Executive Summary
Southwest Airlines is competing with "Shuttle by United?head-to head in about 9 routes. United has just announced that it is discontinuing its Oakland - Ontario route and hiking the fares in all the 14 routes by $10, which calculated to be 14.5% increase in the fare. Southwest has to respond effectively to these unexpected developments and has to act accordingly while maintaining their current low fare image and increasing their daily operating profits. We have considered the elasticity of the market to be 1.15.
In order to achieve these objectives, Southwest has the following alternatives to choose from in order to respond effectively:
?Maintain the current fare.
?Follow United by increasing the fare by $10.
?Follow United but increase fare by only $5.
After analyzing the alternatives, we conclude that it will be appropriate for Southwest to increase its fare by $5 so as to increase its daily operating profits while maintaining the low fare airline image.
Problem Definition and Statement of Alternatives
Problem definition: The problem in this case for Southwest Airlines is to workout a strategy to respond to the unexpected developments and changes made by the United Airlines in their services and pricing. United has increased its fare on all 14 "Shuttle by United?routes by $10 and is planning to discontinue its service between Oakland-Ontario effective April.
The Decision Objective: The decision objective is to regain the lost market share and to increase the daily operating profits while maintaining the low fare carrier image.
The Success Measure: The success measure is to maximize the daily operating profit and to gain market share.
Decision Constraints: The constrai ...