Human Resource Management and Business Strategy

Case Study
Pages 10 (2510 words)
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The U.S. airline market was deregulated in 1978. The virtues of the move, though long debated, had become more than self-evident by the mid-1990s: With the government no longer dictating ticket prices and in-flight menus, airfares dropped 40 percent in real terms between 1978 and 1997, saving travelers an estimated $20 billion a year and more than doubling the total number of passengers.


Herb Kelleher and Rollin King, Southwest's founders, wanted to provide frequent, low-cost service in busy markets of less than 500 miles. Instead of considering other airlines such as United and Continental as competition, Southwest considered the automobile and bus service as major competition. Southwest's flights were typically point-to-point - nonstop from originating airport to destination airport, although connections were available for customers who wanted them.
By the late 1990s, Southwest was the world's richest and most profitable major airline, while other players like United, Continental suffered heavy losses in an industry that had grown mature and highly saturated. Southwest's growth was driven by growing demand for the product that Southwest delivered so well: reliable low cost travel. Consumer behavior shifted towards greater price sensitivity in the early 1990s, motivated by a downturn in the business cycle and made possible by increasing corporate control over business travel. The shift appeared to affect business travelers as well as leisure travels, partly through corporate directives to cut down travel costs. ...
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