Southwest Airlines an Economic Perspective
Southwest and Continental Airlines: A Managerial Economic Perspective
Introduction In order for companies to maximize profits and productivity, it is important that they implement managerial economics on both a day-to-day and strategic basis. This paper will compare and contrast Southwest and Continental Airlines from a managerial economic perspective. The goal of the paper is to critically analyze both companies on their use of managerial economic practices. The Airline industry is a capitally intensive industry, and because of this companies within the Airline industry focus greatly upon cost, as well as revenue generation. If costs increase beyond control, profitability will soon decrease. Southwest were quick to learn that if they were going to run their company in a profitable manner they had to first establish their market, and then make every effort to keep costs low. In the early 1970 's soon after their inception, Southwest established the ten-minute turn. This was the ability to unload and reload passengers, refill the plane with gasoline, and make all the necessary checks, all within a ten-minute window. They had to keep their planes in the air as much as possible, because of their low price, high frequency market niche. "Part of the great strength they 've had, is that they have consistently followed a pattern of keeping costs low in every place they have gone." (Freiberg, 1996, p35) Continental also looked to keep costs low. In 1994, Continental was renowned as a cost cutting airline. "We were stuck in our mold of being a cost cutting airline, and if you weren 't talking about cutting costs, nobody at the top wanted to hear you" (Bethune, 1998, p10) The problem Continental experienced were that they cut costs to such an extent that it became the culture of the company. When Gordon Bethune became CEO in 1994, he looked at cost from a different perspective. "One of my key questions in any decision is not only what does it cost to do something,
Introduction In order for companies to maximize profits and productivity, it is important that they implement managerial economics on both a day-to-day and strategic basis. This paper will compare and contrast Southwest and Continental Airlines from a managerial economic perspective. The goal of the paper is to critically analyze both companies on their use of managerial economic practices. The Airline industry is a capitally intensive industry, and because of this companies within the Airline industry focus greatly upon cost, as well as revenue generation. If costs increase beyond control, profitability will soon decrease. Southwest were quick to learn that if they were going to run their company in a profitable manner they had to first establish their market, and then make every effort to keep costs low. In the early 1970 's soon after their inception, Southwest established the ten-minute turn. This was the ability to unload and reload passengers, refill the plane with gasoline, and make all the necessary checks, all within a ten-minute window. They had to keep their planes in the air as much as possible, because of their low price, high frequency market niche. "Part of the great strength they 've had, is that they have consistently followed a pattern of keeping costs low in every place they have gone." (Freiberg, 1996, p35) Continental also looked to keep costs low. In 1994, Continental was renowned as a cost cutting airline. "We were stuck in our mold of being a cost cutting airline, and if you weren 't talking about cutting costs, nobody at the top wanted to hear you" (Bethune, 1998, p10) The problem Continental experienced were that they cut costs to such an extent that it became the culture of the company. When Gordon Bethune became CEO in 1994, he looked at cost from a different perspective. "One of my key questions in any decision is not only what does it cost to do something,
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