Since its inception in the 1920's, the U. airline industry has been filled with great uncertainty and tumultuous travels. The main thread that flows through this case is the argument of regulation versus deregulation. Every time that a problem arose in the industry, the question that soon followed appeared to be, "Would regulation/deregulation provide the solution?" Throughout the case, certain situations dictated that one policy was better suited for the problem at hand. Once again in 1995, the question of if re-regulating the industry would restore its structure and profitability, arises. .
A main building block concerning competition and the effects that it has on consumers must first be addressed. If a large, well-known airline (United Airlines, for example) was initially the only carrier for customers to fly on, they would be able to set the price that would generate the highest amount of revenue possible (number of seats available multiplied by highest ticket price that would fill all of the seats; suggesting elasticity of demand, which will be covered shortly). What would happen if a start-up airline offered lower rates? The question of customer preferences now comes into play. Everyone is attempting to save money, so this no longer a question of if people will try the new airline, it is a question of how many people will try the new airline. The answer depends on a few factors, including brand loyalty, United's response to the new airline, and most importantly, current economic conditions. Another position that must be considered is time. If the new airline can sustain low prices, a good reputation, and quality services for a lengthy time frame, they will increasingly draw a larger market share. The case refers to this occurrence as the "Southwest Effect". .
As the number of airlines increase, so does the pressure of decreasing ticket prices in order to attract a greater market.