Southwest Airlines was considering how to respond to new initiatives by United Airlines' new "Shuttle by United" service. United was implementing an airline-within-an-airline concept to operate point-to-point, low fare routes alongside its existing hub-and-spoke system. This was similar to Southwest's low-cost, point-to-point model. The document discusses the deregulation of the airline industry in 1978 and the transition over the following decade, including carriers abandoning point-to-point routes for hubs. It outlines Southwest's low-cost operations focusing on customer service and avoiding major hubs, resulting in significant savings from lower travel agent commissions.

1. SOUTHWEST AIRLINES

2. OBJECTIVES
• WHAT TO MAKE OUT OF UNEXPECTED DEVELOPMENTS
DONE BY “SHUTTLE BY UNITED” AIRLINES
• HOW SOUTHWEST MIGHT RESPOND TO THE NEW
INITIATVES TAKEN BY “SHUTTLE BY UNITED”

3. INDUSTRY BACKGROUND
1) Prior to 1978 U.S. Airline Industry was regulated by the federal
government through the Civil Aeronautics Board.
2) CAB regulated airline fares , routes & company mergers & CAB
approval was required for any changes in fare or route system.
3) In 1978 , Airline Deregulation act was passed . This act allowed
airlines to set their own fares and enter & exit route without CAB
approvals.

4. DEREGULATION AND A DECADE OF TRANSITION
• Carriers responded to deregulation with unexpected changes in their operations that
would have long term effects on the industry .
• First major carriers turned their attention to serving non-stop “long haul” routes
anchored by densely populated metropolitan areas or city – pairs which had been highly
Profitable in a regulated environment .
• Second major carriers almost uniformly abandoned point-to-point route systems and
adopted the hub-and-spoke route system .

5. • Point – to – point systems involved nonstop flights between city-pairs & often
shuttle flights back and forth between city pairs .
• The hub-and-spoke system featured feeder flights from outlying cities to a
central hub city , where passengers would continue their trip on the same plane
or transfer to another plane operated by the same carrier to continue their final
destination .

6. AIRLINE-WITHIN-AN-AIRLINE CONCEPT
• Southwest airline operated primarily short haul , point-to-point routes , with minimal
amenities
• Southwest had much lower operating costs than other major carriers
• With Southwest’s operating practices as a blueprint several major carriers had already
explored ways to implement a low cost airline service in short –haul markets and
produce a clone of Southwest
• This led to a concept of airline-within-an-airline
• This concept involved operating a point-to-point , low fare , short haul , route system
alongside a major carrier’s hub-and-spoke route system.

7. CUSTOMER SERVICE & OPERATIONS
• Southwest’s attention to customer service was embodied in the attitudes of the people
• Pilots could be found assisting at a boarding gate
• Ticket agents could be seen handling baggage
• In terms of operations Southwest generally avoided major airlines hubs in large cities
.Instead smaller cities and less congested airports were served
• In terms of seat reservation the customers & agents had to call southwest . As a result
fewer than one-half of Southwest's seat were booked by travel agents which results on
savings on travel agent commission to southwest to $30 million per year.