市场学case10pricing.doc

Company Case 10 (pricing) USAIRWAYS: THE AIRLINE PRICE WARS Suppose you wanted to fly from Seattle to San Jose, California. The fare in June 1995 would have been $22; in 1997, it would have been $59. the fare from Detroit to Minneapolis – which is roughly the same distance – would have been 4216. obviously, airlines don’t set their fares based on distance. So, why do these fares vary so greatly? One reason is the contrast between operations of discount airlines such as Southwest (the Seattle-to-San Jose route) and a major airline such as Northwest Airlines (Detroit to Minneapolis). Southwest Airlines, known as the Love Line because its original home was Love Field in Dallas, Texas, is a no-frills airline. It offers no food services, complimentary drinks, extensive baggage handling, or other amenities. It flies a limited number of direct, usually short, routes, carefully selecting its routes based on the popularity of the flights. If lots of passengers normally take a certain route, then Southwest might choose to operate only on that route. Also, Southwest frequently flies into alternative airports rather than the most popular airport. The Seattle-to-san Jose route is a good example of a Southwest route. There are many passengers flying from Seattle to the San Francisco Bay area of California. So, Southwest cuts fares on that route to lure passengers, and cuts costs by flying into a nearby alternative airport – in this case, San Jose. When Southwest began operations at Seattle, competing airlines routinely charged fares to San Francisco ranging from $89 to $119. southwest entered with prices between $39 and $59. one of the local airlines reduced its prices to $25 and Southwest responded with $22. how did this price-war tactic work? Not so well. After instituting the $22 fare, a 137-seat Southwest Boeing pulled away from the gate in Seattle with only 19 passengers on board. The revenue from the flight was $418, compared with a cost of $6,567.04 – not exactly a recipe