Southwest Airlines Case Study

1119 words - 4 pages

BibliographyKernin, Roger A. and Peterson, Robert A. Strategic Marketing Problems: Cases and Comments. 11th Edition.Southwest AirlinesSouthwest Airlines employees came together in late January 1995 for their weekly Tuesday meeting. A main topic of discussion was the competitions between Southwest airlines and "Continental Lite" and "Shuttle By United". As they were beginning the meeting a staff member advised the team of two changes "Shuttle By United" made to its service and pricing. First was the discontinuation of service for the Oakland-Ontario, California market. Second, the one-way walk-up first class and coach fairs had been increased by $10.00. The focus of that Tuesday meeting was set aside and the attention focused on what to make of the developments and how Southwest Airlines might respond to the changes.Airline Industry BackgroundThe airline industry, prior to 1978 was regulated through the Civil Aeronautics Board (CAB). The CAB regulated airline fairs, routes, and company mergers. CAB approval was required before any changes in rates or route systems could be made. Then in 1978, the Airline Deregulation Act was passed and allowed airlines to set their own fares and enter or exit routes. The CAB was dissolved in 1985.The deregulation did not take the turn that was expected which resulted in long-term effects on the industry. Two changes were significant. First, instead of serving short-haul routes, the airlines turned to long-haul routes. This led to regional carriers or new airlines filling in for the short-haul routes. Second, major carriers abandoned point-to-point systems and took up the hub-and-spoke system. The point-to-point system meant non-stop flights between city-pairs and also "shuttle flights" back and forth. The hub-and-spoke system meant that flights would be directed to a central hub city and passengers would either continue their trip on the same plane or transfer to another plane and continue their trip.Major carriers found themselves in a price-cost predicament within five years of the deregulation. The airlines had to decide whether to not match fair and lose customers or match fairs and lose money. This continued through the 1980s.Then in the 1990s carrier bankruptcy and collapse was due to a recession, doubling in fuel prices and excess capacity in the industry. New airlines were formed due to these situations. These airlines focused on low fairs and low frills. These carriers had combined revenues of $1.4 billion in 1994 compared to $450 million in 1992.Southwest Airlines operated mainly short-haul, point-to-point routes with minimal amenities and are able to make a fast turnaround of its aircraft between flights. The airline had much lower operating costs which resulted in low fares for the customers. Several other carriers were trying to copy Southwest. The outcome was the "airline-within-an-airline" concept. It involved operating a point-to-point, low-fare, short-haul, system alongside a major carrier's...

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