On February 1, 1973, Braniff International Airways announced that it was introducing a 60-day, half-price sale for flights between Dallas and Hobby, which is Southwest Airlines’ only profitable route. Southwest needs to determine how to respond to this threatening strategic pricing move by Braniff in order to continuously stay ahead of their losses, and possibly reduce or eliminate it further for that operating year.
Before Southwest was established, two airlines were servicing the geographic market - Braniff International Airways and Texas International (TI) Airlines. Though both provide intra-state transportation between the four fastest growing cities in Texas, they only “represented legs of much longer, interstate flights.”1 Services were, therefore, very poor for these routes as both focused primarily on their interstate flights. As such, an opportunity arose for Southwest from the stark and growing dissatisfaction of customers. At that point, Braniff held 86% of the market.
Braniff International Airways
As a carrier, prior to Southwest’s entry, Braniff held the most Dallas-Houston route traffic, averaging 483 passengers per day in each direction. However, “there was so much interline traffic that most of the seats were occupied by [interstate passengers].While [they] had hourly service, there really weren’t many seats available for local passengers. People just avoided flying in this market.”2 In addition to this, its reputation for punctuality was very substandard that it was commonly known as the “World’s Largest Unscheduled Airline.”3
Braniff’s image in 1971 has changed from being fun, glamorous, and exciting to “a subtler, more conservative style”4 as they reduced advertising budget to $4 million, from more than $10 million in 1967.
In 1967, Braniff serviced their greatest average number of daily local passengers of 416 out of 483 passengers (86.1% of the market) with only one other competitor. In 1971, when Southwest entered the picture, Braniff had an average of 370 out of 603 passengers daily, reducing their market share to 61.4%. In 1972, this was further reduced to 50.1%, with only 384 out of 767 passengers flying with the company.
Texas International Airlines
Prior to Southwest’s founding, TI was one of the only two airlines providing intrastate flights for Texas’ cities. Compared to its competition, TI only held 24.6% of the market in its best year since 1967, falling heavily behind when Southwest came in the picture.
In contrast to Braniff, TI had an image of being “dull and conservative, with a bland image.”5
What the intrastate airline industry was catering to were mainly executives whose occupation required them to travel to Dallas, Houston, and San Antonio. They were mostly looking for on-time flights for the lowest fare possible (as trips only take around one hour) with airlines that have minimal cancellations and/or delays.
Another very small market consisted of those who flew to these cities for other reasons, such as leisure, etc. They were mostly in the lookout for a transport service that gave them value for their money.
What Southwest offered was a better air transportation service - frequent, punctual and low fare. They catered to value-conscious consumers who were usually small business executives and who needed to travel conveniently to the different major cities in Texas.
The Southwest brand displayed an ‘obviously fun’ image, focusing on using playful advertisements that usually revolve around the word ‘love.’ This focus gives them an air of being customer-oriented, which is further fortified by their distributing (direct marketing - not much on travel agents) and pricing strategies (offers lowest possible fare). This depiction provides the brand a sharp distinction with its competition.
Evaluation of Alternatives
1. Follow suit by reducing fare to...
Please join StudyMode to read the full document