Executive Summary
This report entails an analysis of how Southwest Airlines should adjust its current business strategy, viz. the low-cost strategy to remain competitive. Currently, the airline industry is undergoing remarkable transformation due to different market forces such as intense competition and an increase in the intensity of competition.
Therefore, it is not feasible for the airline to continue relying on the low-cost strategy as a source of competitive advantage. On the contrary, the airline should evaluate the most effective strategy to adopt to sustain its long-term competitiveness. The report identifies three main strategies, which include market development, product development, and market penetration. However, the report recommends Southwest Airlines to adopt the market penetration strategy.
The rationale for this strategy arises from the fact that its adoption will enable the airline to stimulate its profitability in the long term. The report specifically identifies the Latin American airline market as the most feasible markets for the firm to consider. The report further outlines the specific aspects issues that the airline should take into account to penetrate the identified Brazilian market successfully.
Introduction
Background information
Southwest Airlines Company was established in 1967 in Dallas, Texas. The airline offers scheduled air transport services in the US and near-international markets. Southwest Airlines mission entails providing Americans freedom to fly. The airline has been in operation in the US market for over 44 years and has succeeded in developing its infrastructure.
By the end of 2014, a fleet of 12 Boeing 717 aircraft’s and 665 Boeing 737 aircrafts facilitated the airline’s operations. Southwest Airline principally offers point-to-point transport as opposed to hub-and-spoke service. This approach has enabled the airline to optimize its resource utilization such as employees and aircrafts.
Thus, the airline has succeeded in minimizing occurrence of flight delays. Subsequently, the airline has developed adequate competitiveness due to increased level of convenience (“United States Securities and Exchange Commission” par.2).
Despite the economic fluctuations, the airline has managed to attain a relatively high level of profitability. The airline’s level of profitability was highest in 2013 where it amounted to $754 million from a low of US$99 in 2009. In addition to profitability, Southwest Airlines has a relatively strong balance sheet. At the first half of 2014, the airline had generated US$ 1.6 billion in free cash flow (“International Air Transport Association” par. 3).
Over the past four decades that the Southwest Airlines has been in operation in the US airline industry, the firm has managed to develop position itself as an iconic brand. This scenario has arisen from the adoption of aggressive marketing campaigns such as sponsoring sporting events and online advertising. Thus, the airline was ranked amongst the top five traveled brands by the American Brand Excellence Awards (“International Air Transport Association” par. 5).
The airline commenced near-international operations in 2014 by establishing routes into five Latin America countries such as the Dominican Republic, Mexico, The Bahamas, Jamaica, and Aruba to maximize profitability. Another strategy that the company has employed entails acquisition.
In 2011, the airline acquired AirTran Airways hence expanding and diversifying its route network. Moreover, the acquisition has increased the chances of Southwest Airlines attaining near-term growth. In its operation, AirTran Airways has adopted the hub-and-spoke system hence improving Southwest Airlines’ competitiveness.
Southwest Airline faces intense competition from three main airline companies, which include JetBlue Airways Corporation, Americana Airlines Group Incorporation, and Delta Airlines Incorporation.
The three companies have been in operation in the US airline industry for a considerable duration and have established a strong market presence. For example, Delta Airline accounts for 22% of the market share while the American Airlines and JetBlue airlines market share are estimated to be 12.7% and 1.9% respectively (“International Air Transport Association” par. 9).
Critical analysis of the company’s current strategy
Over the past four decades, Southwest Airlines has largely leveraged on the low-cost strategy. Through this strategy, Southwest Airlines has been in a position to develop an adequate competitive advantage in the domestic market due to the low-cost leadership that it has achieved.
According to Thompson, “an organization must be the cost leader and unchallenged in this position to implement the low-cost leadership strategy” (201). The objective of adopting the low-cost structure is to provide the airline an opportunity to maximize profitability by charging low fares. Currently, Southwest airline ranks amongst the carriers with the lowest unit costs in the US.
One of the factors that have made the airline succeed under the low-cost structure entails the usage of the Boeing 737 as the company’s aircraft type. Boeing 737s aircrafts are considered very efficient regarding the operation of point-to-point route structure.
By using a single aircraft type, the airline has simplified other operational activities such as training its workforce, flight maintenance, and flight operations. The airports in which the airline operates are not congested and optimally located, which increases the airlines’ asset utilization hence its operational efficiency. Moreover, the airline is characterized by a highly productive workforce (“United States Securities and Exchange Commission” par. 8).
The implementation of the low-cost strategy is based on identifying a distinct customer group characterized by consumption needs that can be described as slightly below average. In its operation, Southwest Airlines targeted tourists in the domestic market who were largely concerned about the price of airfares.
Subsequently, the company offered these customers air travel services at a lower price point compared to its competitors. It is imperative for an organization to integrate superior management practice to benefit from the low-cost strategy. One of the ways through which this goal is achieved is by eliminating including aspects that customers may consider unimportant in its product offering (Thompson 201).
Problem Statement
Since its inception, Southwest Airline has largely focused on the domestic market. Thus, the airline has not fully exploited its profitability potential by expanding its market into the international market. This aspect increases the economic risk that the firm might encounter due to changes in the domestic market.
For example, heightened competition in the domestic market might arise from the increase in the number of local and international carriers operating in the US domestic market. Furthermore, the industry players may imitate the low-cost structure adopted by the firm hence limiting Southwest Airlines ability to maximize its profitability using the low-cost model. Therefore, the airline must consider feasible approaches to sustain its profitability.
Due to the adoption of the low-cost structure, Southwest Airlines can be described as a production-oriented entity. Thompson defines a production-oriented firm as an entity that is concerned with reducing the cost of production through mass production to maximize its profitability (202). This phenomenon is evidenced by Southwest Airlines decision to operate a massive fleet of aircrafts. Despite its efforts to implement the low-cost strategy, Southwest Airlines can no longer be termed as a low-cost carrier.
Over the past decades, the airline has succeeded in attracting large customers based on the low-cost model. However, Smith emphasizes that low prices alone cannot amount to a sustainable competitive advantage (par. 1).
Moreover, the global airline industry has changed significantly over the past few years. One of the major sources of change relates to the increasing cost of jet fuel. Wensveen cites jet fuel as one of the major determinant in airfares (320). Furthermore, the cost of fuel is very unpredictable because they are subject to external factors.
Wensveen further affirms that fuel consumption “varies considerably from route to route depending on the stage lengths, aircraft weight, and wind conditions” (320). By the end of 2014, the cost of jet fuel at Southwest airline had increased from $1.80 per gallon to $3.16 per gallon between 2007 and 2014.
Moreover, fuel costs account for approximately 35% of the company’s total spending, which is an increase from the low level of 29% in 2014 (Bachmana par. 3). Due to these changes, Southwest Airline is no longer considered as the low-cost leader in the US airline industry. On the contrary, the airline’s operating cost is close to its major rivals, viz. Delta Airlines, the American Airlines, and JetBlue.
In addition to the increasing cost of operations, Southwest Airlines is also facing a challenge arising from the elusive nature of the once robust profitable industry. Over the past decades, the industry’s growth has been facilitated by the low-cost carriers, which account for 25% of the total market share.
However, the influence of different exogenous factors has made it a challenge for airline companies to maximize their profitability. Subsequently, the industry players must integrate other strategies that will enhance their profitability despite the changing industry performance. Another challenge that the airline is facing relates to the increase in consumer expectations.
Percy argues that a production-oriented company should be cautious to avoid production inefficiencies, which might affect the quality of the final product (233). Besides, customer disaffection has become a major concern for airline carriers. Therefore, the changing customer expectations coupled with the increase in fuel cost poses a risk to the company’s profitability and competitiveness. Consequently, the firm should not understate the importance of adjusting its business strategy.
This aspect means that the effectiveness of the airline’s low-cost strategy in promoting the company’s future sustainability in the contemporary business environment is considerably low. Thus, failure of the company to adjust its business strategy might limit its future competitiveness.
Recommended strategic alternatives
Despite the challenges that the firm faces due to change in industry trends such as high fuel cost, change in customer expectations and decline in the level of profitability, Southwest Airlines has an opportunity to achieve market leadership. The firm can achieve this goal by adjusting its strategic approaches.
Hill and Jones opine that a company should utilize its distinctive strengths to capture a high market share in an industry characterized by declining performance (220). Some of the strategic alternatives that the company can integrate are market penetration, market orientation, and product orientation.
Product development
Kumar defines a product to include the promise that a company makes to the target market in exchange for their money (10). The promise is comprised of different aspects such as emotional overtones, attributes, and status appeal amongst other benefits. Kumar asserts that a product-oriented company believes that a superior product attracts a considerably large number of customers hence increasing the likelihood of maximizing profits (10).
A company can focus on six different product development strategic orientations in implementing the product orientation strategy. They include low product cost, product performance, quality, reliability and robustness, and time-to-market (Saqib 65). Some companies have succeeded in leveraging on product orientation as a source of competitive advantage. Examples of such companies include Mercedes, a well-established automobile company. The company is renowned for its engineering excellence and status appeal (Kumar 10).
Therefore, to improve its competitiveness, the company should consider improving the quality of the product that it offers its customers, viz. air transport. This move will play a fundamental role in ensuring that customers develop a strong association with the firm.
Currently, most customers are attracted to Southwest Airlines because of its low pricing. However, changes in industry dynamics such as increase the price of jet fuel are challenges for the company to sustain its low pricing strategy. This situation is well illustrated by the company’s decision to adjust its prices.
Despite the effectiveness of the product development strategy for enhancing the company’s competitiveness, the strategy is not free from challenges. One of the notable challenges entails an increase in the cost structure. This aspect means that the strategy might result in the company engaging in vicious price wars (Hill and Jones 214).
Market development
The second strategic alternative that Southwest Airlines should consider entails position itself as a market-oriented entity. Hill and Jones affirm that a market-oriented entity is largely concerned with developing and utilizing market intelligence (212). This assertion means that Southwest Airlines will be concerned with understanding the customers’ wants and needs.
Thus, the market-oriented strategy is based on the concept of the customer being the king. Failure to position itself as a market-oriented entity will significantly reduce the company’s ability to satisfy its customers’ needs and wants.
One of the advantages that Southwest Airlines can gain by adopting the market-oriented approach entails an increase in the likelihood of the firm transforming itself into a customer-centric entity.
This assertion arises from the view that the firm leverages on the market intelligence gathered from the market research that the firm undertakes. Secondly, the market orientation strategy will enable the airline to develop a strong business culture that appreciates the customers’ behavior hence increasing its likelihood to deliver superior value to its target customers.
For example, in its product development process, the airline will be concerned with understanding the customers’ opinion regarding its products. Subsequently, the firm will provide insight on the areas in which product improvements are necessary. By adopting the market orientation strategy, Southwest Airlines will be in a position to undertake continuous product development.
Market penetration
Considering the saturated nature of the airline industry in the US, Southwest Airlines should consider integrating the concept of market penetration. If the company fails to penetrate new markets and only focuses its operation in the domestic market, Southwest Airlines will not maximize its profitability because of the intense competition.
Under this strategy, the airline should consider expanding its provision of air transportation services into new markets. One of the ways through which the airline can implement the market penetration strategy entails internationalization. In its internationalization strategy, the airline should avoid markets that are close to reaching the maturity level. On the contrary, the firm should identify airline markets that are characterized by a high rate of growth.
Hill and Jones affirm that market penetration is based on investing in extensive marketing communication to ensure that the product being introduced into the new market is effectively differentiated (213). For example, in its quest to penetrate the technology industry Intel adopted an aggressive marketing campaign to influence the target customers brand choice.
By investing in extensive market penetration, the likelihood of a firm increasing its market share is considerably high because of the positive influence created on the rival customers mind. For example, the aggressive market campaign might entrench the brand in the customer’s mind hence increasing the chances of charging a premium on its prices.
The intensity of competition in the global airline industry has increased the need for the industry players to increase their market share. The adoption of the market penetration strategy can increase the likelihood of the firm achieving the desired market share in addition to reducing the financial risk associated with intense competition (Geppert 35).
This view arises from the fact that the market penetration strategy provides an opportunity for companies to extend the lifecycle of their products. Therefore, by adopting this strategy, the probability of Southwest Airlines increasing its market share in the new markets will be increased substantially. The firm will achieve this goal by marketing its products into new market segments.
Despite the benefits associated with market penetration, implementation of the strategy is time intensive (Geppert 35). This aspect means that Southwest Airlines will consume a substantial amount of time in making its air transport services know in the new market. Moreover, the firm faces the risk of product imitation in the new market. This aspect might occur if the competitors in the new market entered starts offering air travel services similar to the firm.
Choice of strategic alternative
Market penetration
It is imperative for Southwest Airlines to consider adopting the market penetration strategy to survive in the changing airline industry. In its market penetration, the firm should target the international market. The choice of international market arises from the need to exploit opportunities available in the international market. Some of the markets that Southwest Airlines should consider entering include the Latin America and the Caribbean markets.
The Latin American countries are characterized by a relatively high rate of economic growth. This move will increase the likelihood of maximizing profitability. Neelankavil and Rai emphasize that operating in multiple countries enable an organization to smooth out their sales revenue flow (161).
This view arises from the fact that a company compensates for the decline in sales growth in countries characterized by a slow rate of market growth. One of the markets that the airline should consider entering includes Brazil. A study conducted by IATA in 2011 identified Brazil as the fastest-growing airline markets.
Decision criteria
One of the decision criteria considered in selecting the international market penetration strategy arises from the need to increase sales revenue by tapping international market opportunities. According to Thompson, the market penetration strategy enables an organization to concentrate on areas that it has developed competencies (329). Subsequently, market penetration amounts to an improvement in brand identity.
By adopting the market penetration strategy, Southwest Airlines will be in a position to achieve sustainable growth as opposed to explosive growth. Therefore, the likelihood of the firm attaining long-term growth will be improved substantially. The airline industry in Latin America is characterized by a relatively high rate of growth. Latin American countries have experienced a considerable increment in demand for air travel over the past few years.
According to the “International Air Transport Association”, it is expected that passengers in the air transport industry will increase to 7.3 billion by 2034, which represents an average annual growth rate of 4.1% (par. 7). The Latin American markets are projected to grow at a rate of 4.7%. Therefore, 607 million passengers are expected to be using air transport by 2034. Therefore, the likelihood of the airline increasing its sales revenue will be substantially high.
In the process of entering the international market, it is assumed that Southwest Airlines will not incur legal restrictions in the target market. For example, it is assumed that Southwest Airlines will not be required to partner with other domestic firms operating in the target market to access the market.
On the contrary, the airline will obtain a license to operate in the target international market immediately. It is also assumed that Southwest Airlines will successfully utilize its strengths regarding human and financial capital in exploiting the opportunities available in the international market.
The choice to enter the Latin America air transport industry such as Brazil is further informed by the favorable market conditions. Neelankavil and Rai assert that Latin American countries are characterized by a relatively lower labor costs compared to the US (161). Subsequently, Southwest Airlines will be in a position to maximize its profitability in the international market due to the relatively low labor cost.
In addition to the above aspects, the adoption of this strategy will enable the firm to avoid the market risk associated with an increase in competition in the domestic market. Companies enter into collaborative agreements with local firms in the international market to gain a relatively stronger competitive position (Neelankavil and Rai 160).
Moreover, international market penetration enables an organization to spread its investments. This aspect minimizes the negative effects of different risks such as political unrest. Through international market penetration, Southwest Airline will exploit the market opportunities available in the international market.
Recommended course of action
In its international market penetration, Southwest Airlines should consider adopting the concept of direct entry strategy. Therefore, the airline will adopt the concept of foreign direct investment. The choice of the direct entry strategy arises from the recognition of the high rate at which Latin American countries are adopting the concept of liberalization to open up air transport.
One of the notable efforts to liberalize air transport in Latin America is illustrated by the enactment of the establishment of regional initiatives such as the Mercosur Sub-region Agreement on Air Transport Services. Through direct entry, the organization will be in a position to penetrate the Latin America market successfully.
The direct market entry strategy will enable Southwest Airline to gain enough understanding of the air transport industry in Latin America. Neelankavil and Rai cite the lack of knowledge as one of the major challenges that organizations that seek to enter the international market face (160). Therefore, prior to entering the Latin America market such as Brazil, Southwest Airlines should conduct a comprehensive study to understand the prevailing market conditions.
Reasons why international market penetration is the best alternative
The choice of international market penetration as the best business strategy over product and market development strategies has arisen from the recognition of the value associated with the strategy. First, adopting the market development and product development strategies while still limiting its operations in its US domestic market might limit the firm’s ability to achieve and sustain a high level of profitability.
Considering the intensity of competition in the US low-cost airline market segment, Southwest Airline might not increase its sales revenue by solely relying on the local market. Moreover, the firm might experience product failure after adopting the product development strategy. This issue may arise if the competitors identify gaps in the product offered by the firm. By leveraging on such gaps, the company might not exploit the expected goal.
Thompson asserts that market development involves modification of the existing products to improve the attractiveness of the product in new or existing market niches (330). On the other hand, the product development strategy is customer driven. Therefore, the chances of encountering product failure are relatively high.
This situation may occur if the team charged with the responsibility of undertaking the product development processes fails to take into account all the necessary aspects that would amount to the satisfaction of the customers’ needs. This situation may further arise from a change in customer tastes and preferences. For example, customers may change their tastes and preferences regarding air travel before the completion of the product development process. Therefore, the value of the product development process to the firm might be limited.
Goals and objectives of the recommendation
In its pursuit of international market penetration strategy, Southwest Airlines should be guided by the following objectives.
- To stimulate the company’s annual sales growth rate by 15%.
- To establish international operations in the Brazilian air transport industry within the next one year.
- To acquire a market share of over 15% in the Brazilian air transport industry within a period of one year.
- To ensure that the firm succeeds in entering the target market within the allocated market entry budget
Methodological approach
Southwest Airlines should consider several aspects to succeed in entering the air transport industry in Brazil. One of the fundamental aspects entails conducting a comprehensive market research. The rationale for undertaking the market research is to gather sufficient knowledge on the prevailing trends.
Subsequently, the company will be in a position to gather and utilize market intelligence hence increasing the likelihood of achieving the stipulated goals and objectives. This section highlights the methodological aspects considered in gathering conducting market research. These methodological aspects will aid in gathering relevant market intelligence that the firm will rely on implementing its strategy.
Research design
This report explores how Southwest Airlines can adjust its business strategy by implementing the international market penetration strategy. The report recommends the airline to consider entering the Brazilian market to maximize its profitability. The adoption of the market penetration strategy will enable the airline to overcome the challenge arising from the increase in competition in its domestic US market.
However, the airline should consider developing a comprehensive understanding of the prevailing industry dynamics. The market intelligence will enable the firm to undertake market penetration successfully by considering the fundamental aspects identified from the market research.
This study has integrated the concept of qualitative research design to achieve this goal. The rationale for adopting this design is to increase the company’s level of understanding regarding the prevailing market environment. By incorporating qualitative research design, the study has gathered a substantial amount of data from the field.
Therefore, the research design can be described as descriptive. The implementation of the descriptive research design will be achieved by incorporating the survey research approach. The survey research approach will enable the researcher to gather relevant data regarding the target customers’ attitude and opinion regarding air travel. Subsequently, the airline will be in a position to understand their tastes, preferences and expectations regarding air travel.
Data collection
The study has relied on extensive data collection to understand the customers’ attitudes, tastes, preferences, and expectations regarding air transport. The data used in the study has been sourced from primary sources. The choice of primary sources has arisen from the need to gather data that the organization can rely on in its international market entry. The survey was conducted by identifying consumers in Brazil who have integrated air travel in their transportation consumption patterns.
Identification of these customers was made possible by seeking information from air travel agents in Brazil. The air travel agents in Brazil have developed a database containing information on customers that seek air travel services from the respective agents. In addition to customers, the survey also entailed seeking information from industry experts.
The process of data collection was further enhanced by integrating different data collection instruments. Questionnaires were used in gathering information from the customers. The questionnaires were comprised of open and close-ended questionnaires. Subsequently, the two types of questionnaires enabled the researcher to gather facts and the respondents’ opinions regarding the air transport industry in Brazil. The questionnaires were designed optimally to eliminate ambiguity because of grammatical mistakes.
Due to the dispersion of the research respondents in the Brazilian market, the study has adopted the self-administration technique. Subsequently, the questionnaires were distributed to the target audience through online mechanisms such as e-mail. Moreover, the choice of this form of administration was informed by the need to minimize the cost of conducting the survey.
Consequently, the risk of a low rate of response due to the lack of understanding the questionnaires was reduced considerably. Moreover, the data collection process further involved conduction of a focus group interview with industry experts. The rationale for integrating the focus group interview was informed by the need to gather expert opinion regarding the air transport industry in Brazil. Integrating the two instruments significantly enriched the study’s findings.
Sampling design
The study has targeted customers in the air travel industry in Brazil. However, it is not feasible to conduct the survey on all the customers because of the high costs involved. The study has integrated the sampling technique to overcome this challenge. Subsequently, the study adopted the purposive sampling technique. Through this technique, the study has gathered relevant data from the field hence enriching the data.
The study only considered customers who consume air travel services to operationalize the purposive sampling technique. Moreover, the concept of sampling was further enhanced by integrating the concept of simple random sampling. The simple random sampling technique enabled the researcher to eliminate bias in constructing the research respondents. Subsequently, different customers in the air transport industry in Brazil were provided equal chances of being included in the study.
Based on the simple random sampling, a sample of 120 respondents was constructed. One hundred [100] of the respondents were comprised of ordinary air transport customers while 20 of the respondents included experts on air transport selected from the Brazilian market.
Thompson stresses that a “small sample size diminishes the power of a study while a large sample size increases the degree to which the research findings of a study are statistically significant” (23). Thus, the study is based on the assumption that the sample size of 120 respondents is sufficient and hence the findings of the study can be generalized.
Data analysis and presentation
The study is aimed at using the data collected from the field in making a decision on the recommended business strategy. Subsequently, the data collected has been analyzed to increase its value. Considering that the study is qualitative in nature, the study has integrated descriptive data analysis technique. Subsequently, the study has employed Microsoft Excel as the core data analysis and presentation tool.
The choice of the Microsoft Excel tool is informed by the need to ensure that the data collected is well presented using tables and graphs hence increasing the ease of understanding the data. Moreover, Microsoft Excel has enabled the researcher to integrate descriptive statistics.
Analysis of findings
The study identified different aspects. First, the study showed the existence of a substantial market opportunity in the air transport industry in Brazil. Ninety-five percent (95%) of the customers considered in the study were of the opinion that they still consider air transport as their preferred mode of transport.
The respondents were of the opinion that air transport is relatively convenient and safe compared to other modes of transport. On the other hand, only 5% of the respondents were of the opinion that they are not certain of their continued usage of air mode of transport.
All the respondents interviewed through the focus group interview cited Brazil as the most attractive airline market in Latin America. In their opinion, the respondents cited the growth in the number of domestic and international passengers. This response corresponds with a recent report released by IATA. The report cites Brazil as the largest market as illustrated by table 1 below.
Table 1
Despite the relatively low rate of growth regarding different passengers in Brazil compared to Mexico and Colombia, the size of the market in Brazil is considerably high.
In addition to the above aspects, the respondents in the focus group interview argued that the Brazilian airline industry is characterized by a relatively high market opportunity. In their opinion, the respondents cited the high rate at which the low-cost carriers operating in Brazil are considering expanding into the international market.
When asked why, 80% of the respondents in the focus group interview said that the market is considerably high because of increase in the number of international customers. This assertion corresponds with IATA’s findings on the growth of international passenger traffic in Brazil by 5.7% between 2013 and 2013.
The study also sought to understand the customers’ purchase behavior regarding air travel. Subsequently, the study integrated different questions aimed at developing a better understanding of the target customers. First, the study evaluated the reasons why customers have integrated air travel. Twenty percent (20%) of the respondents argued that they use air travel for business purposes while 55% said their air travel is necessitated by personal reasons. On the other hand, 25% of the respondents cited that they use air travel for leisure purposes.
This finding shows that customers are increasingly being concerned with acquiring unique experience in consuming air transport services. The “International Air Transport Association” asserts that airline companies are struggling to acquire a high market share because of the changing business environment (par. 6).
Thus, airline companies are experiencing pressure on how to gain additional market share and to sustain and improve the level of profitability. Therefore, to survive in such a market, the industry players should not ignore the importance of integrating customer relationship as a way of attracting and retaining customers hence optimizing their performance.
Therefore, in its market penetration process, it is imperative for Southwest Airline to consider integrating the concept of customer service as one of its organizational ethics. By integrating customer experience as one of organizational culture elements, Southwest Airlines will be in a position to attract a substantially large number of customers.
This aspect will arise from the fact that the positive customer experience will make the customers develop a high level of loyalty towards the firm. Therefore, the likelihood of the firm developing a high market share will be improved substantially.
This finding further highlights the importance of airline companies developing adequate customer knowledge. By leveraging on customer knowledge, the chance of airline companies generating ancillary revenue is increased considerably because of the high level of loyalty developed.
Moreover, leveraging on delivering unique customer experience will enable the airline to be competitive in the changing airline industry. For example, by taking into account this aspect, Southwest Airlines will be in a position to unbundle its existing services. Consequently, the company will charge a relatively high price based on the unique service being offered to customers.
Therefore, Southwest Airlines will not solely rely on charging customers a specific price. On the contrary, the firm will integrate a premium. This move will improve Southwest Airlines’ competitive edge both in the local and international markets.
Discussion
Implementation and action plan
The above findings illustrate that Southwest Airlines can increase its profitability by entering into the Brazilian airline industry. Through market penetration, Southwest Airlines will benefit from the growth in the rate at which consumers in Brazil are consuming air travel services. However, to succeed in the new market, Southwest Airlines will be required to formulate a comprehensive implementation and action plan.
One of the fundamental actions that the firm should take into account in its entry entails seeking a license or a permit to operate in the identified market from the relevant authorities. During the process of seeking the license, Southwest Airlines should involve a team of experts on legal aspects.
This move will aid in ensuring that the contents of the license are well understood. Subsequently, the firm will ensure that its operations comply with the operational license issues. Southwest Airlines may be awarded a permit to operate in the Brazil market for a specified period.
The issuance of the operating license from the Brazilian government will be based on a number of aspects such as Southwest Airlines operational fitness, commitment to provide the proposed air travel services, financial strength, adherence to operational and safety standards amongst other aspects. In the course of its operation, Southwest Airlines has succeeded in establishing strength regarding adherence to industry standards and optimal financial and human capital strength.
The second action that Southwest Airlines should consider involves searching the most appropriate airport in Brazil to conduct its operations. The selection of the airport should be based on a comprehensive criterion. First, Southwest Airline should assess the efficiency with which the identified airport is managed and is not characterized by cases of congestion.
These aspects are critical in determining whether the airline will encounter delays in its operation. The airport selected should not be congested to sustain the airlines’ short turnaround duration. Secondly, the organization should ensure that the airport selected is strategically located to ensure ease of access.
The third strategic aspect that Southwest Airlines should take into account in implementing the strategy entails product standardization. The rationale for integrating the concept of standardization arises from the fact that the airline is entering a new market. Subsequently, the likelihood of the airline experiencing challenges due to cross-cultural differences is considerably high. Cross-border cultural differences are a major barrier in an organization’s quest to succeed in the international market (Julian118).
Product standardization can aid an organization in managing the negative effects of such cultural differences. This view arises from the fact that the organization will offer unique products in the target market. Julian asserts that cultural specificity in offering a product in the international market is critical in ensuring that the product being offered successfully penetrates the market (118). Cultural specificity refers to the extent to which an organization’s product addresses the specific needs of a particular need for a culture or sub-culture.
In the process of entering the international market, Southwest Airlines will be required to develop a comprehensive understanding of the cultural aspects amongst Brazil consumers. The intelligence gained from the cultural analysis should form the basis of designing the product that it intends to introduce in the market.
One of the critical aspects that the organization should take into account entail training its employees who will serve as expatriates in Brazil on the cultural aspects that they should observe in serving customers in the Brazilian market. Moreover, the firm will be required to source additional employees from the local market.
Training employees on cultural aspects will play a fundamental role in improving the efficiency and effectiveness with which they serve customers. Subsequently, the likelihood of the employees delivering exemplary customer service will be improved significantly. The outcome will be an increase in the level of customer satisfaction. Therefore, through product standardization, Southwest Airlines will be in a position to satisfy the target market.
In addition to the above aspects, Southwest Airlines will be required to standardize other aspects such as promotional aspects to gain an optimal market position. Julian asserts that international market penetration should ensure that its promotional activities are customized with the prevailing cultural idiosyncrasies in the international market (119).
Southwest Airlines will be venturing into a new territory. Thus, the level of familiarity with the services offered by Southwest Airlines is relatively low in the Brazilian market. Consequently, the organization will be required to engage in extensive promotional activities. According to Julian, a firm introducing a product that is not known in the market requires a firm to undertake extensive product familiarization (119).
The objective of the promotion is to create a high level of familiarity regarding the product that it intends to offer in the foreign market. Creating a high level of familiarity increases the ease with which a product or a brand enters the international market.
Julian specifies that creating “varying levels of awareness, knowledge, familiarity and experience with a product or brand may result in differential attitudes towards similar products” (119). Therefore, the airline must focus on ensuring that the product information created in the target market is universal.
One of the fundamental aspects that Southwest Airline should take into account in its international market penetration entails communicating the value that the organization intends to introduce in the market. The organization should communicate how customers will acquire unique customer experience by consuming the services that it offers. Market communication will aid the customer to identify Southwest Airlines’ point of difference against its competitors.
For example, despite the fluctuation in fuel price, Southwest Airlines has continued to exempt its customers from additional fees for first or second checked bags. This aspect has been made possible due to the integration of the ‘Bags Fly Free’ concept.
Moreover, communicating this point of difference will play a fundamental role in ensuring that customers develop a positive perception regarding the level of customer service. Other product features that the organization should communicate to the target customers entail its exemption of additional fees on aspects such as telephone reservations, curbside check-in, and seat selection.
The marketing communication process should further ensure that customers understand other in-flight services that customers can access by traveling using the airline. Currently, consumers are increasingly being concerned about the quality of in-flight services offered by customers.
One of the in-flight services that the airline should communicate entails its in-flight internet connectivity. Southwest Airlines has over the past few years commenced on implementing its aircrafts with internet connectivity. Creating such awareness will aid the airline in attracting customers.
Assignation of responsibilities
Southwest Airlines will be required to ensure that the activities outlined in the action plan are implemented successfully to penetrate the target market successfully. Therefore, to achieve this goal, the organization will be required to assign responsibilities to specific parties. The table below illustrates how the responsibilities will be conducted.
Table 2: Assignment of responsibility
Budget
Southwest Airlines will incur substantial costs in implementing the above activities. Therefore, the organizations will be required to allocate a substantial amount of money in its budget. The table below illustrates the projected budget that the firm will incur.
Table 4: implementation budget
Timeframe
Southwest Airline intends to enter and establish its operations in the Brazilian market within one year. Subsequently, the organization will ensure that the activities identified are executed within a specific timeframe. Southwest Airline will undertake some of the activities concurrently as illustrated by the Gantt chart below to optimize on the available time.
Table 5: Gantt chart illustrating implementation timeframe
Measures of success/failure for each activity
Southwest Airlines will ensure that the activities identified are implemented effectively. Subsequently, the airline’s management team should progressively evaluate the success with which the activities are implemented. The organization should use different metrics depending on the nature of the activity.
First, the success with which the firm undertakes market research should be evaluated by gauging the extent to which the data gathered from the market research contribute to the development of market intelligence. One of the issues that the organization should assess entails its level of understanding of consumer and competitor behavior in the target market.
Secondly, the level of success regarding marketing communication should be measured by assessing the degree of brand knowledge in the Brazilian market. Conversely, the organization should also assess the ease of penetrating the target market by examining the possible challenges that might be encountered in the process of seeking operating license from the relevant authorities.
The study identifies the development of unique customer experience as one of the core pillars in succeeding in the target market. One of the strategies that the firm intends to achieve this goal entails training its workforce on the fundamental customer service aspects.
Consequently, the airline will examine the degree to which its employees understand the cultural issues that they should observe in the new market. Moreover, the organization will further examine the degree to which employees have developed customer-centric skills in serving customers. The last activity entails actual commencement of the company’s operations. Thus, the organization will assess whether it commences actual business operation within the stipulated time.
Possible coordination issues
Effective coordination of the above activities is paramount in the organization’s quest to penetrate the foreign market successfully. However, considering that different departments will undertake the activities, the firm should not ignore the likelihood of encountering coordination issues. This situation might arise if the respective departments have developed a comprehensive understanding of the firm’s mission.
Therefore, to overcome this aspect, the airline’s management team should communicate its intended strategic decision prior to its implementation. Moreover, the organization should ensure that the employees understand that the attainment of the intended goals and objectives is dependent on the input of all the employees. By developing such understanding, employees in the respective departments will ensure that their actions are in the best interest of the organization.
Possible barriers
Southwest Airlines might encounter a challenge in its market entry due to the reluctance of some employees to serve as expatriates in the international market. Some of the employees might perceive serving as expatriates as a challenge because of the cultural differences. Considering that both the expatriates and local employees will facilitate the firm’s operations in Brazil, coordination of business activities might be hampered by differences regarding national culture.
Therefore, to overcome this challenge, Southwest Airlines will undertake comprehensive human resource training. The purpose of the training will be to ensure that all the employees appreciate the importance of diversity. Through this approach, the airline will successfully establish a collaborative working environment. Therefore, the level of customer service will be improved substantially.
Conclusion
Southwest Airlines has gained significant dominance in the US airline industry. One of the factors that have contributed to its market dominance entails the adoption of the low-cost structure. Through this strategy, the airline has succeeded in developing a point of difference hence improving its competitiveness.
Furthermore, the strategy has made the airline attractive to a large number of customers. However, the global airline industry is currently experiencing a challenge arising from external forces. One of the market forces entails increment in the intensity of competition from other airline companies. Moreover, the cost of operation due to factors such as the increase in fuel prices has changed considerably. Consequently, the efficacy of the low-cost strategy in sustaining the firm’s high level of sales revenue and profitability is relatively low.
In the wake of these industry changes, it is imperative for the industry players such as Southwest Airlines to consider adjusting its business strategy. Some of the alternatives that the airline should consider include market development, market penetration, and product development. One of most effective strategy that the airline should consider entails market penetration. The justification of this strategy arises from the fact the organization will tap the market opportunities available in the emerging economies.
On the contrary, the product development and market development strategies might not contribute to an increase in the firm’s sales revenue because they will be concentrated in the local market, which is currently shrinking. In its initial phase, the airline should consider entering the Brazilian market. Available literature and market research conducted identifies Brazil as one of the largest airline markets. Therefore, Southwest Airlines should exploit the Brazilian market.
It is imperative for the organization’s management team conduct an extensive market research to enter the Brazilian market successfully. This aspect will aid in gathering market intelligence to be used in the entry process. Moreover, the organization should ensure that the product being introduced in the international market is aligned with the customers’ needs and wants.
Therefore, the firm will be in a position to customize its product offering. The market entry process should be conducted effectively by ensuring that all the necessary activities are duly completed within the set timeframe. This goal can be achieved by assigning responsibilities to different stakeholders.
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