The case of Southwest Airlines: Flying High with Low Fares on page C-32 offers a history of aviation in the U.S., history of Southwest, charts comparing key metrics against competitors, and the strategy, leadership and values of Southwest Airlines. In this assignment, you are asked to analyze the case and answer the questions under Exercise 1 on page 83. Specifically,
What are the primary drivers of cost (major cost areas) in the airline industry?
What are the primary sources of Southwest’s cost advantage? In other words, do you believe that Southwest’s cost advantage can be best attributed to economies of scale, learning and experience, proprietary knowledge, lower-cost inputs, or a different business model?
How is Jet Blue’s strategy similar to Southwest’s? How is it different?
What prevents larger competitors, such as American, Delta, or United, from imitating Southwest’s approach? What prevents new entrants from successfully imitating Southwest’s approach?
Using data from the Southwest case, create a chart that plots the relationship between each airline’s market share, in terms of revenue or airline seat miles flown, and its profitability for two periods: 1995-2000 and 2001-2005. Does your analysis suggest that market share is correlated with profitability in this industry? If you exclude Southwest Airlines and Jet Blue airlines from the analysis (companies that use “point-to-point” route structure rather than a “hub and spoke” route structure), how well does market share predict profitability?