Customer Analysis of Southwest

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Customer Analysis

Introduction

When looking at the passenger airline customer, it is necessary to determine the factors that have a significant effect on customer demand for airline travel. To perform this task requires looking at existing demographics of airline customers and the trends of customers of the larger picture.

Method of Analysis

The general focus will be on the US population with some brief reference to international segments and related data. Looking at passengers demand there are two broad factors that are Macro- economic and passenger specific factors. The analysis will focus on those factors that pertain to the latter while the former will be discussed in more detail in the industrial analysis section. The airline passenger can be divided into two groups of, Business and Leisure traveler. These segments are not mutually exclusive as some travel is a combination of both. An over lap of customer may pertain to both groups and therefore represented more than once in data.

Income the Common Factor

Income is viewed as having a strong correlation with passenger travel for both leisure and business travel. While it is harder to segment business travel, as a companys income was generally found that companies bottom line or operating cost were impacted by travel expenses. On a larger scale Gross domestic product was cited as having an impact on business travel.

Leisure travel provides a clearer means of looking at the passengers airline customer. By looking at income as a separate entity segment first allow for an understanding of consumer purchasing power. Based on this data, marketers and statisticians can estimate to greater accuracy, discretionary income for various segments of the population. Through income analysis the industry and markets can streamline their focus of various target markets in the market. Customer trends and potential reactions are masked by their income. Finally looking at customers market segments references are made to their income and spending power or potential spending power.

Income

The Census Bureau has four classifications for income. Based on the alternative definitions only one showed a real decline in median household income from 001 to 00. Money income less taxes declined 0.8% from $7,76 to $7,066. This definition includes money income and realized capital gains less, income and payroll taxes. Money income in the broadest sense as, money received by a person or household during a calendar year, declined 1.1% from $4,00 to $4,40, for the same period. This was the second consecutive annual decline in median household income. Per Capita money income declined by 108% in real terms for the same period to $,74. This represented the first annual decline in per capita income since 11.

Income by Region and Residence

Real media household income did not change for three of the four regions in the US from 001 to 00. The Mid-west was the only region that experienced a reduction of % of median household income at $4,600 for 00. The other regions of the North-east, South, and West maintained their status quo at $45,6, $,5 and $45,14 respectively. Money income for households in the South continued to be the lowest among the regions.

Residence

Median household income in metropolitan areas remained was$ 45,57 down 1.5% representing a second decline consecutively. Households outside of metropolitan remained unchanged at $4,654 in 00. For households inside central cities experienced a decline of 1.% to $6,86; while those outside of central cities recorded a decline of 1.5% to %50,717. Based on a two year average comparison of median households four states in the Mid west experienced declines and three in the South (Florida, Mississippi, North Carolina), in the West (Hawaii, Nevada and Oregon). Marylands household income was higher than 47 States except Alaska and Minnesota, while West Virginia came in lower than 4 states.

Age and Sex

According to the Census Bureau there are 80.5 million men and 71.5 million women working and 7% and 58.6% respectively working full time. Both percentages remain unchanged from 001 to 00. The median earnings for men and women working fulltime year round increased to $,4 from $8,884, and $0,0 from $,680 respectively. The female to male earning ratio was .077 showing no statistical difference however men experienced stagnant or declining earnings from 1. Women on the other hand have not experienced a decline since 15.

Under the age consideration, households under the age of 65 years had a 1.1% decline in median income to $4,510 from $50,010. The age group between 5 and 74 saw a median household decline of .% to $7,88. Similar declines in income were found for other age groups as recorded by the Bureau. Households within the 5 to 65 age boundary had the highest median income ranging upwards of b$50,000 as compared to younger and older age groups.

Income Race

Due to the growing diversity of the US population the Census Bureau saw fit to change or add new classifications to better reflect growth of population. For simplification of the analysis classifications are, white, black, Hispanic, and Asian and pacific islanders.

Median household income for whites fell by 0.6% to $44,64, for blacks .5% to $, for Hispanics .% to $,100 and 4.5% to $54,488 for Asian and pacific islanders. It was observed that for mixed households the decline in median income was greater than the previous numbers. Blacks were reported to have the lowest median income while Asians recorded the highest income for all definition of income.

GROUP SEGMENTATION

The US Affluent Market

For marketing measurement the affluent individual or household falls in the range of

$75K and upwards, annually. Married couples represent 80% of this income segment with 77% of these households having more than one wage earner. Thirty three percent of affluent households have children under the age of 18 years. In todays economy a dual income earning $75K, supporting two children may not have the type of discretionary income or spending habits that would identify them as affluent for marketing purposes. There are 1. million affluent households earning upwards of $100K with 65% in the lowest benchmark between $100 to $14K.

Demographics

The quintessential affluent customer is well educated. Baby boomers comprise the bulk of the affluent households .The age groups of 5-44 and 45-54 account for over half of affluent households. Subtle changes in the affluent population are occurring as ethnic groups are edging upwards in percentage share. Secondly women outnumber men as being affluent representing 54% compared to 46% men. This trend is expected to grow at 4.6% annually. After taxes and other consumer expenditure the average US household has about$1,500 leftover while the typical affluent household has nearly $6K left over to invest or save.

Travel & Trends

For major types of transportation (ships, rented vehicles, trains and airplanes) affluent post spending levels of 144% to 170% above the average spending of households. They represent a large portion of households participating in frequent flyer programs. Market research data by the Simmon group cited affluent as 5% more likely to have taken a trip outside the continental US in the last three years and 75% more likely to have done so by plane. As heavy, representing three or more trips in three years, affluent are heavy foreign, Alaska, or Hawaii travelers. As far as plane travel trips, effluents indices dial in steadily at high levels compared to that of average household travel. These indices increase both for domestic and international travel and the spread increases with annual frequency. About 8% of affluent households take a domestic vacation or personal trip by plane compared to 5% of overall households. This represents 51% above the average household.

Generation Travel

Introduction

In looking at air line travel by generation the study will look at those groups that are potentially significant value to the industry. Over lapping of groups can and will occur when looking at their demographics travel patterns and attitudes. The data however highlights markets that may be neglected or having greater potential to airlines. Generation travel groups the US population in age groups that represents individuals born at a particular time that define the by their cultural experiences of their life.

Active seniors

Demographics

Active seniors are those individuals of adult age between 65-75 years. There are about 18.1 million active seniors in the US (Census Bureau ~7% of overall ) expected to swell to 6 million by 015 and 6 million by 05. In 00 the estimate of active seniors will be approximately 17% of the nations total population. Older Americans are considerably less diverse than their younger counterparts. About 15 million of this group white (84%), 1.4 million black (8%), 1 million Hispanic and less than % Asian.

Active seniors record the highest percentage of discretionary income among any age group. The working mature or pre- retirement group of age 55-64 years also shares a similar position of high discretionary income. An AARP study reported the income of retirees grew faster than younger workers in the past two decades. Between 180 and 1 income among the 50-61 year old, rose 1% while that of active seniors (6-74) rose 7% and 0% for the older group.

Overall active seniors are more likely to be female than male, (65% compared to 44%) with over half living with another person or spouse. The expected aggregate income of this group is expected to reach $. trillion in 006. The average after tax income of this group was $7,567 with a spending average of $,864 representing a full 8.% more than income. By contrast, US households spend 1% of their annual average income of $40,65. The AARP study found that 40% of active seniors fell in the middle and upper income levels and receive pension income. A greater percentage of this group dwells in the Southern and Middle Western regions of the country, with ratios of 5% and 6% respectively. The North East was represented by % of this group.

Travel & Trends

In the US 4% of active seniors have traveled outside the continent in the last three years. The study (AARP) indicates a penetration rate that outstrips those of younger and older age groups. Twenty percent of active seniors traveled by plane outside the US with very little of this travel for business. Some four million or .6% of active seniors took plane trips outside the US in the past three years. Travel loving, seniors take to the air for personal and vacation travel at about the same rates as their younger counterparts.

Factors affecting travel for this group are health, nationality and mindset.

Baby Boomers

Demographics

During the 146-164 period was generally considered to represent the baby boom era where .8-4. million babies were born annually. In 00, the nations 77.6 million Baby Boomers range in age from 8-56 years of age, with 5 million at or over the age of 50.

January 1st 16 stands as the 50 year turning point for this group as will the next 18 years. The Census Bureau estimates that between 15 -050 the over 65 population will more than double. Whites represent the majority of this group at 74% followed by blacks with 11.% and Hispanics.7%. According to Simmon Market research Americans of age 5-54, Boomers are more likely than average to be married represented by 56.6% overall married population. Looking at the Baby Boomer segment separately the ratio jumps to 6.4 % for the group.

Baby Boomers between the ages of 5-54 are 80% employed with 70% employed full time. Based on a projected .% rate the spending power is expected to reach $.7 trillion in the next five years. Estimation was based on a conservative1% increase in annual income of the average after tax income of $54,44 in 00.

The generations greatest expense burdens are financial services, personal insurance and pension. As more boomers edge towards retirement or at least a less active work schedule, they will have more time to take trips. The results are increases in leisure travel will be a windfall to the Travel industry. Data indicate that over 74% of American adults age 5-54 travel within the US last year and over 40%took a foreign trip in the past three years.

Market research indicates five factors that motivate the mature psyche. They are, autonomy/self sufficiency, social and spiritual correctness, altruism, personal growth; and revitalization. Also mentioned for marketing strategy was the groups unwilling to accept aging and stigma associated with Boomers as middle aged or old.

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