Case Study: Southwest Airlines Essay Example

are such that they compete with land transportation as well. 2. The 21st century has given the airline industry a lot of new challenges.

Not necessarily new but still a growing concern was heightened environmental awareness. This affected airlines cost structure through environmental taxes and requiring cleaner and more efficient engines. Secondly, how information is dealt with. The advent of the internet and online purchase and customer services have made some things like travel agencies and call centers dated, decreasing costs. Thirdly, the terrorist attacks of 9/11 have increased cost for airlines to do business. This is seen through the rising cost of security and more thorough screening checks, increasing time constraints and costing even more.

Fourth, and likely the biggest issue since the year 2000 is the increase in fuel costs. Rising prices in oil have dramatically increased the cost structure of many airlines. This has put large strains on trying to adjust the pricing decisions to match each airlines market objectives. For example, Southwest’s airlines cost per mile went from 7. 5 cents in 2002 to 8. 8 cents in 2006, which is up 18 percent. 3. Southwest is currently the leader in the airline industry. Much of the industry Southwest faces consist of older conventional airlines like Delta and some smaller up and coming low cost carriers like JetBlue and ATA.

Because the higher costs associated with business these up and coming airlines have made Southwest very rival conscientious. Southwest’s price demand mentality is that a lower price will produce a higher demand and has positioned itself as a low cost airline. This type of strategy is known as good value pricing. This pricing strategy

is associated with highly elastic consumer demand meaning that there can be large changes in the quantity of consumers for a small price change. Southwest offers no-bells and whistles flights that get one where they need to go, nothing more, nothing less.

The problem with this is that there are many new up and coming airlines that are copying its strategy and more efficiently. It is easy to find substitutes. Some even have more modern amenities on them for lower price than southwest. Ryanair for example has dirt cheap prices which are accomplished through stripping services even further and making passengers pay for extra things such as food and even luggage. Fortunately for Southwest none of these smaller companies have nearly as much of the market share, it is still one of the healthiest airlines in the business.

These new comers in the market have provoked Southwest to tweak it’s strategy some. In order to differentiate itself from conventional airlines as well as the up and coming ones, Southwest has adopted strong brand building, customer assurance of its reliability, stability and convenience. This is something they feel will be very important in the near future. 4. ) In the airline industry there are two types of pricing strategies, economy and premium. Under economy, the quality is low as well as the price. These types of firms are known as low cost carriers.

Their price is based on things like no free meals and more but smaller seating. This style is more geared towards people trying to save money and that just want to get where they are going fast. Southwest falls under the economy category as does Ryanair

and ATA in varying degrees. Premium pricing strategy involves high quality and high prices to match. These types of firms are known as full service carriers. Their price is based on fare classes that charge each customer as much as they are willing to pay.

They offer more services for a higher fare and separate some of the services through classes like first, business, economy ect. This strategy is aimed at people who have more money to spend on amenities. Firms like Delta or British Airways fall under this heading. 5. Southwest has been a dominant force in the airline industry for over 32 years and has a lot going for it. It pioneered the no frills, low operating cost strategy. It aggressively pursued market share and has the majority of routes and airports necessary to safeguard its position.

Southwest has also historically done well when others have not. Currently however, the low cost airline industry has become increasingly competitive with the advent of new players such as JetBlue, Ryanair and ATA. These companies are serving secondary airports much like Southwest did in the beginning except these new companies have further streamlined the Southwest strategy and have lower cost structures. Because there is more competition, Southwest’s services are more easily substituted. Natural limitations on prices such as fuel costs also play a role in determining Southwest’s future.

It is starting to behave like many of the old airlines it went up against. I think Southwest Airlines can keep its competitive advantage based on price if it maintains its services to main airports in cities. Another thing that it must do is continue to differentiate through its service standards

and maintain the high level the department of transportation praises it for. If it cannot then I think it will likely end up like US Airways in Philadelphia and fall prey to the new low cost airlines. If that happens then Southwest will have to rethink its strategy and services.