BibliographyKernin, Roger A. and Peterson, Robert A. Strategic Marketing Problems: Cases and Comments. 11th Edition.
Southwest AirlinesSouthwest Airlines employees came together in late January 1995 for their weekly Tuesday meeting. A main topic of discussion was the competitions between Southwest airlines and "Continental Lite" and "Shuttle By United". As they were beginning the meeting a staff member advised the team of two changes "Shuttle By United" made to its service and pricing. First was the discontinuation of service for the Oakland-Ontario, California market. Second, the one-way walk-up first class and coach fairs had been increased by $10.00. The focus of that Tuesday meeting was set aside and the attention focused on what to make of the developments and how Southwest Airlines might respond to the changes.
Airline Industry BackgroundThe airline industry, prior to 1978 was regulated through the Civil Aeronautics Board (CAB). The CAB regulated airline fairs, routes, and company mergers.
CAB approval was required before any changes in rates or route systems could be made. Then in 1978, the Airline Deregulation Act was passed and allowed airlines to set their own fares and enter or exit routes. The CAB was dissolved in 1985.
The deregulation did not take the turn that was expected which resulted in long-term effects on the industry. Two changes were significant. First, instead of serving short-haul routes, the airlines turned to long-haul routes. This led to regional carriers or new airlines filling in for the short-haul routes. Second, major carriers abandoned point-to-point systems and took up the hub-and-spoke system. The point-to-point system meant non-stop flights between city-pairs and also "shuttle flights" back and forth. The hub-and-spoke system meant that flights would be directed to a central hub city and passengers would either continue their trip on the same...