Swa Assignment
Read the case to get acquainted with SouthWest Airlines, then make 4 decisions.
Note that for all these decisions, the company has done the best possible analysis in advance. They have estimated the investment required. They have analysed the ongoing costs. They have conducted extensive customer research to establish current and future demand from customers. They have thought through implementation issues and the potential competitor reactions. The financial analysis shows that all of them have an attractive incremental IRR%.
DECISION 1) Should SWA offer an optional meal service?
Through customer research, SWA has identified that a significant segment of customers would be prepared to pay for a simple meal on board. By making it optional, SWA can capture extra profit from these customers, while not increasing costs and prices for customers that do not want a meal.
■ Yes No
Explain your rationale 1. It could still remain the low price strategy while diversifying its services and capturing customer demand. 2. It is profitable. 3. It does not require significant capital investment. |
DECISION 2) Should SWA offer free internet access on all its planes?
Technology now exists to install wifi on planes to offer limited bandwidth internet access through customers own devices while in the air. In market research, SWA customers found this attractive since SWA currently offered very limited entertainment. There is an upfront development cost to create a system for each plane type, then a fixed cost per plane per day. As a free service, SWA is counting on attracting additional passengers to make this investment pay back. Yes
■No
Explain your rationale 1. It would increase the cost – upfront development cost and fixed cost. 2. It does not directly generate profit other than attracting more customers, who might not be the customer fitting into SWA’s marketing strategy. 3. It is not in alignment with the operating strategy SWA has. |
Note that for all these decisions, the company has done the best possible analysis in advance. They have estimated the investment required. They have analysed the ongoing costs. They have conducted extensive customer research to establish current and future demand from customers. They have thought through implementation issues and the potential competitor reactions. The financial analysis shows that all of them have an attractive incremental IRR%.
DECISION 1) Should SWA offer an optional meal service?
Through customer research, SWA has identified that a significant segment of customers would be prepared to pay for a simple meal on board. By making it optional, SWA can capture extra profit from these customers, while not increasing costs and prices for customers that do not want a meal.
■ Yes No
Explain your rationale 1. It could still remain the low price strategy while diversifying its services and capturing customer demand. 2. It is profitable. 3. It does not require significant capital investment. |
DECISION 2) Should SWA offer free internet access on all its planes?
Technology now exists to install wifi on planes to offer limited bandwidth internet access through customers own devices while in the air. In market research, SWA customers found this attractive since SWA currently offered very limited entertainment. There is an upfront development cost to create a system for each plane type, then a fixed cost per plane per day. As a free service, SWA is counting on attracting additional passengers to make this investment pay back. Yes
■No
Explain your rationale 1. It would increase the cost – upfront development cost and fixed cost. 2. It does not directly generate profit other than attracting more customers, who might not be the customer fitting into SWA’s marketing strategy. 3. It is not in alignment with the operating strategy SWA has. |