Market• Southwest Airlines Started as an intra-state operator in the state of Texas in 1971 • Short haul, high frequency, low cost strategy, and point to point route system• In 1994 southwest held 4.4 Market Share%• Southwest • Make the expansion to become a major carrier • Lowest operating cost in the domestic airline industry • Low cost philosophy survived, a severe price war
• US passenger airlines into 3 categories • Major Carrier • annual revenue 1billion; 95% domestic passengers carried • 80% all major carrier domestic • National Carrier • annual revenue 100million-1billion • Regional and Commuter Carrier • annual revenue less than 100million • In 1978, the United States had 36 domestic carriers • The major carriers adopted the hub-and-spoke route system •
Estimated Market Share for Major U.S. Carriers in 1994 Based on Revenue Passenger Rating Carrier Market Share % 1 United Airlines 22.1 2 American Airlines 20.2 3 Delta Airlines 17.6 4 Northwest Airlines 11.8 5 Continental Airlines 8.5 6 USAir 7.8 7 Trans World Airlines 5.1 8 Southwest Airlines 4.4 9 American West Airlines 2.5Source: Southwest Airlines company records. Firgures rounded
Market Share % 2.5 4.4 5.1 22.1 1 United Airlines 7.8 2 American Airlines 3 Delta Airlines 4 Northwest Airlines8.5 5 Continental Airlines 6 USAir 7 Trans World Airlines 20.2 8 Southwest Airlines 11.8 9 American West Airlines 17.6
• Major carriers turned their attention – Long haul routes• As major carriers pruned or reduced service on these short-haul routes – Regional carriers and New airlines filled the void
• Mergers and acquisitions mergers in the 1980’s• Eight Airlines controlled 91% of U.S traffic causing them to be fragile• Price competition- due to deregulation price competition
• In 1994, 92% of airline passengers bought their tickets at a discount• on average just 35% of the posted full fare
• Customer Service – sense of humor in our workers – the compassion for passengers and coworkers – desire to work• in 1994 we were awarded the triple crown of the airline industry for the third consecutive – time performance – baggage handling – overall customer satisfaction
Problem StatementSouthwest Airlines strategy to respond to UnitedAirlines unexpected news that “Shuttle ByUnited” will make changes in their services andprices strategies. “We’re going to matchSouthwest” strategies? United’s decision toincrease all 14 “Shuttle By United” fares by $10.Furthermore, suspend service betweenOakland-Ontario, beginning in April. Can we gainMarket Share with these actions?
Relevant Criteria1. Increase Market Share in the Major U.S.Airline Carriers market.2. Move from maturity-saturation stage torepositioning initial strategies.3. Continue low-fare carrier image.4. Create Brand Loyalty with current customers.
Alternative Strategies• Match United by having Shuttle to increase profits from the extra money per ticket as the main competitors in the market will remain the same and at the same price.
Alternative Strategies• Adjust their prices by a different amount to stay competitive while keeping an increase in profit. Creating an increase in ticket price by a smaller amount than Shuttle by United they have an increase in profit and offer a better price than their competitor
Alternative Strategies• Offer more amenities and services though a promotional push• Do Nothing
Assumptions• “Ticketless”/ “electronic ticketing” system that Southwest Airlines has currently scheduled to go nationwide January 31• Southwest doesn’t need to go as low as United, due to their capitalization on customer service
Assumptions• Southwest would gain market share for United’s discontinued service for Oakland- Ontario, CA• Strategy also wouldn’t hinder the advertising, sales, promotion, and scheduling matters pertaining to the start of the scheduled service to Omaha, Nebraska
Comparative Advantages (Southwest vs. United Airlines) High customer preference Lower cost and higher efficiency Well established image Cost Per Available Seat Mile
A common unit of measurement used to compare the efficiency of various airlines. It is obtained by dividing the operating costs of an airline by available seat miles (ASM). Generally, the lower the CASM, the more profitable and efficient the airline .0.090.080.070.06 Series10.05 0.10500.04 $0.0708000.030.020.01 0
ComparisonSWA Price Increase to $8 vs. SBU Fare Increase to $10 with Discontinuing of Oakland-Ontario Route Projection 1995 1th Quarter Operating Results $1,800,000 $1,551,709 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 Series1 $600,000 $400,000 $193,340 $200,000 $- SWA SBU
Final DecisionAccording to analysis above, by not matchingUnited Airlines $10 per ticket fareincreases, instead an increase of $8 per ticketfare keeping Southwest Airlines "Lowest fareAirline". Southwest will be able to capturemore customers from United Airlinesdiscontinued Oakland-Ontario route. Gainmarket share in the US markets.
In conclusion,• Southwest should not match Uniteds fare increase of $10, but increase their fares to $8.• Southwest should market its Low Fare Strategy in West Coast Markets.• Continue to improve its Customer Service record.