Southwest Airlines and Income

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Southwest Airlines and Income

Category : Articles

This paper is part of the case study of Southwest Airlines, which analyzes two problems: declining income and line competition.

This paper explains that Southwest’s 4th quarter in 1994 was the cumulative effect of several factors: conversion of the recently acquired Morris Air Corporation to Southwest operations, competitors’ persistent use of fare sales that Southwest was forced to match, and the airline-within-an-airline initiative by Continental and United. The paper examines each alternative by presenting advantages and disadvantages of each factor and determining the best alternative. The author recommends that, to meet the line competition, the recommended alternative is to concentrate on retaining and building share in existing markets before venturing into United’s strong hub of San Francisco. Tables.

Table of Content
Problem I
Analysis
Alternatives
Recommended Alternative
Problem II
Analysis
Alternatives
Recommended Alternative
While it is true that Southwest does not offer any service in five of the city pairs served by United, it must be noted that in an effort to maintain its stronghold in California. Southwest had already employed additional aircraft to the California market to boost flight frequencies on competitive routes and by mid-Jan 1995, Southwest had deployed 16% of its total capacity (in terms of ASMs flown) to the intra-California market and 13% of Southwest’s total ASM capacity overlapped with Shuttle by United by late Jan. 1995. Any further redeployment of existing aircraft would mean reduced frequency or closing down of other routes, involving loss of market share and revenue from other markets and thereby further weakening Southwest’s market and financial position. Therefore, the question really is, as to whether any alternative existed for Southwest, which could enable it to compete with Shuttle on the five routes where it was not present, without affecting its other operations. In assessing these lacunae in Southwest’s route network, it must be noted that all five routes are out of San Francisco, a major hub of United.