Scribd
Upload
621 views1 page

Case Study - Texas State Bird

Southwest Airlines entered the Burbank-Oakland route, cutting average fares by 48% and increasing annual market revenue from $21 million to $47 million. On the Kansas City-St Louis route, Southwest cut average fares by 70% but annual market revenue fell from $66 million to $33 million. The case study examines the price elasticities of demand on these routes and the profit implications for Southwest.

Uploaded by

Zee Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
621 views1 page

Case Study - Texas State Bird

Southwest Airlines entered the Burbank-Oakland route, cutting average fares by 48% and increasing annual market revenue from $21 million to $47 million. On the Kansas City-St Louis route, Southwest cut average fares by 70% but annual market revenue fell from $66 million to $33 million. The case study examines the price elasticities of demand on these routes and the profit implications for Southwest.

Uploaded by

Zee Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

Case study : The Texas state bird

Southwest Airlines is a major carrier based in Texas, and has made a strategy of
cutting fares drastically on certain routes with large effects on air traffic in those
markets. For example on the Burbank–Oakland route the entry of Southwest into
the market caused average fares to fall by 48 per cent and increased market
revenue from $21,327,008 to $47,064,782 annually. On the Kansas City–St Louis
route, however, the average fare cut in the market when Southwest entered was 70
per cent and market revenue fell from an annual $66,201,553 to $33,101,514.

Questions

1 Calculate the PEDs for the Burbank–Oakland and Kansas City–St Louis routes.

2 Explain why the above market elasticities might not apply specifically to
Southwest.

3 If Southwest does experience a highly elastic demand on the Burbank–Oakland


route, what is

the profit implication of this?

4 Explain why the fare reduction on the Kansas City–St Louis route may still be a
profitable strategy

for Southwest.

You might also like