Case Analysis: Southwest Airlines

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At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based airlines, Southwest Airlines inaugurated its initial flight (Inkpen 2008). As one of the United States’ new low-cost carriers, Southwest Airlines predominantly distributed “short haul, high frequency, point-to-point, low-fare service” (Keller 2008) serving “64 cities in 32 states” on the wings of Boeing 737 aircraft (Thompson 2008). In each successive year since 1973 Southwest has turned a profit (Keller 2008). Southwest Airlines “revenues of $9.8 billion, operating profit of $791 million and net profit of $645 million in 2007, confirm its profitability” (Thompson 2008). Southwest Airlines had a different take on the accepted hub-and-spoke organization for airline travel where “the spokes fed passengers from outlying points into a central airport—the hub—where passengers could travel to additional hubs or their final destination.” In the view of Southwest Airlines, these models caused congestion and unprofitable time spent awaiting customer arrivals from other airports (Inkpen 2008). According to Andrew C. Inkpen via Southwest Airlines’ 2001 Annual report, insight into functioning viewpoint of this airline can be unearthed through this statement: “Southwest was well poised, financially, to withstand the potentially...
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