Southwest Airline

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Southwest Airlines Group Assignment
December 3, 2011

Group Two:

Cleveland State University
Marketing Strategy MBA Fall 2011
Professor: Rama Jayanti, PhD

How has SWA (a) responded to the “Shuttle By United” initiative (half page 5 points); and (b) what assessments can be made about SWA’s market and financial position on competitive routes based on 1994 4th quarter results (half page 5 points)?

On October 1st, 1994 when United Airlines introduced their “Shuttle By United” high-frequency, low-fare, minimal amenity, short-haul flight operation, Southwest Airlines was already the industry leader in this market segment. Southwest was the eighth largest airline in the United States based on the number of passenger miles flown
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Southwest spearheaded “Shuttle By United” by emphasizing the particularly city-pairs where they competed directly. Additionally, Southwest heavily promoted their 21-day advance fares and other discounts. Southwest’s average fare for the intra-California market decreased from $45.00 in the third quarter of 1994 to $44.00 in the fourth quarter of 1994 and into early January 1995. The Oakland-Seattle route was $51.00, down from $60.00 in the third quarter of 1994. Southwest vice president of marketing and sales estimated the average passenger fare for “Shuttle By United” was roughly 5-10 percent higher in the nine markets it competed directly with Southwest and about $20.00 higher than the average Southwest fare in the markets it did not compete directly.

During the 1990s Southwest achieved the highest average revenue and income growth rate and return on total assets and stockholders’ equity among all U.S. air carriers. Unfortunately in the fourth quarter of 1994 (October 1 – December 31, 1994) net income fell 47 percent compared to fourth quarter 1993. Southwest had not reported earning less than the same quarter a year earlier since the third quarter 1991. By the end of the fourth quarter 1994 Southwest’s stock had reached a 52-week low on the New York Stock Exchange closing at $15.75 which was down

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