The evolution of the major US airline carriers to a market-oriented business model started in 1975 when the government ratified the Airline Deregulation Act (1978). The Act abolished the price and entrance rules of the US airline industry. It also decommissioned the Civil Aeronautics Board (CAB), the government agency that was mandated to regulate the US airline industry. As a result, the majority of state-run carriers were relocated to the private sector through a privatization process (Borenstein & Rose, 2007, p.2). In the late 1970s, the majority of US carriers adopted a flexible pricing model to bring about variation in fare prices. These changes aimed at raising air travel among tourist passengers, with ticket curbs that entailed minimum stay and advance purchase. After CAB was decommissioned in the late 1970s, major airline carriers in the US realized that Saturday night stay limits were more effective than the minimum stay restrictions. As a result, the Saturday night stay limits were used as the self-selection system for major US airline carriers in the subsequent years (Borenstein & Rose, 2007, p.15).
The US airline carriers were the first to introduce loyalty programs in the early 1980s. Consequently, major airline carriers have adopted the program to woo individual clients by giving them regular flyer programs. The loyalty program has also been extended to tour agents who solicit customers on behalf of the airlines by giving them discounts based on the number of customers persuaded to fly with the airline (Borenstein & Rose, 2007, p.16). The US airlines usually use loyalty programs to recompense passengers and travel agents by using a non-linear program of potential incentives that generate higher returns as more tickets are purchased. The loyalty program usually lessens price war between major US airlines as they stimulate a switching cost for passengers by increasing net fee if travel is extended over a number of carriers. Moreover, the loyalty programs connect several airline markets, where rewards are based on the volume of travel tickets procured from the airline carriers in all markets. It also provides enormous redemption prospects for carriers with considerable commercial activities in the domestic market. Thus, major carriers are insulated from rivalry on individual routes, in their domestic market (Borenstein & Rose, 2007, p.17).
Some of the major airline carriers in the US are Southwest Airlines; American Airlines; Delta Airlines; Continental Airlines; and United Airlines (Doganis, 2006, p.2). In order to compete effectively in the aviation industry, these airlines have drastically reduced their fare prices to remain relevant in the business. For example, Southwest Airlines has adopted a low fare model as part of its business strategy. One of its objectives is to offer passengers efficient services at a lower cost in the domestic market. Southwest has been able to implement its low-cost model by operating in smaller and less crowded minor airports in big cities. Since these airports charge lower landing and gate rates, Southwest Airlines has been able to operate efficiently and at lower costs. In addition, since the Airline operates on a point-to-point business plan, it has been able to minimize costs related to flight programs. With respect to route structure, the Airline has specialized in short-distance flights. Southwest Airlines has expanded its air travel market by drawing a substantial number of clients who formerly used road transport. For instance, when the Airline started to ply the Louisville-Chicago route, the weekly flights rose from 7,000 clients to over 25,000 (Jackson, 2006, p.6).
The Southwest Airline’s route structure has enabled it to record the fastest aircraft circle time in the aviation business (about 18 minutes vis-à-vis the industry’s 50 minutes). The swift turnaround is important for Southwest Airlines’ short-distance flights since aircraft are normally airborne for a short period of time. Rapid turnaround thus enables Southwest Airlines to fly short routes several times in a day, thereby raising its profit margins. Southwest Airlines possess the simplest fleet structure when compared to other major airlines. The Airline procures only the Boeing 737 because of their fuel efficiency. The Southwest airline fleets are homogeneous despite having a variety of 737 models. Consequently, the entire pool of its pilots can fly any aircraft and on any route. The standardized fleet structure has also enabled the Airline to train its pilots and service the planes at lower costs (Jackson, 2006, p.7).
Customer service is one of Southwest Airlines’ core business strategies. The Airline has adopted a friendly customer service model that is significantly unique from other major airlines. Customer services offered are gracious, considerate, and welcoming. The airline staffs are usually helpful to passengers. This strategy is the hallmark of Southwest Airlines’ exceptional affiliation with its staff and customers. Nevertheless, this incredible client service is exclusive of the expensive services such as reserved food services or seats, and the Airline only provides partial automatic luggage re-checking. Southwest Airlines has thus reshaped the conception of quality in-flight services by giving emphasis on prompt performance and flight frequency. This unique strategy has enabled Southwest Airlines to set apart its service from other major airlines while at the same time sustaining its cost management approach (Jackson, 2006, p.7).
References
Borenstein, S., & Rose, N.L. (2007). How Airline Markets Work. Regulatory Reform in the Airline Industry. Cambridge: National Bureau of Economic Research
Doganis, R. (2nd Ed). (2006). The Airline Business. New York: Routledge.
Jackson, S. (2006). Case of Southwest Airlines. Web.