Southwest Airlines Case

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Case: Southwest Airlines

1. Although Southwest is smaller than some of the major airlines, it is pursuing a market share leadership strategy. The example in the case of its success in the Oakland market versus US Airways indicates that even though it may not be the biggest overall airline, it tries to dominate any particular market it enters through its low-price strategy. Thus even though it is entering the Philadelphia market with only 14 flights per day, US Airways should expect it to expand its number of flights quickly if it is successful in getting a start in the market. Southwest is not pursuing a current profit maximization strategy, even though it has been highly profitable. Low prices do not necessarily result in lower
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The market is sensitive to price it means that the demand is elastic; demand and price are inversely related.

As low-fare airlines entered the market, their low prices affected the way consumers viewed airline prices. Consumers saw that they could fly from point A to point B at a much lower price if they were willing to give up some of the frills and extras that airlines traditionally offered. This affected their view of what the “right” price was for air transportation.

When Southwest entered the Oakland market, average one-way fares fell from $104 to $42—and traffic tripled. This indicates that the demand for air transportation is price elastic. One would expect that as Southwest enters the Philadelphia market, that market would expand also.

An important external factor in airline pricing is the price of fuel. These prices put much pressure on the airlines to cut costs or raise prices to reflect the increased fuel costs. However, with the low-fare airlines already having lower cost structures, the older airlines were not successful in raising prices. 4. Major airlines had high cost structure that was difficult to change, so general pricing approach was

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