UNIVERSITY OF WASHINGTON-BOTHELL

GRADUATE SCHOOL OF BUSINESS

SPRING 2017

BBUS 506 A MARKETING MANAGEMENT

Professor P.V. (Sundar) Balakrishnan

Case Analysis Summary

SOUTHWEST AIRLINES (A)

By
Maninder Kaur
Student Id: 1467683
Southwest Airlines
Southwest Airlines Co., a Texas corporation operating between Dallas/Fort Worth, Houston and
San Antonio was founded by Rollin W. King in March 1967 and entered the airline industry as an
intrastate carrier. After fighting various legal battles with its competitors, Southwest begins its
service in June 1971 in competition with two already established airlines Braniff International
Airways and Texas International Airways (TI). This case describes the challenges Southwest
Airlines face from its competitors and what efforts, decisions and strategies it made to overcome
those challenges. End of the case describes a situation where Braniff has announced a Half
Price Sale on all the flights from Dallas and Hobby airports and Southwest Management now
has to decide how to respond to Braniff Half Price Sale move.

Rolling King and his associates felt a need of better air service among the four cities Dallas-Fort
Worth, Houston and San Antonio. These areas were the fastest growing ones and the market has
substantial opportunity of growth in air service. Braniff and TI were more like interstate carrier
flights flying to much longer distances and serving Dallas, Houston and San Antonio as a part of
their route to major cities. M. Lamar Muse, financial consultant who was elected as president,
treasurer and a director of Southwest on January 26, 1971 also emphasized that because of the
interline traffic in these interstate carriers, local people were not getting seats available in
Braniff. Being Dallas as base for Braniff and Houston for TI, they went out of service in case any
mechanical problem occurred. So, the consumer dissatisfaction from the existing air carriers and
Braniff reputation of being Worlds most unscheduled airline due to poor punctuality solidified
more on the reasons for Southwest to enter with improved air service for the local market.

Before Southwest would start its operations, it had many things in hand to work upon like raising
capital for expenses, recruit specialist executives, training to people for flight and ground
operations, advertising campaign to launch new airline etc. But in 120 days, Company raised $58
million (by selling convertible promissory notes and common stock), hired and trained pilots,
flight & field staff, purchased three Boeing 737-200 aircraft and hired Bloom Advertising
Agency to start an initial advertising campaign.

Advertising Strategy: Bloom agency did research on the characteristics of all U.S carriers
competing and figured out TIs image as dull and conservative. Braniffs image was changing
from glamorous and exciting to more subtle and conservative with its advertising budget reduced
from $10 million to $4 million. Bloom took advantage of this and decided to position Southwest
beyond fun side of Braniffs old image and represent Southwest as young, friendly, dynamic and
efficient. It used all media to advertise such as newspaper ads, TV commercials, radio etc.
Southwest was advertised as Love airline or Love machine and being inexpensive. Bloom
advertised its featured Boeing 737 aircrafts, printing tickets machine, tape recorder to enter
passenger name while check in, hostesses and exotically named drinks etc. Other ways of
advertising were also used like sending vouchers to business executives, encouraged executive
secretaries to be a member of Southwest Sweetheart club and receive free ride with Southwest
by collecting 15 sweetheart stamps in exchange of ticket booking for their bosses. In 1972, the
new Vice president of marketing Jess R. Coker handled the responsibility of advertising sale and
public relations. Also the average passenger loads increased from 18.4 to 26.7 passengers per
flight.
Pricing Strategy: Southwest followed the Pacific Southwest Airlines price model Pick a price
which you can break even with a reasonable load factor. Southwest started with $20 fare with a
break-even of 39 passengers per flight from Dallas to Houston and San Antonio in comparison to
the Braniff and TI price of $27 and $28 respectively. It also offered $10 Friday flights after 9pm.
And then began the price war between Southwest and its competitors. Braniff and TI also
reduced prices to $20 for both the routes and emphasized on their every hour service and others
facilities but Southwest remained stick to its Love model expressing that its competitors can
met its price but not Love. In 1972, Southwest increase the fare to $26 one way offering first
class legroom and free cocktails. Braniff and TI also increased their prices to $26 in response.
Later 1972, It replaced its $10 discount fare and offered $13 one way and $25 round trip on both
the routes each weekday after 8p.m. and with its advertising efforts got 12% higher traffic level
than previous month.

Southwest started making profits on Dallas Houston route but was losing money on Dallas-San
Antonio route due to low passenger volume. Before Southwest decided on discontinuing its
service on this route, Muse decided to offer 60 Day-Half-Price-Sale on all the flights between
Dallas-San Antonio. The impact was huge and led to increase in passenger volume from 17 to 48
per flight in first week and continued to rise further. Braniff did not keep quiet and in response
offered and advertised its half price Get Acquainted Sale on Feb 1 till April 1 on all flights
between Dallas and Hobby Airport. This calls for an urgent meeting at Southwest management
team to evaluate their response to this move.

I think Braniffs intent was to suppress Southwest in every way possible. With its half-price sale,
Braniff aimed again at giving hard time and competition to Southwest. It believed same fare
would again attract people to its services and thus reducing Southwest sales. In my view,
Southwest should run campaigns, newspaper ads, TV commercials representing Southwest
unique image of Love to people and emphasize on its advantages like fast ticketing, better
service, punctuality etc. It can show its effectiveness putting forward the fact that their services
and fares are so good that competitors often tried to copy to prevent themselves from getting
their image tarnished. Southwest can give an option to people to buy ticket at $13 or they can
buy at full price of $26 and get free voucher or some gift. This would at least help to attract
business people who can book their tickets at $26 at company expense but get the voucher or gift
for themselves.

The moral of the case is that it is very important to do proper research on the market and your
competitors before you enter the market. Southwest did a good job in determining the reason of
starting intrastate carrier, benefits it can provide to customers on these routes and the market
potential. There were averaged 483 daily passengers in each direction in 1967 which increased to
603 and 858 in 1972 and 1973 respectively. I believe Southwest did it right to enter the market at
that time. It was able to increase its 18.2% of market share in 1972 to 41.2% in 1973. Southwest
followed successful Pacific Southwest model to determine price, using printing tickets machine
and pedal operated tape recorder. It is very important to understand what is marketing strategy of
your competitors and what marketing/advertising strategy should new company follow to make
its unique brand image and position in market and consumers mind. Also the new company
should have Capital to sustain or at least be sure that it would be able to raise money to cover up
its startup expenses or may be losses for some time. Sometimes, you need to be little patient and
have to take appropriate actions to your competitors moves to gain success.

Appendix

Calculation of Break Even Load

From Exhibit 8,
Operating Expenses for Q4, 1972 = $1.842 million

From Exhibit 9
No. of flights = Regular flights + Discount flights
= 2038 + 471 = 2509

Operating expenses per flight = (1.842 million/2509) = $734.16

Break Even Load (BEL) = (Operating expenses per flight)/ (Unit Ticket Price)

For Ticket Price = $26

BEL = 734.16/26 = 28.23

For Ticket Price = $13

BEL = 734.16/13 = 56.47