Southwest Airlines

Kaushal Desai Vaishali Patel Debra Quach

Introduction Although the airline industry is no longer experiencing the rapid growth it exhibited before 1990; commercial air travel in the U.S. remains the preferred method of transportation for a majority of Americans due to cost-effectiveness and timesaving characteristics. From 1980 to 1990 the number of passengers traveling by air increased by approximately 72%, in contrast, in the 1990-1998 period, the airline industry only experienced 36% growth. Furthermore, during 1965-1978, the government regulated the airline industry by forcing artificial wage increases and artificial price levels. In the postderegulation era, labor negotiations were the cause of many labor strikes. The big carriers have tried to cut costs, but have been constrained by strong union opposition. For example, “Unions have fought against moves to shift unprofitable routes to lower cost regional jets with lower paid pilots.” Confronted with cut-throat competition, particularly from low-cost rivals such as Southwest, now America's fourth largest carrier in terms of traffic flown, the big airlines have found themselves caught traditional fare wars that cut into their already slim profit margins. The domestic airline industry in the United States is characterized by intense rivalry and low profit margins. Through product differentiation and a strategy of low cost and no frills, Southwest has been successful in distinguishing itself from its competitors in order to sustain profitability in this aggressive industry. Industry Analysis Since the Airline Deregulation Act of 1978, the airline industry has endured a number of years of low profitability. “Deregulation sent airline fares tumbling and allowed many new firms to enter the market. The financial impact on both established and new airlines was enormous.” 1 In order to