Southwest Airlines Marketing Strategy

Case Study 11: Southwest Airlines

1) What has been Southwest's traditional pricing strategy? Why has this pricing strategy been so successful throughout the airline's first three decades?

Since its inception, Southwest has prided itself on the pursuit of low fares. It has always sought to remain the lowest in the airline industry for specific routes that it flies. When Southwest successfully is the market leader in a low priced route, other airlines drop fares to match in order to remain competitive. This is something that generally occurs with most airlines nowadays and not just Southwest except those flying to or from a hub city. This pricing strategy has been successful because Southwest operates as a no frills airline. It does not have first class, no seat assignments, no airport lounges, flies only one type of plane, no meals, few promotions, and is not responsible for a pension for its employees—to name just a few. The elimination of these expenses contributes to the success of Southwest's low pricing strategy and enables them to keep their prices low even when their competition cannot match price because they require the additional profit to maintain these cost centers that Southwest does not have. Moreover, Southwest prides itself on not charging additional fees, such as baggage fees, commonplace with its competition in today's market.

2) What values do airline customers—both business and leisure travelers—seek when they buy air travel tickets? Has Southwest done a better job than competitors of meeting the needs of these air travelers? In what ways?

Each class of customers generally desires different things. Business travelers generally do not care as much about price and value convenience, the type of aircraft flown, the ease with which tickets can be changed, a great frequent flier program that has huge perks, a lush first class cabin and assigned seating, a sumptuous airline lounge with free drinks, and the assurance of on time arrivals. On the other hand, leisure travelers prefer low pricing, on time arrivals and of course no additional fees. Rather than fly from hub to spoke as its competition does, Southwest flies a bus route. Continually cycling planes through the route of carefully selected, high profit cities and using smaller less crowded airports within these cities when possible has not only contributed to its pricing success but has won the loyalty of leisure travelers who are not on a schedule and are not required to be highly productive during the airplane ride. In addition, the leisure traveler is less likely to mind being flown to a smaller airport farther outside of the destination city than a business traveler is. On time performance, enjoyed by both classes of travelers, is easily achieved by Southwest due in part to an internal policy. This policy mandates a crew who is changing airplanes enjoy a gate change no more than three gates away from the arriving flight. This minimizes flight delays due to long walks at larger airports.

Southwest seems to have done a better job than competitors at meeting the needs of the leisure traveler whose needs are not as well tended by competition who cater to the business traveler. Although the leisure traveler may enjoy the same amenities the business traveler does, the leisure traveler mainly wants to get to their destination as quickly as possible, which Southwest does well.

3) What internal and external factors affect airline-pricing decisions? What impact are these factors now having on airline pricing and profitability?

Internal factors affecting pricing decisions include the airline's marketing objectives, which in Southwest's case clearly demonstrates they strive to make a profit. Southwest sets a low price believing they will increase their volume of passengers and thus capture more market share and increase profits. Southwest might as well fill its empty seats with low fares, the seat flies whether full or empty and Southwest tries to garner revenue by filling the seat at the lowest