This document extends your case study of Southwest Airlines from 1999 - 2003.
The hub-and-spoke model used by the nation's largest airlines was designed to extract high fares from customers while moving them seamlessly to points around the globe. The model worked well during boom times when leisure travelers and especially business travelers willingly paid the higher fares. But it is an expensive model for several reasons: .
Flight schedules are constructed to attract high volumes of low-yield connecting passengers. This causes airport congestion, slow aircraft turnaround on the ground, and inefficient use of equipment and people. .
The majors using this system fly a variety of long, short, low-traffic, and high-traffic routes. This demands that they use a variety of aircraft. Varying aircraft types means more expensive maintenance, large and expensive parts inventories, and redundant crew training facilities. .
The varying routes demand costly accommodations for last-minute seat assignment changes, upgrades, and itinerary changes. .
By the end of 2000, the cracks in the hub-and-spoke model became evident. The economy was slipping as the dotcom bust was in full swing and a general economic downturn had begun. Both business and leisure travelers began seeking cheaper airfares. Increased fuel costs, fewer travelers, and the high labor costs they had granted to keep peace with the unions trapped the major airlines. .
So it is important to note that the airline industry was suffering months before the terrorist attacks in New York City and Washington, D.C. on September 11, 2001. Those attacks did exacerbate the industry's woes as many people feared to fly for some time thereafter, further decreasing passenger traffic. .
The excessive expenses of the hub-and-spoke model are taking its toll on the largest airlines during the current downturn. American, United, and Delta account for 60 percent of the industry's revenue, but their collective net loss of $2.
