Southwest's Newest Terminal: Your Living Room

According to a recent press release, Southwest Airlines (NYS: LUV) will soon be joining cupcakes, tattoos, and coupons in the lineup at Discovery's (NAS: DISCK) TLC.

Southwest and Discovery announced production last month for an as-yet untitled series of 13 episodes that will show viewers what goes on behind the scenes at the lovable airline.

For Southwest, this could lead to amplified brand power, while Discovery reaches a population curious about what's going on behind the scenes at corporate America.

This could be a branding coup for Southwest. Having a strong brand is important in the airline business, so investors should be eager to tune in.

Discovery's angle
Over the last few years, Americans have been less and less confident in the trust they'd previously placed in big corporations. Bailouts, scandals, and growing discrepancies between income brackets have culminated in movements like the Tea Party and Occupy Wall Street. So what is a corporation to do?

Make money off it, of course! Southwest's show will tap into Americans' desire for transparency, and Discovery hopes it will drive viewers to TLC.

The show will speak to a similar audience as that of CBS's (NYS: CBS) highly successful Undercover Boss, which had the highest viewership for a series premiere since 1987, and has been one of the strongest-performing reality series on television for both of its two seasons, with a third one on the way.

In addition to signing Southwest's new show, TLC has picked up Undercover Boss's reruns, proving its commitment to reaching this audience.

Southwest's angle
Southwest has invested a lot of time and money marketing its brand with commercials showing happy employees helping happy customers honestly, efficiently, and inexpensively. Those commercials -- plus a nice rewards program -- have helped to create a loyal customer base in the cities on Southwest's point-to-point itineraries.

As the company grows, though, cute commercials won't be enough to make up for its absence on online travel booking sites like Expedia or Travelocity.

The airline industry is a highly competitive one in which companies are forced to participate in price wars resulting in low profit margins. Staying off the online travel-booking sites can help decrease costs, but it sacrifices vital exposure along the way.

Having a higher net profit margin (net profit/total revenue) than competitors is an indication of not only efficient operations, but also brand power.


Net Income Margin 2010

Net Income Margin (LTM)

Southwest Airlines



JetBlue Airways (NAS: JBLU)



Delta Air Lines (NYS: DAL)



United Continental (NYS: UAL)



US Airways (NYS: LCC)



Source: S&P Capital IQ. LTM = last 12 months

As you can see, Southwest's once-high (for this industry) 3.8% net income margin has eroded to 1.1% in less than a year. Although this was an industry trend, Southwest saw its net income margin decrease more than any carrier except US Airways. Since we know that strong brand strength has the potential to boost margins, I believe that Southwest is increasing its branding push at the right time. This (along with keeping costs under control) could help boost the company's margins back up toward last year's numbers.

Southwest tried something similar with a show on A&E five years ago. Airline was canceled after three seasons. The show focused on customer interactions with Southwest staff, and focused mostly on negative experiences. It was based on a U.K. show, so Southwest just followed suit with the way the show was set up. While some found the dramatic side of the show interesting, it definitely didn't portray Southwest in the same light as the company's marketing campaigns do.

It doesn't look like Southwest intends to make the same mistakes twice, though. The company's press release states, "From Ramp Agents and Customer Service Agents to Flight Attendants and Pilots, to Provisioning Agents and Mechanics, viewers will see aspects of Southwest that have never been profiled in the past."

This new approach has the potential to create brand awareness and loyalty, and encourage travelers to go the extra step in choosing Southwest outside of their normal Expedia choices.

The bottom line
Brand loyalty leads to brand equity, and brand equity often finds happy ways of trickling down to the bottom-line profits and into investors' pockets. Both companies stand to profit from this alliance, but I see bigger potential for Southwest. It found a way to creatively differentiate itself from its competitors by doing nothing more than opening up its doors.

Looking into the future
Increased exposure will certainly help Southwest extend its branding power, making it an intriguing stock to watch in 2012. If you're looking for some other investing ideas heading into 2012, check out the free report our analysts have compiled: "The Motley Fool's Top Stock for 2012." Thousands have requested access to this free report, and now you can have it today at no cost. To get instant access to the name and detailed analysis of this company, simply click here -- it's free.

At the time thisarticle was published Fool contributor Amanda Buchanan holds no position in any company mentioned. Click here to see her holdings. Motley Fool newsletter services have recommended buying shares of Discovery Communications and Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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