2024 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. Assignment Help
Southwest Airlines is a major carrier based in Texas and has made 2023
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% 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% and market revenue fell from an annual $66,201,553 to $33,101,514. 1) Calculate the price elasticity of demands (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.