Southwest Airlines Harvard Case free essay sample

On February 1, 1973, Braniff International Airways announced that it was introducing a 60-day, half-price sale for flights between Dallas and Hobby, which is Southwest Airlines’ only profitable route. Southwest needs to determine how to respond to this threatening strategic pricing move by Braniff in order to continuously stay ahead of their losses, and possibly reduce or eliminate it further for that operating year. Situational Analysis 3Cs: Competition Before Southwest was established, two airlines were servicing the geographic market Braniff International Airways and Texas International (TI) Airlines. Though both provide intra-state transportation between the four fastest growing cities in Texas, they only â€Å"represented legs of much longer, interstate flights. †1 Services were, therefore, very poor for these routes as both focused primarily on their interstate flights. As such, an opportunity arose for Southwest from the stark and growing dissatisfaction of customers. At that point, Braniff held 86% of the market. Braniff International Airways As a carrier, prior to Southwest’s entry, Braniff held the most Dallas-Houston route traffic, averaging 483 passengers per day in each direction. We will write a custom essay sample on Southwest Airlines Harvard Case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page However, â€Å"there was so much interline traffic that most of the seats were occupied by [interstate passengers]. While [they] had hourly service, there really weren’t many seats available for local passengers. People just avoided flying in this market. †2 In addition to this, its reputation for punctuality was very substandard that it was commonly known as the â€Å"World’s Largest Unscheduled Airline. †3 Braniff’s image in 1971 has changed from being fun, glamorous, and exciting to â€Å"a subtler, more conservative style†4 as they reduced advertising budget to $4 million, from more than $10 million in 1967. In 1967, Braniff serviced their greatest average number of daily local passengers of 416 out of 483 passengers (86. 1% of the market) with only one other competitor. In 1971, when Southwest entered the picture, Braniff had an average of 370 out of 603 passengers daily, reducing their market share to 61. 4%. In 1972, this was further reduced to 50. 1%, with only 384 out of 767 passengers flying with the company. Texas International Airlines Prior to Southwest’s founding, TI was one of the only two airlines providing intrastate flights for Texas’ cities. Compared to its competition, TI only held 24. 6% of the market in its best year since 1967, falling heavily behind when Southwest came in the picture. In contrast to Braniff, TI had an image of being â€Å"dull and conservative, with a bland image. †5 3C’s: Customer What the intrastate airline industry was catering to were mainly executives whose occupation required them to travel to Dallas, Houston, and San Antonio. They were mostly looking for on-time flights for the lowest fare possible (as trips only take around one hour) with airlines that have minimal cancellations and/or delays. Another very small market consisted of those who flew to these cities for other reasons, such as leisure, etc. They were mostly in the lookout for a transport service that gave them value for their money. 3C’s: Company What Southwest offered was a better air transportation service frequent, punctual and low fare. They catered to value-conscious consumers who were usually small business executives and who needed to travel conveniently to the different major cities in Texas. The Southwest brand displayed an ‘obviously fun’ image, focusing on using playful advertisements that usually revolve around the word ‘love. ’ This focus gives them an air of being customer-oriented, which is further fortified by their distributing (direct marketing not much on travel agents) and pricing strategies (offers lowest possible fare). This depiction provides the brand a sharp distinction with its competition. Evaluation of Alternatives PROS CONS 1. Follow suit by reducing fare to match Braniff’s price SW will make sure they remain competitive with Braniff for their most profitable route SW ensures that they service their current customers with the best price, thereby keeping with their â€Å"love† advertisements May be implemented immediately SW will potentially suffer financially: revenues may fall significantly due to the pricing cut SW may not be able to get as much passengers to counter the reduction If the above happens, SW will increase their already lowering losses 2. Do nothing no positive outcome SW will undoubtedly lose their customers to Braniff, at least for the duration of the half-price fare; although, it is most likely that they lose them altogether since sticking to their price may already hurt their â€Å"loving† relationship with their customers SW will lose their most profitable route, therefore lowering their revenues and increasing the pool of losses 3. Introduce additional services for the same (not half-priced) fare SW can safeguard a fraction of their customer base by adding services or promos as a rationale for keeping the same flight fare SW can use the platform to reignite their quirky advertising through the supplementary services they come up with May be implemented immediately The lower price fare would still attract majority of the passengers, especially for just an hour-long flight Unless SW figures a way to make the ‘complimentary’ services attractive enough for paying the full price, SW will look at significant losses in customers and revenues 4. Introduce new flight classes SW can offer an ‘economy class’ that have half-priced fares (thereby matching Braniff’s price), while offering ‘executive class’ for those still willing to pay the full price for certain perks, and possibly even a ‘premium class’ for those willing to pay more for certain services and perks This guarantees that SW stays in the playing field with Braniff, most especially in their most profitable route Feasibility problems: difficulty in in-flight orientation, changes in in-flight servicing SW will need to increase spending for certain services and the changes Takes time 5. Introduce loyalty program SW may be able to build a stronger, more loyal customer base that may stick with them through pricing wars with competition If properly implemented, it can become a powerful leverage against competition Builds long-term, profitable and mutually beneficial relationship with customers who matter May be expensive No assurance of degree of success Takes time Recommendations Given Southwest’s current financial situation, it would be best if alternative number 2 is scrapped completely, with the rest of the alternatives applied in phases. Since response is needed to be immediate, alternatives 1 and 3 can be implemented in conjunction as soon as possible. Combining both alternatives would increase the likelihood of success and reduce the impact of Braniff’s pricing promotion significantly more than implementing either on their own. More importantly, providing alternative 3 as an option for passengers to claim will not only somehow pad the possibility of being unable to reach the targeted number of sales via the half-price fare in order to, at the least, break-even, it can also become an avenue to reinforce the image of Southwest of being â€Å"fun. † For example, in relation to one of Southwest’s previous promotional antics, it can offer free-flowing alcohol for passengers who choose to pay the full fare. For the longer term, Southwest should also introduce new flight classes and loyalty programs. If successfully implemented, this would put them in a powerful market position wherein their profitability is not as hard to challenge and strain.