Southwest Airlines Care Study

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Recommendation

With Southwest rejecting adding fees to their fares, how can Southwest increase revenue? With a nearly saturated domestic market, Southwest must look beyond the borders of the United States. When Southwest started in the early 1970’s, it was a small airline that flew in Texas. It slowly grew into the second largest air carrier of domestic passengers in the United States in 40 years. Southwest could fly to Hawaii which is about a 2500 miles trip. Southwest could start slowly and start servicing markets into Canada and Alaska. Southwest could start flying into smaller airports in cities such as Toronto, Montreal, and Vancouver. As the business starts to grow and expand, Southwest move into more cities across Canada.

The 737 that is the workhorse of the Southwest fleet has a range of about 2700 miles. This distance could expand Southwest to cover most of North America. From Florida, Southwest could service most islands of the Caribbean. With a stop for refueling in the Caribbean, Southwest could even reach South America. If Southwest would invest in larger planes, such as 747, 757, 767, 777 or Airbus, Southwest could reach even further international cities. With these larger planes, Southwest could expand into larger airports. Once Southwest has expanded into these larger airports, international travels could be made easier. Passengers would not need to transfer airports to connect with these flights.

Airlines have recently been adding extra fees to its passengers. In 2013, JetBlue airlines carried 30 million passengers to the 133 million that Southwest carried. JetBlue charged and extra $170 million in fees for extra leg room and priority boarding. People are willing to pay a little extra for services that they want. Personally, I have paid as much as $60 for a little extra leg room. I am 6’3” and don’t like to be crammed into a seat. I will pay a little more for more leg room. I also enjoy a seat on the aisle and will pay for that also.

Another way to increase revenue is for Southwest to have passengers pay for seat upgrades. Even a modest charge of $15 for a window seat and $10 for an aisle seat could generate extra revenue for each flight. A typical 737 that is in Southwest’s fleet has 23 rows. That gives Southwest 46 window seats, 46 aisle seats and 46 middle seats. In the example of $15 for the window seat, Southwest could generate $690 extra per flight. If Southwest added a charge of $10 for each aisle seat, that would generate and extra $460 per flight. By utilizing both of these charges, Southwest could generate $1150 per flight. In 2015, Southwest operated more than 3900 flights per day. By utilizing the above charges, Southwest could generate and extra $4.4 million each day and over $1.6 billion over the course of a year. Even with this slight charge, Southwest could greatly increase its revenues.

Conclusion

Southwest has a proven record of success over the past 45 years. It started as a small airline in Texas and grew into a domestic leader in air travel. The long term success of Southwest may mean looking into new markets. Southwest already moves about 20% of the domestic travel. If Southwest were to enter the international market, they could reach most of Canada, Mexico, and the Caribbean. They could reach this market with their current fleet and maybe a connecting flight. Southwest could invest in larger aircraft would could international travel easier. With modest fees for window seats, Southwest could generate several million dollars of extra revenue every day. As Southwest has grown and expended over the last 45 years, Southwest needs to find extra sources of income. Sometimes, a little change could be a good thing.

References

Enhancing Service at Southwest Airlines Case Study

http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_03_18.html

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Marshall, G.W., Johnston, M.W. Marketing Management 2e, McGraw Hill Publishing, 2015.

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