The pricing policy of Southwest and the onset of Air War

Setting the price

The company y set prices to get the maximum market share. The Breakeven point of 39 passengers per
flight for $20 was set as the price as they were optimistic of growing in the future. After the slump in
1972 the revenues grew and the losses came down
Cost structure
The airlines came up with methods to reduce the costs. The flights were used efficiently and were in the
air for most of the time handling many trips per day. The breakeven point was far below the current
prices charged by TI and Braniff. They priced to just recover the cost
Company pricing policy
Southwest looked at keeping the prices as low as possible and breakeven with a reasonable load factor
Price increase
The company had to increase the price from $20 to $26. However, southwest had always focussed on
cheap prices and discounts. So, they removed some seats in the plane, increase the leg space. They
advertised this as the new executive travel with free drinks, free security charge. They conveyed that the
incremental increase in benefits in terms of free services and better standard was far greater than the
price rise.
Responding to price changes
Braniff and Texas Airlines followed suit by increasing the fares as the low cost was unsustainable.
Strategic time pricing (discounts)
Southwest airlines offered half rates on some routes after 8 pm and special weekend pricing. The
demand was price elastic and the traffic went up by 12% on these routes.
Seasonal price discount
Southwest aimed at increasing the patronage dramatically. The Dallas- San Antonio route was operating
on losses with very less traffic. The airlines slashed the prices by half for 60 days to attract customers
hoping that they would use Southwest airlines for other routes too.
Announcement was made as a limited offer to stimulate more interest in the consumers and reduce the
likelihood of competitive response.
Onset of price war with Braniff
Braniff announced a similar 60-day half-price fare on the Dallas-Hobby flights. This was the major
profitable route for Southwest and they could lose the sales on this route.
Response to price war
Southwest targeted the consumers conveying that what Braniff had done was unethical and was to put
Southwest out of business. Lot of customers were sympathetic to the Southwest and the message
spread quickly.