Southwest Airlines

Problem: Southwest entered the airline market in Texas where two well established competitors dominated the market. Southwest had not enough financial resource and it was not easy for them to enter an aggressive price wars with those two competitors, Braniff and TI.

Solutions:

λ Southwest should maintain all three routes with some adjustments.

The three routes they had, Dallas-Houston, Dallas-San Antonio, and San Antonio-Houston should be kept in order to compete with Braniff and TI. Although D-S is getting more passengers after “60-Day-Half-Price-Sale” and D-H reaches the break-even, S-H only got average of 17.71 passengers per flight as of 1972. However, according to Exhibit 10, the route is getting more passengers month by month. Southwest can expect to reach the break-even eventually if they keep offering good service and earn good reputations from customers.Therefore, S-H can remain 2-hour service, while the other two route should increase to 1-hour service to maintain profit from having less seats (from 112 seats to 104 seats).

λ Southwest should reduce the operating cost by introducing ticketing machine and maintain only one type of aircraft.

The loss from operating is $218,000 as of the first quarter of 1972. By introducing ticketing machine, ticketing will be much faster which will increase customer satisfaction while Southwest can cut down the cost for the ground staff. Also, by having only one type of aircraft which is Boeing 737 would simplify maintenance cost and time.

λ Southwest should maintain their “luxury” position in the market and should advertise it.

Instead of not entering an aggressive price wars with Braniff and TI, Southwest should target high income and business man. Offering them comfortable seats, free drinks, less crowded flights, and more. Differentiations