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Southwest Airline's Case Analysis

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by

Zach Morgen

on 30 April 2014

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Transcript of Southwest Airline's Case Analysis

Southwest Airline's
Case Analysis


Problem Definition
The primary problem with this case deals with price competition. Specifically,
How should Southwest Airlines adjust their prices to establish higher operating daily profit in the competing routes with “Shuttle United”, given “Shuttle United’s” changes to service and pricing, the industry’s price-cost predicament, and rising fuel costs.
What if we do nothing?
No changes in price would be implemented. SW would continue their focus on customer service, lean turn times, and low fare cost leader.
Match Price of Shuttle By United
Adjust Price By Lower Amount
Southwest Airlines would increase by $5 per fare to maintain the "low fare image" airline.
Issues
Shuttle By United $10 Price Increase
Rising Fuel Costs
Maintaining Low Fare Image
Growth & Recognition
Overview of Alternatives
Recommendations
Increase fare by $5
The additional $95,141
Stand out
Continue to focus on
Turn times
Customer Satisfaction
Objective
Continue to emphasize customer service while maintaining the "lowest fare airline" image.
Metric
Establish higher daily operating profit in competing routes with Shuttle By United.
Constraints
"Shuttle By United's" pricing change
The industries price/cost predicament
Rising Fuel Costs
Current
Approach
Match "Shuttle
By United"
Increase Price By Lower Amount
Advantages
No risk in market changes
Load factor will increase due to United's increased prices
Disadvantages
Decline in perceived value
No increase in sales margins
Negative impact on profit due to fuel prices
Advantages
Daily operating profit increased to $231,366
Increased profit to cover increased fuel costs and the decreased demand
Disadvantages
Decreased load factor
"Shuttle By United" would gain advantage due to first class seating
Southwest would lose "low fare image"
Advantages
Daily operating profit increased to $136,650
Due to inelasticity in demand ticket sales will not be affected
Provides cushion for future fuel cost increases
Will maintain customer base
Disadvantages
Demand increase for Southwest from United's price increase will be less substantial
Possible decrease in loyal customers
Agenda
Southwest Mission Statement
Problem Definition
Southwest Airlines Issues
Promotions
Positioning Statement
Alternatives
Recommendations
Implementations
Southwest's Mission
"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."
"Better quality plus lesser price equals value, plus the spiritual attitude of our employees equals unbeatable."
Southwest Airlines would increase price by $10 per fare to match the price of "Shuttle By United"
Q1
Q2
Q3
Q4
Quarter 1
Monitoring
Demand changes
"Shuttle By United" increased fares
Customer reactions
Electronic Ticketing
Calculating
Margins for future fuel increase
Quarter 2
$5 increased fare implemented
Quarter 3
Increase in Fuel Cost to industry
Monitor
$5 increased fare
Customer satisfaction
Competition
Quarter 4
Review & Discuss
Current stance with pricing positions
Customer Satisfaction
Maintainence of Company Image
Contingency Plan (if needed)
Implementation Issues
Trust Us
Presented By:
Blanca Navarro
Zach Morgen
Matt Harpold
Erik Sorensen

Promotions
"We seek amuse, surprise, and entertain."





"The Company Club"
Stand out at airports (boarding)
Electronic Ticketing
Positioning Statement
High frequency business travelers who are:
--> Price Conscious
--> Heavy Travelers
Confident Consulting
"Our people are our single greatest strength and
most enduring longterm competitive advantage."
Gary Kelly, CEO Southwest Airlines
1995
Full transcript