Southwest Airlines Action Plan
Southwest Airline's low price fare is one key competitive strategy
for its success in the past.
Therefore, Southwest's interests would be
best served by adopting the option of keeping prices of all nine routes the
same as they were in the 4th quarter of 1994. Even though, this pricing
strategy might increase intensity of competition among airline industry
rivals and cause squeezing of the profit margin, by keeping the current
price Southwest will maintain its signature status as the one who offers
the lowest and simplest fares with high quality services. This option
should take market share away from rivals, and by keeping the price
unchanged and emphasizing service to airports where competition is
relatively weak, Southwest will have new sales growth opportunities, and
enjoy a dominant market share. Also by examine the load factors where SW
is 67.3%, which is higher than the industry average of 64.3%, and selected
consolidated data of Southwest from 1990 to 1994, we know that Southwest's
net income is growing at double digits, its long time debt is reducing, and
its cost is much lower than its competitors.
The positive net income has
boosted investment return for its shareholders at annual average rate of
return of 16.08%. Southwest is in a healthy financial situation which
means they don't need to increase their ticket price to increase investor
value. As you can see in Exhibit 1 the comparison between Southwest's and
United's competitive flights shows that they are not only doing better that
United but they are profitable in comparison.
However, the benefits outlined above, of course, do not come without
any risks.
The most prominent of these risks are: Flying Southwest does not
appeal to the business traveler. In addition, Southwest has no strong
partners with travel agents to promote flying Southwest, and increasing
intensity of competition among airline industry rivals may cause a squeeze
on the profit margin, thus making Southwest vulnerable to economic
recession and slowdown in airline market growth.
In conclusion, Southwest should continue to grow with the same price
it offers to its customers, maintain their 737 fleet, uphold their point to
point system, and strongly continue developing their corporate culture in
order to remain successful during these uncertain times for the airline
industry. When the airline industry stay as it was, Southwest can maintain
this philosophy and still be profitable.
Exhibit 1.||Competitive||
||Flights ||
|SW| SFO - San||
||Diego|(8,775.00)|
|Unite| SFO - San||
|d|Diego|(3,771.00)|
|| ||
|SW|Oakland - LA ||
|| |10,558.00 |
|Unite|Oakland - LA ||
|d| |(3,519.
00)|
|| ||
|SW|Oakland -||
||Burbank |17,021.00 |
|Unite|Oakland -||
|d|Burbank |(20,196.00|
|| |)|
|| ||
|SW|Oakland -||
||Ontario |(1,785.00)|
|Unite|Oakland -||
|d|Ontario |(33,674.00|
|| |)|
|| ||
|SW|Oakland -||
||Seattle |(15,150.00|
|| |)|
|Unite|Oakland -||
|d|Seattle |(35,374.
00|
|| |)|
|| ||
|SW|LA -||
||Sacramento|(2,869.00)|
|Unite|LA -||
|d|Sacramento|5,995.00 |
|| ||
|SW|LA - Phoenix ||
|| |6,268.00 |
|Unite|LA - Phoenix ||
|d| |(25,633.
00|
|| |)|
|| ||
|SW|LA - Las Vegas||
|| |41,119.00 |
|Unite|SFO - Las||
|d|Vegas|22,726.00 |
|| ||
|SW|San Diego -||
||Sacra. |(10,201.00|
|| |)|
|Unite|San Diego -||
|d|Sacra.
|(27,084.00|
|| |)|
|| ||
||Total Competitive Flight |
||Totals |
||SW| $ |
|| |36,186.00 |
||United ||
|| |$(120,530.|
|| |00) |
