Southwest Airlines

6851 Words May 5th, 2005 28 Pages
I. Current Situation

Following the Deregulation in 1978, a competitive price war ensued among the airline industry as a direct result of the new freedom for airlines to set their own fares as well as route entry and exits. This gave rise to the operating structure of the airlines as it exists today, consisting of the point-to-point system and the hub and spoke system. With this came the change of focus for major airlines to non-stop, cross-country routes in densely populated cities, which, in a regulated environment, would be profitable. This resulted in the obvious outcome of increased competition, thus lowering the average industry prices for non-stop cross country routes which were profitable. This caused operating costs to
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Delta, totaling 3,567,345 in sales, ranked just below Southwest, making them the primary competitor. The remaining 19% of the overall market is allocated almost evenly amongst the smaller carriers, which are all far behind the top seven.

4. Industry Pricing
Because fares vary depending on many stipulations, typical industry rates will be analyzed using the following criteria: A roundtrip flight for one passenger departing from Newark, New Jersey on May 10, 2005 to Las Vegas, Nevada, and returning May 15, 2005. Using this criteria, the rates from the primary seven airlines in the industry from the lowest to the highest are as follows:
• Southwest- $ 208
• US Airways- $ 208
• American Airlines- $ 390
• Northwest- $ 407
• Delta- $ 517
• United- $ 637
• Continental- $ 688

It can be noted that Southwest has clearly dominated its competition in terms of pricing and being the low cost provider up until recently. US Airways has since began a pricing campaign to directly compete for market share, going as far as lowering its fares to match those of Southwest to the dollar. Other airlines, however, have been unable to lower prices to such a drastic extent, falling victim to the recession of the airline industry and suffering from having too much inventory (planes, seats, etc.) and not enough business.

B. Marketing Function

Southwest
A.

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