Executive SummarySouthwest Airlines competes with "Shuttle by United" head-to-head on approximately 9 routes. United just announced that it will discontinue its Oakland - Ontario route and increase fares on all 14 routes by $10, which is a 14.5% fare increase. Southwest must respond effectively to these unexpected developments and must act accordingly, maintaining its current image of low fares and increasing daily operating profits. We considered the market elasticity to be 1.15. To achieve these goals, Southwest has the following alternatives to choose from to respond effectively:? Maintain the current rate.? Follow United by raising the fare by $10.? Follow United but increase your fare by just $5. After analyzing the alternatives, we conclude that it would be appropriate for Southwest to increase its fare by $5 in order to increase its daily operating profits while maintaining its image as a low-fare airline. Problem Definition and Statement of Alternatives Problem Definition: the problem in this case for Southwest Airlines is to come up with a strategy to respond to the unexpected developments and changes made by United Airlines in their services and prices. United raised its fare on all 14 "Shuttle by United" routes by $10 and plans to discontinue its service between Oakland and Ontario starting in April. Objective of the decision: The objective of the decision is to regain the lost market share and increase daily operating profits while maintaining the image of a low fare airline. The measure of success: The measure of success is maximizing daily operating profit and gaining market share. Decision Constraints: The constraints are:? Maintain the airline's low-fare image.?Protect current market share.Alternative Actions: There are three alternatives that Southwest Airlines could use to respond to the action taken by United Airlines. Alternatives that Southwest might consider are: Maintain current fares. Follow United by increasing the fare by 14.5% or $10. Follow United but only increase the fare by 7.5% or $5. alternativesThe Elasticity of Air FreightTo measure the impact of United's fare increase in prices, we would need the price elasticity of demand. The main problem is that there is no agreement on whether, in general, air transport is relatively price elastic or not. It is widely demonstrated that the introduction of heavily discounted fares by low cost carriers can be very price elastic, although each type of traveler has its own price characteristics.