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Southwest Airlines - Case Commentary

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Southwest Airlines - Case Commentary

This case has four areas of focus:

* An introduction to the economics of the U.S. passenger airline industry and developments in this industry since it was deregulated in 1978.

* Examination of Southwest Airline's operations, marketing, and customer service philosophy/practice, which is considered a model for the industry.

* Understanding the marketing strategy competitive game setting, considering the short- and long-term actions and reactions of competitors.

* Examination of the airline service and price strategy and tactics, and assessment of the profit impact of both.

1. How would you characterize the U.S. airline industry in the early 1990's?

Discussion should focus on the industry condition, history, and trends in the early 1990's, with emphasis on the changes that were taking place in the areas of consolidation, effects on cost structures, effects on fares, operating costs, and operating procedures. At least twelve factors which influenced the industry were mentioned in the case. A comprehensive answer would address most of the factors mentioned.

2. How can the "economics" of the airline industry be used to explain the performance of individual airlines, and the industry as a whole?

The "economics" of the airline industry (costs & revenues, which depend on capacity, asset utilization and productivity) may be used to explain the performance of individual airlines. Discussion should include examination of yield, load factors, operating costs, fixed costs (labor and fuel), and how these factors influence operating leverage (Chapter 2) in the airline industry.

The economics of the industry play a pivotal role in the performance of all carriers, with particular attention to the (relatively) fixed costs of labor and fuel. With these costs representing one-half of airlines' costs, carriers have high operating leverage. This means that carriers incur losses at a faster rate once volume falls below break-even, while they generate profits at a faster rate once volume increases above break-even.

3. How has Southwest Airlines been able to consistently grow and prosper in the U.S. passenger airline industry?

Answers must be based on sound, critical evaluation of Southwest Airline's cultural, operational and financial conditions as they existed, using information from the entire case and accompanying exhibits. A complete answer should include an in- depth analysis of how Southwest's operating finances differ from their competitors.

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