Southeast Essay

751 words - 4 pages


Southwest airlines: staying ahead in the pricing game



ID: 1030234530






Southwest airline is one of America’s most successful air lines. It started its journey in 1970s.From the very beginning it has paid special attention to its pricing strategy. Southwest’s traditional pricing strategy has been low price strategy.

When southwest airlines started their business, most of the people did not give it much of a chance. Southwest airlines strategy was completely different from other airline companies. They ...view middle of the document...

S airlines combined. From 1972-2002 “money magazine” indicated that southwest was nation’s best performing stock. All these achievements were possible because of its low price pricing strategy.

An airlines industry is more of a fixed cost business rather than variable cost business. All the salaries of the pilots, flight attendants, ground crews, terminal personnel, reservations systems personnel, and corporate employees are all fixed. The costs of the planes, the gates at the airports, terminal fees, etc., are also fixed. The only variable costs are the transaction costs of issuing a ticket (very low with e-tickets), the extra fuel the plane uses because of the extra weight of the passenger and luggage, and any in-flight food or beverages. The true variable cost of flying one additional passenger is very low.

Since the year 2000, various things have changed in the industry that has affected the nature of costs. First, the costs associated with travel agencies are dropping as Internet booking services have replaced that intermediary. While this is a factor that is improving the cost structure for the legacy airlines, it is not helping southwest at all given that they have never worked through travel agents. Second, fuel prices have...

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