Case Study – Southwest Airlines 2011
Professor Nicole Dillett
September 29, 2014
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Southwest airlines was founded in Texas in 1971 as a small, regional intra-state carrier. They chose to service the Golden Triangle of Houston, Dallas, and San Antonio. By staying within Texan borders, they could avoid federal regulations. They used Boeing 747 planes in their fleet. Since their inception, they have been striving to become the leading low-cost carrier in the United States. They have successfully accomplished this. The company has remained profitable despite the setbacks caused to other airlines in the industry following the 9/1/1 attacks and the recession of 2008/2009. This airline remained afloat during those troubled times, even when many other airlines folded or filed bankruptcy under the economic pressure.
In October 1978, President Carter signed the Airline Deregulation Act. Prior to the signing of that act, the Civil Aeronautics Board had regulated airline route entry and exit, passenger fares, mergers and acquisitions, and airline rates of return. The deregulation gave all airlines more power to affect their financial future by allowing them to set their own fares, choose their service areas and acquire other airlines for expansion. After the economic fallout of September 11, eight out of the ten major airlines that controlled the industry in 1978 ended up filing bankruptcy. The three major airlines that survived – Delta, United, and American – controlled over two thirds of the domestic and trans-Atlantic air travel. The terrorists attacks of September 11, 2011brought to light the need to focus on better airline security, and new security measures were implemented to meet this need and help ease the fears of wary travelers. However, the additional security measures caused delays at the airports and made air travel less desirable because of this inconvenience. Customer complaints rose to new heights. The September 11th incident caused domestic airlines to lose about $30 billion. Industry and Competitive Analysis:
The operating costs of an airline are fixed or semi-variable, and they depend mostly on distance traveled rather than on the number of passengers on board the planes. Southwest Airlines focused its primary business on routes that are less than 500 miles long. They also did not choose to turn to using the hub and spoke system that the other airlines followed. Instead they used a spider web pattern. This was how they differentiated themselves from other airlines and were able to keep their costs down. They turned the savings in operating cost over to their customers by offering lower ticket prices. Following the Airline Deregulation Act, completion in the airline industry began to increase as new competitors entered the market and fares began to drop. The drop in airfares and the increase in availability caused air travel to become more affordable to the average person. Air travel began to boom, as more and more Americans began to take advantage of this switch in the industry conditions. As the number of competitors grew, Southwest airlines began to have stiff competition from other low cost carriers such as JetBlue. Southwest Airlines has been able to keep their costs down by offering no-frill service. They offer snacks instead of in-flight meals, no baggage transfers, no first class seating, and no assigned seats. They stand competition from other carriers who do offer these amenities, which many customers prefer and are willing to pay for having the luxury of enjoying them. Even though JetBlue also offers limited amenities, they do offer such things as leather seats, free LiveTV and pre-assigned seating. In 2010, JetBlue’s...
Cited: Peter, J. & Donnelly, J., Marketing Management, New York: McGraw-Hill
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