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Southwest Airline's Case Analysis
Transcript of Southwest Airline's Case Analysis
The primary problem with this case deals with price competition. Specifically,
How should Southwest Airlines adjust their prices to establish higher operating daily profit in the competing routes with “Shuttle United”, given “Shuttle United’s” changes to service and pricing, the industry’s price-cost predicament, and rising fuel costs.
What if we do nothing?
No changes in price would be implemented. SW would continue their focus on customer service, lean turn times, and low fare cost leader.
Match Price of Shuttle By United
Adjust Price By Lower Amount
Southwest Airlines would increase by $5 per fare to maintain the "low fare image" airline.
Shuttle By United $10 Price Increase
Rising Fuel Costs
Maintaining Low Fare Image
Growth & Recognition
Overview of Alternatives
Increase fare by $5
The additional $95,141
Continue to focus on
Continue to emphasize customer service while maintaining the "lowest fare airline" image.
Establish higher daily operating profit in competing routes with Shuttle By United.
"Shuttle By United's" pricing change
The industries price/cost predicament
Rising Fuel Costs
Increase Price By Lower Amount
No risk in market changes
Load factor will increase due to United's increased prices
Decline in perceived value
No increase in sales margins
Negative impact on profit due to fuel prices
Daily operating profit increased to $231,366
Increased profit to cover increased fuel costs and the decreased demand
Decreased load factor
"Shuttle By United" would gain advantage due to first class seating
Southwest would lose "low fare image"
Daily operating profit increased to $136,650
Due to inelasticity in demand ticket sales will not be affected
Provides cushion for future fuel cost increases
Will maintain customer base
Demand increase for Southwest from United's price increase will be less substantial
Possible decrease in loyal customers
Southwest Mission Statement
Southwest Airlines Issues
"The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit."
"Better quality plus lesser price equals value, plus the spiritual attitude of our employees equals unbeatable."
Southwest Airlines would increase price by $10 per fare to match the price of "Shuttle By United"
"Shuttle By United" increased fares
Margins for future fuel increase
$5 increased fare implemented
Increase in Fuel Cost to industry
$5 increased fare
Review & Discuss
Current stance with pricing positions
Maintainence of Company Image
Contingency Plan (if needed)
"We seek amuse, surprise, and entertain."
"The Company Club"
Stand out at airports (boarding)
High frequency business travelers who are:
--> Price Conscious
--> Heavy Travelers
"Our people are our single greatest strength and
most enduring longterm competitive advantage."
Gary Kelly, CEO Southwest Airlines