Revenue Generation Strategies for Southwest Airlines

Southwest AirlinesSTRATEGY ANALYSIS

Colyn Bruss

Shane Fairfield

Byia Martin

Marcus Sanford

Mission of Southwest Airlines

"Our people are our single greatest strength and most enduring long term competitive advantage."Gary Kelly, CEO Southwest Airlines

Mission Statement of Southwest Airlines

The mission of Southwest Airlines is dedication to

the highest quality of Customer Service

delivered with a sense of warmth, friendliness,

individual pride, and Company Spirit.


To Our Employees: We are committed to provide our Employees a

stable work environment with equal opportunity for learning and

personal growth. Creativity and innovation are encouraged for

improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring

attitude within the organization that they are expected to share

externally with every Southwest Customer.


To Our Communities: Our goal is to be the hometown airline of

every community we serve, and because those communities

sustain and nurture us with their support and loyalty, it is vital that

we, as individuals and in groups, embrace each community with the SOUTHWEST SPIRIT of involvement, service, and caring to make

those communities better places to live and work.


To Our Planet: We strive to be a good environmental steward

across our system in all of our hometowns, and one component of

our stewardship is efficiency, which, by its very nature, translates to

eliminating waste and conserving resources. Using cost-effective and environmentally beneficial operating procedures (including

facilities and equipment) allows us to reduce the amount of

materials we use and, when combined with our ability to reuse and

recycle material, preserves these environmental resources.


To Our Stakeholders: Southwest’s vision for a sustainable future is

one where there will be a balance in our business model between

Employees and Community, the Environment, and our Financial

Viability. In order to protect our world for future generations, while meeting our commitments to our Employees, Customers, and

Stakeholders, we will strive to lead our industry in innovative

efficiency that conserves natural resources, maintains a creative

and innovative workforce, and gives back to the communities in

which we live and work.

External Analysis of Southwest Airlines

External Analysis of Southwest Airlines

EFE Matrix for Southwest Airlines returned a total weighted score for

both opportunities and threats of 2.81

What this score shows is that Southwest does an above average

job of effectively taking advantage of existing opportunities and minimizing the potential adverse effects of external threats within

the industry

Opportunity with highest weighted score was improvement to airplane

technology increasing profitability and decreasing environmental impact.

Threat with highest weighted score was volatile fuel prices from political or other

causes that could increase profit pressures on the airline.

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis

Porter’s Five Forces Threat

Bargaining Power of Consumers Low

Bargaining Power of Suppliers Low

Threat of New Competitors Low

Threat of Substitutes Medium

Rivalry Among Competing Firms High

Internal Analysis of Southwest Airlines

Internal Analysis of Southwest Airlines

IFE Matrix for Southwest Airlines returned a total weighted score for

both strengths and weaknesses of 3.25

What this score shows is that Southwest has a strong internal

position to capitalize on opportunities and minimize threats.

Strength with highest weighted score was fleet of all 737’s to take advantage of

operational efficiencies which keeps maintenance and labor costs down, and

contributes to Southwest’s quick turn-around time for flights.

Weakness with highest weighted score was losing out on additional revenue by

not charging ancillary fees.

Internal Analysis of Southwest AirlinesSWOT Matrix

Strengths (S)1. Point-to-point strategy

2. Merger with AirTran

3. Corporate culture

4. Marketing & branding

5. Fleet of all 737s

6. Integration of new technologies

Weaknesses (W)1. Challenge of integrating AirTran

2. Introduction of longer flights

3. Discontinuing service to airports

4. Growth into larger airports

5. Losing out on ancillary fees

6. No variety in classes on flights

Opportunities (O)1. Industry profits estimated $6.3B

2. Ancillary fees for revenue

3. Availability of open gates

4. Airplane technology to save on

fuel & emissions

Strength/Opportunity• Expand to new or gain access at

existing airports. (S3,S2/O3)

• Update existing fleet of 737s to

take advantage of new

technologies. (S4,S5,S6/O2,O4)

Weakness/Opportunity• Implement new ancillary fees,

keeping in line with mission and

keeping up with industry. (W5/O2)

• Longer flights to take advantage

of lost opportunities. (W2/O3,O4)

Threats (T)1. Increase in fuel prices

2. Noise regulations in urban areas

3. U.S. economic conditions

4. Environmental concerns

5. Decrease in business travel

demand due to technology

Strength/Threat• Update existing fleet of 737s to

save fuel costs and take

advantage of new technologies.

(S7/T1,T4)

Weakness/Threat• Implement new ancillary fees,

keeping in line with mission and

keeping up with industry. (W5/T3)

Strategy Recommendation 1

Priority Boarding Groups

Strategy 1: Priority Boarding Groups

Unlike most airlines, Southwest has never used assigned seating.

All seating is open, and passengers board by groups and position within

that group: A1-60, B1-60, C1-60, etc.

The airline did recently add a “Business Select” service aimed at corporate

travelers to allow them to buy up to boarding group A, positions 1-15.

There is an opportunity to raise additional revenue by allowing the

purchase of other boarding groups by all ticket purchasers.

Strategy 1: Priority Boarding Groups

Allowing the purchase of slots throughout the A and B boarding groups

could help Southwest raise additional revenue.

A sliding scale would be employed depending on how high in the

boarding system one wanted to “buy into”.

With the existing Business Select group, we recommend adding four

additional boarding groups, for a total of five

This would add some ancillary revenue at a very minimal cost.

Boarding Groups and Fees

Boarding Group Add-On Fee Passengers Total Revenue

A1-A15(“Business Select”)

$25 15 $375

A16-A30 $20 15 $300

A31-A60 $15 30 $450

B1-B30 $10 30 $300

B31-B60 $5 30 $150

Totals 120 $1,575 Average ancillary revenue per passenger per flight = $13.13

Potential ancillary revenue per flight

Strategy 1 Effects on Revenue

Southwest flies 3,200 flights daily and carries 109 million passengers per year.

At a 50% adoption rate, this could represent a gain of between $715,312,500 and $919,800,000 each year.

(Potential of $1,575 per flight) / (120 total

passenger slots) x (109M passengers per

year) x (50% adoption rate) = $715,500,000

(3,200 flights daily) x (365 days per year) x

(Potential of $1,575 per flight) x (50%

adoption rate) = $919,800,000

Period Potential

Revenue Gain

Flight $1,575

Day $2,520,000

Annual $919,800,000


In-Flight Services

Strategy 2: In-Flight Services

In-Flight Amenities include things such as food and beverage items as well

as entertainment, internet access and other items.

Southwest’s current paid offerings include alcohol purchases at various

price points, and a fee of $8 for in-flight wi-fi Internet access.

The airline does not currently offer any premium food or entertainment

offerings, unlike many of its competitors.

Expanding In-Flight Entertainment

Southwest does not currently have screens built into its seatbacks.

Our recommendation is to have tablets available for use during the flight

as an add-on fee to increase ancillary revenue for Southwest.

These devices are relatively inexpensive and could provide many benefits

for passengers while providing a positive return for Southwest.

Supplying 20 Apple iPads to each of Southwest’s 579 aircraft would require

an up-front investment of approximately $5,778,420.

By charging only a $5 fee for use of the iPads, and figuring a 70% usage

rate per flight, the addition of available iPads for passengers to use could

net just under $76,000,000 in additional revenue per year for Southwest.

Premium Food Offerings

Even though they do offer paid purchases of alcoholic beverages, there

are no premium food offerings available from Southwest.

Complimentary offerings include peanuts, pretzels, or a small snack

package on longer flights.

We recommend partnering with one or more food brands to offer a variety

of packages in price ranges from $3-$6 each.

If 15 boxes at each price point were sold during each daily flight, this could

add $157,680,000 in annual revenue to the airline.


Tactic $/Flight $/Day $/Annual

Tablet Access $140 $448,000 $163,520,000

Premium Food $135 $432,000 $157,680,000

Total $321,200,000


Interline Baggage Transfer

Strategy 3: Interline Baggage Transfer

Southwest has traditionally declined to offer any interline baggage transfer

services.

Recently, other airlines have begun to follow suit and soon the industry

may have no carriers which offer this service.

We see this as a prime opportunity for Southwest to make an “about face”

and start offering interline baggage transfer.

Our recommendation is for Southwest to offer this service to passengers for

a fee of $25.


At an estimated 5 percent of

Southwest passengers traveling

interline, we can make a revenue

estimate at a 50 percent adoption

rate for the interline baggage transfer

service.

Period Potential Revenue

Gain

Flight $58.33

Day $186,643

Annual $68,125,000

Summary of Recommendations

Potential Revenue Impact

Strategy Daily Revenue Annual Revenue

Boarding Group Priority $2,520,000 $919,800,000

Tablet Device Rental $448,000 $163,520,000

Premium Food Options $432,000 $157,680,000

Interline Baggage Transfer $186,643 $68,125,000

Totals $3,586,643 $1,309,125,000

QUESTIONS / COMMENTS?