ICCC 2025 Case

Southwest - A Competitive Downfall

Overview

Southwest Airlines, the second largest low-cost carrier (LCC) airline in the United States, is facing significant competitive challenges and rising costs. Through focusing on efficiency and low-cost pricing, Southwest has amassed a total domestic market share of 22%. The company only conducts flights within North America (excluding Canada) with 104 destinations out of 117 being in the United States.

Certain elements in this case will differ from real-world scenarios.

Competitive Threats

According to recent consumer surveys, demand has been redirected to competitors such as American Airlines and Delta Airlines since the end of the pandemic and subsequent travel trends. The company is looking to understand possible reasons why.

A rise in similar low-cost carriers over the last few years have initiated a subtle but consistent “price war” that continue to pressure Southwest’s profit margins and limit its pricing power. Among these LCC competitors, there are two major players that are hurting Southwest’s market share the most:

  1. Spirit airlines has recently engaged in numerous aggressive competitive campaigns. As a smaller company than Southwest, Spirit’s management had discovered ways to bring down costs, allowing them to offer promotions, cheaper prices, and spend more on marketing directly to Southwest customers.

  2. Japhethian Airlines, a firm significantly larger than Southwest, has not been lowering prices and is priced around 2% lower than Southwest trips on average. However, surveys show that 10% of Southwest’s customers switched to Japhethian in the last year.

Southwest’s CEO would like you to identify the most likely reason why Japhethian airlines is taking away Southwest’s customers. Your task involves coming up with a detailed and numbers-driven strategy to boost competitiveness.

Profitability

Out of the three core segments of airline services, Southwest only focuses on Transport - the transportation and travel of their customers in an efficient manner. Your consultancy firm wants to classify and recognize the two other segments relevant in airline services (i.e. what contributes to the value of their tickets/seats).

Furthermore, given their low cost pricing, Southwest is currently making a net loss. CEO Robert E. Jordan is interested in exploring options to boost sales, lower costs, and generate high profit margins without making changes to Southwest’s affordability.

However, the board of directors disagree, advocating for an increase in Southwest’s pricing or implementing price discrimination (i.e. prices for the same service are different for various customers). Your consultancy firm has been asked to analyze a potential price discrimination strategy, as well as objectively recommend the best course of action.

Your Role

As consultants for Southwest Airlines, you’re responsible for developing a set of short-term and long-term strategies for navigating its current challenges and strengthening their profitability and competitiveness. Additionally, Southwest has requested you provide a general growth plan for growing their market share for the next 10 years. Once you have developed a solution, you are to present your conclusions to top level management and demonstrate the effectiveness, analysis, and rationale for your plan.

SUPPLEMENTARY INFORMATION

The supplementary information segment of the case study offers additional critical thinking opportunities that can enhance your case solution.

  • In this case hypothetical, Southwest Airlines has only been solely focusing on improving their in-flight experience and have thus far made no other improvements in their business.

  • Southwest makes 100% of its revenue from ticket sales.

  • Chief Financial Officer Tom Doxey excels in short-term liquidity management. Thus, Southwest’s current working capital is the highest in the industry.

  • 20 new credit card companies have opened in North America

  • Since the COVID-19 Pandemic, consumer behaviour researchers at Harvard noticed an increase in sales from the Japanese restaurant and theme park industries.

  • Corporate Banks have seen a 17% rise in business defaults, and are actively taking risk management countermeasures

  • CEO of Japhethian Airlines, Shawn Japheth, is widely known as an aggressive businessman, always prioritizing a price war over other methods of competition.

  • Over the last few months, Neo Financial has been struggling to scale, with their spokesperson citing “insufficient opportunities for establishing consumer incentives to use our services given the competitive nature of our industry.”

  • The ticket prices of Universal Studios increased by 260% in 2024

  • Last month, Japhethian Airlines made $2.1 billion in revenue, has an NPS score of 72, a current ratio of 0.3, and a net income of $57 million.

The case and supplementary information are hypothetical to the competition. You are free to consider factors and trends occurring in the real world; however, please assume the information within the case to be true regardless of any contradictions with the status quo.