representative will travel along side of representatives from Contiki Tours to the specified locations. A press release will be sent out to the participating colleges which will be advertised on the campuses in January, February, April, September and October. These months were selected to compliment the vacationing seasons that take place throughout a college semester.

Message Theme

A press release will be sent to participating colleges across America. This will make students aware of the promotional tour Southwest will make with Contiki Tours. Tentatively, the tagline will be; "You know where you want to go. Now who will get you there?" Southwest representatives will travel with the Contiki representatives and help students book their spring break and other short vacations throughout the semesters. This will give Southwest a massive amount of publicity especially since college students have a low disposable income.

VIII. Implementation and Control

MEDIA PLAN

JAN

FEB

MAR APR

MAY JUN

ADULTS 24-60 Network TV Network Cable Billboard X X X X X X X X X X X X

CONTINUED... JUL AUG SEP OCT NOV DEC

ADULTS 24-60 Network TV X Network Cable X X X X X X X

Billboard

TV Reach (1+ exposures)85%

Billboard

65%

Effective Reach (3+ exposures)13% Frequency Weight (GRPs) (ERPs) 130 850 96 260 10 24% 4

PROMOTION PLAN

JAN

FEB

MAR APR

MAY JUN

ADULTS 24-60 Reward Program CONTINUED... JUL AUG SEP OCT NOV DEC X X X

ADULTS 24-60 Reward Program X X

JAN

FEB

MAR APR

MAY JUN

ADULTS 17-24 Tour X X X

CONTINUED... JUL AUG SEP OCT NOV DEC

ADULTS 17-24 Tour X X

Reward Program Reach

Tour

(1+ exposures)90% Effective Reach (3+ exposures)60% Frequency Weight (GRPs) (ERPs) 60 90 50 1

85%

50% 1

85

Proforma P&L

Gross Sales: Less Discounts and Allowances: Net Sales: (Cost of Goods sold): Manufacturing Contribution to Profit: (Distribution) (Sales Expense) (Advertising and Promotion) Marketing Contribution to Profit:

2.42BB --------2.42BB 554MM_ 1.866BB ----------1.5BB _93.2MM_ 274MM

IX. Evaluation Plan

Recommendation 1 The evaluation plan focuses on how the implementation of our recommended strategies can be reviewed and whether or not the strategies could produce the desired outcomes. The evaluation will also give information on whether or not the

investment of these strategies was worth it based on the changes in revenue.

The first of these strategies is to incorporate a strategy to expand the seating on Southwest airplanes by creating business and family classes. By creating a business class section of the plane, Southwest would gain the passengers who typically value a higher level of comfort and amenities at relatively low prices. By creating a family class section of the plane, Southwest will be able to expand its appeal to groups who value the ability to sit together during the duration of flights. These 'families'' would typically fly with competitors for the convenience of being able to reserve package seats ahead of time. Therefore, this strategic plan would in turn expand

revenues, as room for seats which may typically go un-purchased if the flight does not fill up would now be freed up to sit passengers paying more for the seat. It also helps to expand sales into a relatively new market while maintaining the market which is content with the value they are already receiving in coach for the low price they are paying.

Southwest will evaluate the results of implementing such a strategy by analyzing break even points. Southwest will set a quarterly profit objective on its business and family classes of roughly $2 million, and then compare the overall quarterly profits with those of past quarters when business and family sections were not offered. This will clearly paint an accurate picture of whether or not these new strategies are working, and to what degree.

Recommendation 2 Recognizing the potential opportunity cost of not diversifying their product and services to foreign markets, Southwest has opted to implement an aggressive market penetration strategy into the Canadian airline industry. The Canadian airline industry, which offers little to no competition and few barriers to entry, is one which has enormous potential.

Given the small city airports in Canada and the utter lack of competition, Southwest can continue its low operating costs and the practice of transferring that low cost to consumers, being the low-cost provider in two different countries. Currently, the airline market in Canada is dominated by Air Canada, who enjoys a 70% market share (1). The remaining market share is divided amongst much smaller non-

profitable airlines. Therefore, our goal is to penetrate the Canadian market by gaining a 12% market share during the first year of operations. This would put Southwest in the top three bracket in terms of airline market commanders.

The 12% market share objective for year one of operations would be the standard with which we would measure the success of Southwest's Canada campaign. Southwest makes $1.6 billion in revenues in the United States (2); Air Canada is projected to make $253 million (1). This means in order to gain a 12% market share, Southwest would only have to make 10% in Canada what they do in the U.S. Given the favorable exchange rate and efficient operations Southwest has, this goal is highly attainable.

At the end of the first fiscal year, results will be analyzed to determine exactly how much market share Southwest was effective in seizing, and how to proceed with future operations.

Recommendation 3 We will evaluate the effectiveness of our tour promotions in conjunction with Contiki Tours by reviewing the total volume of tickets sold throughout the year through the typical travel agencies Southwest deals with. We will then compare the percentage of these revenues to the total revenue and compare to see exactly how profitable these new operations are. Southwest will further set a profit objective of gaining 6% more profit than in previous years of operations without the agency tour options.

X.

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