A. Problem Statement
Southwest Arilines has been facing direct competition in 9 routes of the intra-Califonia market with United Airlines and their "Shuttle By United." Shuttle By United was designed to be a high-frequency, low fare, minimal amenity, short-haul flight operation initially serving destinations in California and adjacent states who's intent wsa to "match Southwest's strategy." In the four months since Shuttle By United's inception competition has been fierce resulteing in Southwest and United slashing prices and envoking a merkteting blitz in this 9 route area. Recent news highlighted that Shuttle By United intended to discontinue some service (perticularly the Oakland-Ontraio route) and raise fares $10.00 per ticket. Southwest's respons to this and the coninued threat of losing market share to United should be: o Continue targeted advertising to the 9-route Intra-California market and weatehr the initial storm by Unted and await their withdrawal (Continental airlines tried to directly compete with Southwest and lasted 16 months before completely pulling out of the "point-tp-point" market. United's recent actions could demonstrate an inability to compete long-term and they are only in their fourth month). o Match United's rate increase of $10.00 per ticket
B. Summary Recommmendation:
o Continue targeted advertising to the inra-California routes that are directly affected by the Shuttle By United and maintain current pricing strategy.
I. Industry Analysis
A. Description of Industry and Segments
Deregulation for 16 years (1978) has resulted in an icnrease of domestic carriers from 36 in 1978 to 100 in 1985. Major carriers route system is either "point-to-point" (Southwest) or "hub-and-spoke" (Delta). Characterized by price wars, low margins, and acquisitions. Excessive labor cost has resulted in ariline worker job cuts. Highly price competitaive and segmented into...