GOLDESSAYS

Southwest Airlines Pricing

Abstract

Launched in 1969, Southwest Airlines is one of the oldest and most proficient American air carriers even though it has faced numerous challenges over the course of its history. The company’s CEO understood that they had to make the company low-cost to make it different from other carriers of that time. Thus, Southwest Airlines stopped serving food during flights, employed trained workers to avoid spending extra money for their further learning, and started buying the aircrafts of the same model to facilitate their maintenance. All these implementations made the company one of the quickest and cheapest carriers in the USA.

Keywords: Southwest Airlines, low-cost, pricing, cheap tickets

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Southwest Airlines Pricing

In 1969, two Texans, businessman Rollin King and lawyer Herb Kelleher, decided to launch an airline carrier and gave it the name of Southwest Airlines. They aimed at servicing flights to Houston, Dallas, and San Antonio Texas, providing their services frequently and maintaining their low-price. The company overcame tough times and numerous difficulties, eventually managing to become Texas airline, one of the largest airlines in the USA. Southwest had carried total of more than 151,7 million travelers in 2016, which showed the tendency of constant flights increase (Curley, 2017). These rates make Southwest Airlines the fourth greatest airline in the United States. Moreover, Southwest is the only key carrier to sustain profit in each quarter since 9/11, in comparison with many other companies that have declared bankruptcy since then. Southwest Airlines is an influential company, which has largely contributed to the advancement of the commercial airline industry. The secret of success for Southwest Airlines is that this company has been the first to present a commuter-focused business model, suitable for people who needed for cheap, quick, and simple flights from one distance to another, while many airlines focus majorly on amenities and comfort. Moreover, the success of Southwest Airlines is attributed mainly to the usage of the right strategy of pricing, including the prices for tickets, seats, and baggage.

The Strategy of Pricing

Southwest Airlines has been designed as a small low-cost carrier, later becoming a source of inspiration to the state’s low-cost carrier due to its successful pricing strategies. Thus, this airline has targeted the middle-class segment of society as its target customers and has intercepted twin strategies, including variable-price and low-price as its pricing policies. Southwest Airlines obviously proposes low prices for tickets due to its ability to cut minimize its operating expenses. First, Southwest saves money by hiring trained workforce, which eliminates the need for their training programs. The company does not propose full meals to its customers, only snacks, which also helps cut extra costs. The airline has introduced new programs with discounts and incentives, which will allow attracting a significant customer base due to the variable cost pricing policies. Southwest Airlines’ rewards programs comprise points that customers can utilize to purchase tickets to their next flights. In a partnership with Chase Bank, the company offers to its consumers a Southwest credit card, aimed at accumulating points to redeem for subsequent flights. Keeping the client happy is a great competitive strategy for Southwest Airlines.

Second, the company uses a point-to-point model that helps it achieve a greater traffic on the majority of its local routes, thus proposing shorter average flight time. Shorter travel times and routes mean that the company can use high compactness of seating arrangements, including fewer toilets and galleries on the plane. Such a strategy helps in a better utilization of flights as well as lowers per seat costs. Moreover, Southwest Airlines has added Boeing 737-800s to its fleet (Curly, 2017). Thus, the airline has modernized its fleet by using newer and more fuel-efficient planes, which helps it reduce maintenance costs.

Third, operating from smaller airports, Southwest Airlines can utilize its fleet better because it faces smaller ground times and delays as the consequence of less congestion in minor airports, which plays a significant role in reducing its costs. Finally, the lower fares assist Southwest in gathering higher tickets demand that contributes to the company’s money saving by selling tickets directly via its website and subsequently reducing marketing expenses. Therefore, to be able to propose low prices, Southwest Airlines had to design its business model based on low operating costs. Possessing only a limited number of the types of aircraft and offering no amenities, such as in-flight movies, helps the company reduce its costs. Servicing smaller airports also decreases its operational costs. In case a customer finds a ticket with a lower price, Southwest can match it.

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The History of Southwest Airlines Pricing

Southwest was not always a cheap carrier with a huge demand for its tickets and the best offers across the country. The company started operating like all other carriers. However, its CEO and managers understood that wasting money on food, the training of employees, and other staff was ineffective, particularly for domestic flights. Some time ago, the company owned aircrafts of diverse models, but the authorities understood that possessing just one aircraft model Boeing 737s would offer numerous operational efficiencies as well as structural savings (Maggiore, 2017). The use of only one model of aircraft means saving millions for training technicians and stocking spare parts for the aircraft of various models. The staff is diverse as well because historically, many flight crews had to sleep in hotels, waiting for the next flights, while the current crew could sleep at home each night. In addition, along with its union members, Southwest managed to have the crews perform multiple job operations. For instance, the same staff member handles baggage and traffics planes on the tarmac, and flight attendants check in clients at the gate while performing their ordinary on-plane duties. One more factor that had changed Southwest Airlines from an average carrier into a powerful low-cost was its focus on providing arrivals and departures just 30 minutes apart as compared to the industry average of 45 minutes (Maggiore, 2017). This strategy means that fewer aircraft are needed as well as staff hours, which leads to approximately 33% of time savings each time one of the aircraft takes off. Thus, the strategy of the staff shortage has appeared efficient.

Flying previously to large airports, Southwest Airlines understood that these airports’ entering fees were high as compared to smaller ones. Thus, Kelleher decided to use regional airports in order to achieve this rapider turnaround. For instance, in Dallas, Southwest lands and takes off from Love Field (DAL) instead of the larger Dallas Worth airport (DFW). The major reason for choosing smaller airports is their lower gate fees, while their schedules are obviously more adhered to as compared to larger airports. In addition, the majority of Southwest flights fly straightly to the destination, without any flyovers. When making local flights in most cases, Southwest serves no food. For example, a flight from Houston to Las Vegas serves no food to its passengers, thus maintaining a low-price value proposition. Southwest Airlines has achieved success as a low-cost company; thus, it would do nothing to raise airfare prices. All these factors have made Southwest change its overall operations from older, historical ones.

Pricing for Seats and Tickets

Southwest Airlines has established the rule that seats are not assigned for its flights. However, several additional options allow choosing the seat. This becomes possible if a person pays a $15 fee in order to select Early Bird Check-In online, which allows them to be seated earlier (Southwest, 2017). This option facilitates the seat selection by boarding earlier, while also making it easier to select a spot for the hand luggage in the overhead bin. This fee is available for only one direction and in the case of round-trip, so one needs to pay the fees again to receive this benefit. One more special option is available for the families with very small children who can pre-board. In addition, they are boarded in the front of the aircraft. Thus, other passengers can take the back rows of the plane to avoid being seated near small children.

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At the same time, special conditions exist for the transportation of pets. First, only six pets are permitted per flight, and one pet carrier is limited for one passenger traveling on the same flight. Tickets can be bought only on-line. While the prices are the lowest in the industry, twice a year, the company makes twice a sales when tickets can be bought, starting from $49 to $149 for cross-country routes (Mutzabaugh, 2017). For example, the ticket price for Boston-Baltimore/Washington flights starts from $49 for one route, while the cross-country routes, such as Los Angeles-Atlanta, can be bought for $149. The plus-size passengers should buy an additional ticket if it is available next to them and its price will be the same as for the first one. For the transportation of pets, one will have to pay Pet Fare, which is $95 per pet carrier (Mutzabaugh, 2017). Thus, passengers have a great selection of places in the airplane, but such extras as transporting pets and additional seats for plus-size passengers should be purchased additionally.

Pricing for Luggage

Southwest Airlines is different from other carriers by not charging the first two checked-in items of baggage if they meet weight requirements. Carry-on bags is not charged either. Carry-on items are restricted to one bag and one smaller, individual-type item. The hand bag dimensions must not exceed 10x16x24 inches (Southwest, 2017). Maximum possible weight is 50 pounds, while maximum rate is 62 inches per charged item of baggage (Southwest, 2017). The luggage overweight is supposed to be from 51 to 100 pounds, while oversized items are measured from 62 inches and not more than 80 inches (Southwest, 2017). In case of such a baggage overweight, a passenger can be charged a fee of $75 per item (Southwest, 2017).  Personal-type items comprise briefcases, purses, cameras, laptops, or food containers. The company requires personal items to be stored under the seat in front of a passenger, allocating them space that equals 18.5×8.5×13.5 inches (Southwest, 2017). Moreover, Southwest Airlines permits small vaccinated domestic dogs and cats to travel with a passenger in-cabin under the seat in front of a client, but the pet should be paid for additionally. Pet containers are considered either personal or a hand items. Baggage troubles usually occur during the holiday season when the combination of a huge number of passengers with overweight, oversized, and excess checked baggage can exceed possible available space for scheduled flights. For this reason, baggage can be left behind to be further sent with other flights. Because of the superfluous size and the number of checked items to Nassau (NAS), Montego Bay, (MBJ), Belize City (BZE), Costa Rica (SJO) Mexico City (MEX), and San Jose, a baggage ban has been ordered from November 18, 2017 through January 8, 2018 for all passengers, traveling to these destinations (Poppick, 2015).

Conclusion

To conclude, Southwest Airline is a large low-cost carrier that operates in the United States extremely successfully. However, the company has experienced numerous challenges to become one of the best carriers in the USA and world. Southwest Airlines designed the strategy that allowed to charge low prices for its flights. Thus, the company stopped serving food during flights or playing movies for passengers. The company hires experienced employees who do not need any additional training courses and who can perform multiple job operations. Moreover, a good method of saving money is using the planes of the same model, Boeing 737s, which facilitates the technical part of company’s operation. At the same time, the cooperation with smaller airports instead of large ones helps reduce gate fees. Southwest Airlines’ tickets prices are among the lowest in industry, but the company also holds sales twice a year by offering tickets from $49 to $149 for cross-country flights. Additional fees should be paid for the extra place for plus-size passengers, for Early Bird services, or the transportation of pets, while seats are not assigned specifically and passengers can choose them freely. Southwest passengers can take their luggage and carry-on items if their weight and size do not exceed required norms.

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