Comparing Southwest and Continental Airlines

Introduction

In order for companies to maximize profits and productivity, it is important that they implement managerial economics on both a day-to-day and strategic basis. This paper will compare and contrast Southwest and Continental Airlines from a managerial economic perspective. The goal of the paper is to critically analyze both companies on their use of managerial economic practices.

The Airline industry is a capitally intensive industry, and because of this companies within the Airline industry focus greatly upon cost, as well as revenue generation. If costs increase beyond control, profitability will soon decrease. Southwest were quick to learn that if they were going to run their company in a profitable manner they had to first establish their market, and then make every effort to keep costs low. In the early 1970’s soon after their inception, Southwest established the ten-minute turn. This was the ability to unload and reload passengers, refill the plane with gasoline, and make all the necessary checks, all within a ten-minute window. They had to keep their planes in the air as much as possible, because of their low price, high frequency market niche. “Part of the great strength they’ve had, is that they have consistently followed a pattern of keeping costs low in every place they have gone.” (Freiberg, 1996, p35)

Continental also looked to keep costs low. In 1994, Continental was renowned as a cost cutting airline. “We were stuck in our mold of being a cost cutting airline, and if you weren’t talking about cutting costs, nobody at the top wanted to hear you” (Bethune, 1998, p10) The problem Continental experienced were that they cut costs to such an extent that it became the culture of the company. When Gordon ...

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... in the right direction. Southwest, built on a solid foundation, have developed into a well-managed company that continues to move forward into the future.

My main criticism of the Southwest book, was that is was written from an extremely optimistic viewpoint, the authors obviously being big fans of Southwest. The book was not shy in retelling the many successful ventures of Southwest, but held back on the many problems they have encountered in their history. From Worst to First on the other hand gave information from a negative and positive perspective, although as Gordon Bethune wrote the book, we also might assume some level of bias. Both books were an extremely useful learning tool, a refreshing change from many dry textbooks. They demonstrate that there is no one-way to run a company, even within the same industry, Southwest and Continental being examples.