Price discrimination is most effective when a higher price is charged in the market with inelastic demand, and a lower price is charged in the market with elastic demand. Southwest Airlines can charge higher prices for last minute flights and business flights. They can charge lower prices for flights booked in advance. Southwest can work with other businesses to bundle and let people vacation at a lower price. Example; Disney world works with airlines and rentals companies to give people the best deals they can. Southwest can offer points, rewards, and free flights to loyal customers.
Southwest Airlines does not have to be a monopoly to engage in price discrimination. They will need to have a market power, and they cannot be price takers.
Click here to unlock this and over one million essaysGet Access
Bargaining Power of Customers (high)- Customers has several options when it comes to flying. But the main attraction to customers are low prices and Southwest makes it known that they have some of the lowest airfares. The only way Southwest can take back the power is by offering direct flights to cities that other airliners do not offer. Besides the small occurrence of having a direct flight to a city that no other airline has, Southwest
Company’s Strategy: Southwest’s strategy is to improve efficiency in its operations and pass cost saving to its customers by offering them low and competitive prices. Southwest Airlines is dedicated to providing the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and company Spirit.
Southwest Airlines Co. is an airline company that offers air transportation services within the United States and in international markets. The company operates within the airline industry that is highly regulated, technology intensive, labor intensive, and highly competitive (Southwest Airlines, 2017). Southwest Airlines operates a service business whereby the company offers a point to point air transport service to its passengers. Other than passenger transport, the company offers transportation services for pets and unaccompanied minors. The flights offered include short haul and long haul between various destinations within the United States and internationally. In 2016, the company’s operating revenues from international operations amounted to $383 million. A unique feature of the Southwest Airlines is its cost structure whereby the company focuses on cost discipline and uses one aircraft type to minimize costs.
Many airlines offer a variety of service and flight options, and airlines have many different types of planes to meet that range of options. While this diversifies an airline 's offerings, it also increases operating costs and dilutes the core messaging of the company (Invesopedia, 2017). Southwest Airlines, on the other hand, only uses one type of plane, the Boeing 737. This saves Southwest Airlines millions in yearly maintenance costs and other operating costs this allows the company to offer low price solutions to its customers.
It would bring in more customers and the customers that have flown before will probably fly again. Employees love spending time on the airplane talking to the customers. Customers like employees who make them feel safe or a person who is fun to talk to. Capacity is another thing that will affect the company. Even though there are more people coming in, Southwest Airlines will have to have more plane to transport people. If they do not, things will fall down. Second, it is the time management; because if the company is slow, they would go to another airplane company. Some companies take forever to get their flyers abroad. They get all of their flyers abroad quicker than some others even though Southwest Airlines is a larger company. Southwest Airlines either avoid canceling people tickets besides the weather or they change tickets to another flight quicker. When people accidently put the wrong place, Southwest Airlines can change it quickly unlike some other
Southwest Airlines also has flexible policies to ensure customers have a great experience. An example of their flexible policies is you can cancel a reservation up to 30 minutes prior to the flights take off. Southwest also have rewards programs that consist of earning points, points for purchasing flights that customers can use to purchase booked flights. It also has a partnership with Chase Bank and offers customers a Southwest credit card that allows them to accumulate points that they can redeem for future flights (Investopedia, 2015). Southwest also price matches on airline tickets. The competitive tactics that this airline is using are very effective price matching on the airline
If Southwest decided that they needed to increase their revenue they would have to start by raising the prices of their tickets. The need for increased revenue would need to be passed on to the consumers’. When a ticket price is higher with one airline than the other, the customer
By the use of different larger aircrafts for the same routes could provide for a greater profit margin. If there is a critical flaw in any of the aircrafts, this could be devastating as the whole fleet would be grounded. Southwest serves only to roughly 60% of the states and therefore cannot compete with bigger airlines that operate in every state and even internationally. Also, as it does not utilize a hub system, it cannot service those markets targeted by its competitors. The open seat policy provides for confusion and dissatisfaction during boarding process. It does not offer in-flight meals, first-class nor roomy seats. The policy of forcing passengers over a certain weight to purchase two seats, which is degrading and insulting to most customers.
In May 1999, the U.S. Department of Justice accused American Airlines of illegally slashing prices below cost and increasing flights sharply to drive out small competitors, specifically at its Dallas-Fort Worth location. There were several reasons for why the DOJ sued American Airlines. In the four markets at Dallas-Fort Worth’s American hub, American Airlines had made fare cuts and capacity additions with the entry of small “low cost” rivals, specifically, Vanguard Airlines, Sun Jet, and Western Pacific. Through this, the Department of Justice speculated that American Airlines was sacrificing short run profits to drive out competitors so they could regain the losses after increasing its monopoly power.
Southwest Airlines differentiates itself from its competitors by its marketing communications as the only low-fare, short haul, high frequency, point to point carrier in America that is "fun" to fly (YouSigma, 2008). Southwest 's promotion starts with understanding what the customer wants and then translating it into meaningful services and products. Because Southwest is intuitive to its customers needs, it helps instill the brand and the commitment. Southwest airlines employs the most basic form of price competition by running ads that encourage potential customers to visit their website for the best online deals (YouSigma, 2008).
It is the low fares they provide for their flights. Kelleher emphasizes about this in his interview with Chuck Lucier, a senior vice president emeritus of Booz Allen Hamilton. Kelleher speaks about the profitability of Southwest, about the reliability of its employers, and the dependability of customers to be able to fly at the lowest rate possible and to be able to travel within the timeframe that they demand (Lucier, 2004, paras. 1-7). In my personal experiences, in flying on a number of flights with several different airlines, I have found the mission statement to be true. I use Southwest Airlines as a starting point to look for flights simple because of their low fares are usually the best bargain, in addition to their flexible flight
Southwest Airlines is excellent in planning out their long-term goals. The above SWOT analysis proved that the company is successfully carrying out the cost leadership strategy to manipulate their competitors and boost up their company. Their mission in providing Low Fare cost is one of the best strategy that they can have to increase their market share, but not just that it also put a significant increase in the demand of air travel. Southwest Airline rapid rewards program is brilliant, so they should continue and expand it even more.
In the opinion of Dr. Grace S. Thomson, “a heterogeneous mix of long and short-haul in very thing segments, passenger, density, and per capita income at end points gives [Southwest Airlines] competitive advantage. The way to establish a company in such a market as the airline industry would be to strategically expand in to airports with less competition. Southwest Airline capitalized on this fact to become a national airline (Keller 2008). Southwest Airlines satisfies what were once negligible markets. Southwest serves “64 cities in 411 non-stop city pairs” (Thompson 2008). Saturating these markets has allowed Southwest Airlines to expand without putting a strain on its pocket book (Keller
Southwest Airlines encourages respect, innovation, a caring attitude and strives to adhere to all labor and employment laws which includes respecting privacy and equal opportunity. With a strong concern for avoiding corruption and avoiding anti-competitive behavior, they work hard to maintain accountability of all business practices. An example of this is the promotion of competition to provide consumers low air fares and a variety of high quality air service offerings across the US. This shows their devotion to the community they serve and maintains the company culture.
Southwest Airlines faced many barriers to entry from the fierce competition of other airlines in the industry. Though competition was fierce, Southwest Airlines managed to succeed by doing things differently. Their mission was to provide affordable air travel to those who would not normally fly. Contradictory to the rest of the airline industry, Southwest maintained a profit while keeping its fares low. Southwest was unique to the industry in two ways. They focused on the short haul traveler and used a point-to-point method of flight connections.