Abstract In this article, the writer notes that there are two different major classifications of airlines, legacy carriers such as Delta Airlines, American Airlines and United with hub-and-spoke systems and newer low-cost airlines such as Southwest, JetBlue, and AirTran with point-to-point models. The writer notes that armed with lower airfares, low-cost carriers have already captured around 20% of the market and are rapidly gaining an even greater market share. The writer explains that most legacy airlines have at least one central airport that their flights have to go through and from that hub, the spoke flights take passengers to select destinations. This hub-and-spoke system is in sharp contrast with point-to-point models that fly directly between two small markets. The writer discusses that in the past, hubs enabled legacy airlines to provide frequent service to many cities with short layovers, but now many travelers are no longer willing to pay high ticket prices.
From the Paper "Because Delta has an expensive hub-and-spoke business models, weak financial performance, anemic consumer demand and higher energy costs, it doesn't make sense for it to try to compete solely on price. Instead, Delta needs to explore price discrimination to find those customers that are willing to pay more for airline services. Given weak demand, increased competition and a flat or marginally improving economy, one-to-one marketing practices are needed to find new customers and to justify their higher prices.
"On the Internet, airlines have access to personal data entered by the consumer (name, address, gender, email, phone, credit card numbers, travel preferences) surfing patterns and purchase history. This type of information provides unparalleled opportunities for price discrimination. Not only can Delta rely on supply-and-demand factors to formulate different prices for the same service, it can now use their wealth of customer data to charge consumer's maximum prices."
Abstract Discusses how the airline plans for success. Profitability of the U.S. airline. Its success with business travelers and vacationers. Customer service and lower airfares. Southwest's goal to become the major short-haul carrier. Profits and growth of the company. Advantages of relying only on the Boeing 737. New markets and airline expansion of routes.
From the Paper "HOW SOUTHWEST AIRLINES PLANS FOR SUCCESS.
"We consider the operations function an integrated system that obtains the necessary inputs, transforms them to make them desirable for the customer, ('adds value to them')…"(Dilworth, p. 3) An outstanding example of how operations integrates the functions that forecast and meet demand and help the company earn a profit, is Southwest Airlines, arguably the most profitable U.S. airline, even though, for the most part it flies only short-haul distances.
Flying on Southwest Airlines is not the most comfortable way to go. Usually, the planes are jammed full of vacationers and families including children, as well as business travelers. Seats are crammed together. There is no advance seat reservation system. The crowds at the departure gates are usually enormous. Yet, somehow ..."
Abstract This paper investigates the considerable effect deregulation has had on the airline industry in terms of competition and how airlines have had to formulate defined strategies to improve their economic performance in order to remain competitive. The history of deregulation in Australia, Europe and the United States is reviewed, as well as the more recent developments in the industry as a result of deregulation. The various strategies available to airlines are discussed, along with how these counteract the competitive forces of their rivals, in both the domestic and international domains. It is also argued that airline managers must monitor competition and industry forecasts, develop initiatives to reduce costs while simultaneously maintaining or increasing yield to ensure long-term profitability.
Outline
Introduction
Outcomes of Deregulation
Intense Competition
The Economic Characteristics of an Airline
Managing Economic Performance and Competition
Conclusion and Implications
From the Paper "As governments began to consider that current regulations in the airline industry were too restrictive, deregulation (or liberalisation) of economic and political regulations was thought to be the response to their desire to stimulate competition. Largely, the United States pioneered the implementation of regulatory reform. US government control over domestic airfares and entry into the market had ceased in the early 1980s, immediately encouraging new entrants into the domestic airline industry. As a result, airfares fell as competition grew. In Europe, the European Court of Justice ruled that government intervention concerning airfares breached competition law, leading to the staged deregulation of airfares and airline services (Hutcheson, 1996). On the Australian scene, interstate regulation was phased out in 1990, while intrastate regulation of routes and fares remained predominately intact to stabilise and scrutinise essential regional services."
Abstract This paper focuses on the idea that with the relationship Southwest Airlines has with substitutes, profits can be gained by pricing strategically across business and economy classes. The hypothesis examined is that Southwest focuses more on price discrimination, and has a clearer price difference between the two classes. It contends that by increasing airfare for the business class and continuing with the low price model for the economy class, Southwest would also be expanding its opportunity and increasing its revenue.
Outline:
Introduction
A Model of Price Discrimination: Opportunities Related to Substitutes for Southwest Airlines
From the Paper "Price elasticity of demand refers to the percentage in quantity demanded due to a percentage change in price (McConnell, Brue, and Barbiero, 2002, p 145). If demand is highly elastic as it is for casual travelers, lower prices will cause total revenue for Southwest to increase. Look at Figure 1 below; even though price decreased by a smaller amount, movement from P2 to P1, the quantity demanded increased by a very large amount, Q2 to Q1 [compare the red and blue areas to see the difference]. So the recommendation based on the opportunity related to the closeness of substitutes is that Southwest Airlines continues to keep prices low for the casual travelers."
