William GholstonLadel Harris II Thomas Haskins Brittany Taylor Erika Witherspoon

Industry Analysis

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

•

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

Estimated Market Share for Major U.S. Carriers in 1994 Based on Revenue Passenger

Source: Southwest Airlines company records. Firgures rounded

22.1

20.2

17.6

11.8

8.5

7.8

5.1

4.42.5

Market Share %

1 United Airlines2 American Airlines 3 Delta Airlines4 Northwest Airlines5 Continental Airlines6 USAir7 Trans World Airlines8 Southwest Airlines9 American West Airlines

• 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 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?

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.

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 preferenceLower cost and higher efficiencyWell established imageCost 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

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

$0.070800

0.1050 Series1

Projection 1995 1th Quarter Operating Results

Comparison SWA Price Increase to $8 vs. SBU Fare Increase to $10 with Discontinuing of Oakland-Ontario Route

SWA SBU $-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$193,340

$1,551,709

Series1

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.

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.

Comments or Question?

Thank you!