Southwest Case Study
Company Case for Southwest Airlines 1. What benefits do airline customers seek when they buy air travel tickets? Has Southwest done a better job the competitors of meeting the needs of these air travelers? In what ways?
They have always had the lowest price in any market it serves. It has caused the competitors to reduce their prices to match Southwest’s prices to stay competitive and has become known as the “Southwest Effect.” Because of the cost structure that was developed, Southwest did the opposite of what every other airline was doing. They don’t offer assigned seats or meals. They only fly one type of airplane, the Boeing 737. This gave Southwest a distinct cost advantage. Even when their competitors lowered their prices, they still could not make the same profit as Southwest. Customers see value when they think of Southwest airlines.
2. How has Southwest executed value-based pricing?
They cater to many different types of travelers who value different things. Some like the low prices, others enjoy the friendly service, being always on time is appealing to some customers, and other people appreciate their baggage arriving safely and on time. Southwest does a better job than other carriers at pleasing multiple segments of customers.
3. What are the benefits and risks to airlines of cutting costs? What impact are these factors now having on airline pricing and profitability?
The benefits of cutting costs is that more customers will fly Southwest and will cover any other costs that were cut. The risk is more passengers could cause the plane to burn more fuel with the extra weight that is carried. Other risks would be as Southwest moves into new markets, the new markets could charge higher fees than what they were used to paying in the smaller markets.
4. Does the airline’s current strategy truly differentiate it from its competitors? Is the strategy sustainable?
While prices have gone up in recent years for airline tickets,
They have always had the lowest price in any market it serves. It has caused the competitors to reduce their prices to match Southwest’s prices to stay competitive and has become known as the “Southwest Effect.” Because of the cost structure that was developed, Southwest did the opposite of what every other airline was doing. They don’t offer assigned seats or meals. They only fly one type of airplane, the Boeing 737. This gave Southwest a distinct cost advantage. Even when their competitors lowered their prices, they still could not make the same profit as Southwest. Customers see value when they think of Southwest airlines.
2. How has Southwest executed value-based pricing?
They cater to many different types of travelers who value different things. Some like the low prices, others enjoy the friendly service, being always on time is appealing to some customers, and other people appreciate their baggage arriving safely and on time. Southwest does a better job than other carriers at pleasing multiple segments of customers.
3. What are the benefits and risks to airlines of cutting costs? What impact are these factors now having on airline pricing and profitability?
The benefits of cutting costs is that more customers will fly Southwest and will cover any other costs that were cut. The risk is more passengers could cause the plane to burn more fuel with the extra weight that is carried. Other risks would be as Southwest moves into new markets, the new markets could charge higher fees than what they were used to paying in the smaller markets.
4. Does the airline’s current strategy truly differentiate it from its competitors? Is the strategy sustainable?
While prices have gone up in recent years for airline tickets,