Southwest airlines and microeconomics

Oligopolies are price setters rather than price takers. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. High barriers of entry prevent sideline firms from entering market to capture excess profits. Product differentiation Product may be homogeneous steel or differentiated automobiles.

Share Southwest Airlines Co. LUV has long been known as one of the most innovative companies in the airline industry. Additionally, Southwest Airlines has been able to consistently cut costs, whether through declining oil prices or through the execution of its business model.

3 Reasons Southwest Is Growing Faster than Its Competitors (LUV) | Investopedia

This is proof the company is growing faster than its competitors. Low-Cost Business Model Southwest is a pioneer in the low-cost travel segment of the airline industry. The company has the second-largest total airline market share in terms of revenue passenger miles, and it has enjoyed 42 straight years of profitabilityproving the efficiency of its cost structure.

Its business model is centered around a point-to-point strategy, rather than the traditional hub and spoke strategy. This way, Southwest can offer shorter routes, shorter travel times and shorter wait times, all of which lower average costs.

In addition, this cost-cutting and time-saving strategy allows the airline to take advantage of high-density seating arrangements that include fewer toilets and other necessities of longer travel. This increases per-flight revenue and decreases per-flight costs.

Southwest Airlines' business model focuses on maintaining a newer and more efficient fleet of airplanes, such as the Boeing This saves money on maintenance costs and gives the company the largest Boeing fleet in the world, reducing opportunity costs to train pilots and employees on different models.

Low-Fare Revenue Model Since the company is known as the low-cost provider, it makes sense that Southwest offers arguably the lowest fares in the industry, after taking into account its lack of hidden fees.

One of the benefits of Southwest Airlines' low-cost business model is the company can pass some of its savings through to the end consumer. These savings result in lower fares, which increase demand for the company's flights.

This increase in demand allows the company to sell its tickets exclusively through its website, giving the business increased control over its revenue structure and reducing its marketing costs.

Ability to Increase Load Factor The company's low costs, which result in low fares and increase customer demand, are only possible if Southwest Airlines can service its growing number of consumers. This is a strong indication demand is increasing for Southwest's services.

The only way an airline can keep up with demand like this is to increase the capacity of its fleet or increase the efficiency of its existing planes.

This means Southwest has the ability to generate supply to service the demand.

Bottom Line The company's unique business model, low fares and ability to service the resulting increases in demand make Southwest Airlines one of the fastest-growing airlines when compared to its competitors.

While the airline industry is notoriously volatileSouthwest has consistently increased its share price over the last five years, seeing sharp increases ever since a trough in July At its current pace as of Decemberit remains one of the premier airlines in the world.

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Low-Cost Business Model

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SOUTHWEST AIRLINES MARK 3 First, we will look at the price of related goods and trends for Southwest Airlines. Southwest is known to have some of the most affordable prices in airline travel across the board when compared to other national airlines%(46).

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Established by Royal Charter in , the University of London consists of 18 independent member institutions with outstanding global reputations and several prestigious central academic bodies and activities. Southwest Airlines and Microeconomics Southwest Airlines was created in and is headquartered in Dallas, TX.

Southwest offers flights to their passengers to get them to their destinations when they want to get there, on time, at the lowest possible fare.