With 40 consecutive years of profitability, Dallas-based Southwest Airlines (NYSE: LUV) continues to differentiate itself from other carriers with exemplary Customer Service delivered by nearly 46,000 Employees to more than 100 million Customers annually. On May 2, 2011, Southwest completed the acquisition of AirTran Holdings, Inc., and now operates AirTran Airways as a wholly-owned subsidiary. Southwest is the nation’s largest carrier in terms of originating domestic passengers boarded and, including AirTran, operates the largest fleet of Boeing aircraft in the world to serve 96 destinations in 41 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries. Southwest has lower unit costs (adjusted for stage length), on average, than virtually all major domestic airlines and consistently has one of the best overall Customer Service records. Southwest’s all-Boeing fleet consistently offers leather seating and the comfort of full-size cabins. The majority of Southwest’s fleet is equipped with a new, eco-friendly cabin interior, and satellite-based WiFi connectivity, including a new inflight entertainment portal, which gives Customers the ability to watch live TV, news, sports, and movies.

1. William Gholston
Ladel Harris II
Thomas Haskins
Brittany Taylor
Erika Witherspoon

2. Industry Analysis

3. 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

4. • 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
•

5. 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
2.5
Source: Southwest Airlines company records. Firgures rounded

6. Market Share %
4.4
2.5
5.1
22.1
1 United Airlines
7.8
2 American Airlines
3 Delta Airlines
4 Northwest Airlines
8.5
5 Continental Airlines
6 USAir
7 Trans World Airlines
20.2
11.8
8 Southwest Airlines
9 American West Airlines
17.6

7. • 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

8. • 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

9. • In 1994, 92% of airline passengers bought
their tickets at a discount
• on average just 35% of the posted full fare

10. • 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

12. Problem Statement
Southwest Airlines strategy to respond to United
Airlines unexpected news that “Shuttle By
United” will make changes in their services and
prices strategies. “We’re going to match
Southwest” strategies? United’s decision to
increase all 14 “Shuttle By United” fares by $10.
Furthermore, suspend service between
Oakland-Ontario, beginning in April. Can we gain
Market Share with these actions?

13. Relevant Criteria
1. Increase Market Share in the Major U.S.
Airline Carriers market.
2. Move from maturity-saturation stage to
repositioning initial strategies.
3. Continue low-fare carrier image.
4. Create Brand Loyalty with current customers.

14. 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.

15. 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

16. Alternative Strategies
• Offer more amenities and services though a
promotional push
• Do Nothing

17. 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

18. Assumptions
• Southwest would gain market share for
United’s discontinued service for OaklandOntario, CA
• Strategy also wouldn’t hinder the
advertising, sales, promotion, and scheduling
matters pertaining to the start of the
scheduled service to Omaha, Nebraska

19. Comparative Advantages
(Southwest vs. United Airlines)
 High customer preference
 Lower cost and higher efficiency
 Well established image
 Cost Per Available Seat Mile

20. 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
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
0.1050
$0.070800
Series1

22. Comparison
SWA 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
$200,000
$193,340
$SWA
SBU

23. Final Decision
According to analysis above, by not matching
United Airline's $10 per ticket fare
increases, instead an increase of $8 per ticket
fare keeping Southwest Airline's "Lowest fare
Airline". Southwest will be able to capture
more customers from United Airline's
discontinued Oakland-Ontario route. Gain
market share in the US markets.

24. In conclusion,
• Southwest should not match United's 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.

25. Comments or Question?
Thank you!