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Southwest airlines-Pricing

Kumar Kushagra- 12MBA0128 Gaurav Sharma- 12MBA0039 Roopali Singh- 12MBA Pushkar Sinha- 12MBA0116

About southwest airlines


1967: Herb Kelleher and Rollin King founded SW 1970: management team built June 18,1971: 1st fly in Texas-Houston, Dallas, San Antonio (Golden Triangle) with 3 Boeing 737s aircrafts and 25 employees Operation focus: short-distance flights (>500 miles), point-to-point flights, only 737 Boeing, high frequency flights, low fares, no international flights 1st national carrier to sell seats online ($1 per booking) 1st airline to use ticketless travel (January 31,1995) 2000: biggest aircraft order (94 737s Boeing) >>> 355 fleets in 2002 2003: 4th largest US airlines in terms of domestic passengers carried

What Pricing Strategies does Southwest Airline Employ to compete against other airlines?

Low-Cost Leadership Southwest understand that it is low costs that they can profitability offer low fare. They control expenses by; offering cheap snacks than most other airlines. operates a single type of aircraft the Boeing 737 one aircraft type significantly simplifies scheduling, maintenance, flight operations ad training activities.

focused on increasing employee productivity currently employ 71employee per aircraft. there marketing strategy remains shortflight and domestic route thus 85% flights are 750miles or less. They serve airports that are readily accessible rather than large international airports, it help in reducing the long delay. southwest also increase aircraft average time in air i.e 11hour per day, compared to 8hours for other airlines.

Cost structure of airlines

Variable costs
Maintenance Fuel Labor

Fixed costs
Fees Lease payments for airports Other costs( food, entertainment etc.)

Cost control

What Southwest does.


Single aircraft type-Boeing 737 Flights to and from secondary airports Add-on services at an extra charge Low employee turnover

What Southwest should do.


Utilizing the seating capacity of the plane Use derivative instruments based on crude oil, heating oil, or jet fuel to hedge their fuel cost risk.

Plain vanilla instruments to hedge their jet fuel costs Swaps Futures Call options (including average price options which are a type of call option) collars (including zero-cost collars).

Outsourcing of maintenance and IT professionals. Use of better technology and parts for planes.

Internet and Southwests Pricing


Sold tickets directly to customers online. Deletion of travel agents and toll free numbers. Saved $80 million Generated 25% of revenue online