Southwest Airlines Case Study

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1. According to the authors of the case study, some of the market conditions of the U.S. airline industry in the early 1990s were triggered by the Airline Deregulation Act of 1978. In essence, “deregulation created greater competition and growth opportunities… laws restricting the airline industry loosened in the spirit of greater competition.” (Marketing Management, page 15). The impact of deregulation became evident in several areas: Removing regulatory price controls was followed by lower average prices, a substantial increase in price variation, and efforts to soften price competition through differentiation and increases in brand loyalty. Therefore, one can surmise that the marketing-mix or the four Ps of marketing (product, price, place and promotion) became crucial for U.S. airlines to understand when it came to “customizing an offer or solution, informing consumers—recognizing that many other sources of information also exist—setting a price that offers real value, and choosing places where the offering will be accessible.” (Marketing Management, pages 22 & 23)

Nevertheless, lifting entry restrictions also altered the market structure at the industry, airport and route levels and led to re-organization of airline networks. According to the authors of the case, major carriers focused on serving nonstop long-haul routes and abandoned shorter point-to-point route systems and adopted the hub-and-spoke route system. Moreover, “carrier bankruptcy and collapse marked the early 1990s due to a recession, a doubling of fuel prices during the GolfWar in 1991, and excess capacity in the industry.” (Southwest Airlines Case Study, page 467) Additionally, macroenvironmental forces such as the “economic environment and disparate income distribution” (Marketing Management, page 79) among Americans during the recession helped create opportunity for smaller airlines to enter the market as “low-fare, low-frill” (Southwest Airlines Case Study, page 467) carriers, thus...
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