1. After the deregulation of the US Airline industry in 1978, the barriers to entry within the industry came down significantly and many Low Cost Carriers emerged overtime.
2. The emergence of rival Low Cost Carriers and the improvement in the Operation Efficiencies of Full Cost Carriers progressively eroded Southwest’s competitive advantage.
3. A closer look at AirTran’s value chain and its resultant efficiency shows significant differences in the operational strategies and differentiation approach of the two companies. A seamless integration would largely depend on Southwest’s ability to merge systems, processes and organizational cultures.
| | |
2010 Revenues (M) | $12,104 | $2,600 |
2010 O&D Revenue | ~ 88 Million | ~ 25 Million |
2010 Load Factor | 79.3% | 81.4% |
2010 Departures | 1,114,451 | 252,663 |
Airports Served | 72 | 69 |
Source: Southwest Airlines Media / Merger Website
4. Given the increasing consolidation in the industry in general and rising dominance of major competitors such as Delta and United in particular, Southwest Airlines did not have many options but to support its languishing growth through inorganic expansion. However, the company paid a very high premium for AirTran Airways.
5. The company faces a far more challenging integration process than it had anticipated. The resultant risk is rather high and can weigh down on Southwest Airlines’ profitability in the coming years.
Low Cost Carriers in the U.S. Airline Industry
The Airline Industry in the United States, after deregulation in 1978, saw emergence of a number of new carriers, primarily Low Cost Carriers (LCC). In 1997, given the growth of these airlines, the US Department of Transportation (DOT) identified a Low Cost Airline Service Revolution. Since the drafting of this report by the Department of Transportation, the growth of market share of low cost airlines has only... [continues]
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