Using data from the Southwest case, create a chart that plots the relationship between each airlines market share, in terms of revenue or airline seat miles flown, and its profitability for two periods: 1995-2000 and 2001-2005. Does your analysis suggest that market share is correlated with profitability in this industry? If you exclude Southwest Airlines and Jet Blue airlines from the analysis (companies that use point-to-point route structure rather than a hub and spoke route structure), how well does market share predict profitability?

Southwest Airlines Balance Sheet American America West Continental Delta Alaska Northwest Southwest United US Airways JetBlue 19,820 37,864 7,504 6,416 2015 33,581 40,816 5,594 2013 25,760 37,818 17,699 38,287 | 14,936 5,442 5,151 2012 24,825 36,917 16,411 37,160 14,121 4,982 4,650 2011 23,958 16,175 35,316 13,655 21,155 13,341 4,509 4,310 2010 22,151 14,011 31,894 12,104 19,682 12,196 3,781 3,427 2009 19,898 12,361 18,047 10,863 10,350 16,359 10,781 3,287 3,006 15,033 20,973 | 14,096 11,023 3,390 3,221 2008 23,696 2007 22,833 20,237 12,459 20,049 9,318 2737 14,105 19,239 12,735 9,861 2,843 3,070 2006 22,493 3770 13,010 17,339 12,555 9,086 2,363 2,693 19,334 8,076 17,3047,212 2005 20,657 3397 11,108 16,112 12,316 7,584 1,703 2,416 2004 18,608 2482 9,851 15,154 11,266 6,530 15,701 7,073 1,266 2,241 2003 | 17,403 2223 7,333 14,2039,184 5,937 13,395 6,762 998 2,027 2002 15,871 2021 7,353 12,410 9,152 5,522 13,916 6,915 635 1,832 2001 15,639 2035 7,972 13,211 9,592 5,555 16,087 8,253 320 1,763 2000 18,117 2309 9,129 15,321 | 10,957 5,650 19,331 9,181 105 1,760 1999 16,090 2164 8,024 14,901 9,868 4,736 17,967 8,460 1,696 1998 16,299 1983 7,299 14,630 8,707 4,164 17,518 8,556 1,581 1997 15,856 1887 6,361 14,2049,984 3,817 17,335 8,501 1,457 1996 15,136 1752 5,487 13,318 9,751 3,407 16,317 7,704 1,307 The US Airline Industry The airline industry is critical to the health of the US economy. Airlines provide 11 million jobs in the United States and are responsible for five cents of every dollar of the US gross domestic product (GDP). For every 100 airline jobs that exist, 388 more jobs are supported outside of the airline industry.2 A key turning point in airline history was the deregulation of the industry in 1978. Before deregulation, the Civil Aeronautics Board regulated all passenger fares, which meant the price was the same for each flight between two cities. The board also regulated industry entrances and exits; mergers and acquisitions, and even airlines' rates of return. Typically, any given market had only a few airlines, and price competition was essentially nonexistent. Following deregulation, numerous new entrants moved into both established and unserved markets, and fare prices began to drop quickly. The average passenger fare in 1978 was about 8.49 cents per mile. In 2009, that price, adjusted for inflation, had decreased 56 percent. As prices declined for passengers, however, more than 150 airlines went bankrupt, and eight of the 11 major airlines went bankrupt, merged, or closed. The airline industry's profit margins are some of the lowest in the world (see Exhibits 4 and 5). Airlines paid considerable attention to reducing their operating costs, but their control over those costs was severely limited. In particular, labor costs represented the largest percentage of an airline's costs, but union agreements limited labor flexibility. The sizes of the crew and ground staff were typically proportional to the size of the aircraft they served. Other operating costs were primarily determined by the distance traveled and not by the number of passengers boarded. Most airlines-notably Delta, American, and United-used a hub-and-spoke system to coordinate flights, which meant that they funneled the majority of their traffic through hub airports. Hub-and-spoke (HS) systems were designed to help airlines maximize their load factors, meaning they helped keep planes full going into and out of a hub airport. But they also often increased the distance that passengers had to fly to reach their final destination and the time it took for passengers to get there. American America West Continental Delta Northwest Southwest United US Airways JetBlue Alaska 2015 5,032 7,885 4,116 5,167 1,157 1,198 1,291 2013 1,488 3,837 1,278 1,259 1,003 415 857 201241 2,649 630 49 822 360 562 2011-1,170 950 2,245 652 894 434 324 471 2010 | 151 622 2,616 988 1,268 781 345 456 2009-1,163 -211 -604 480 262 248 121 266 208 2008 -2,054 -378 56 -540 449 -1,747 -1,774 84 -25 2007 702 -20 621 1,005 1,124 790 952 544 166 123 2006 815 -35 410 31 782 934 451 592 117 -103 2005 -351 -121 -94 -1,197-895 820 -242 -213 62 -8 2004-421 -3 -290 -1,613-434 554 113 -39 -1,167 -348 -1,556 -421 2003 -1,444 24 29 -1,157 -276 482 169 -- 11 2002 -3,313 -164 -481 -1,036 -783 418 -3,021-919 105 -81 2001-2,558 -424 -341 -972 -796 631 -3,743 -1,182 35 -65 2000 1,243 -13 587 1,460 664 1,021 741 -45 -15 -12 1999 1,004 198 478 1,730 769 782 1,358 202 177 1998 1,749 198 660 1,793 -129 684 1,436 990 195 1997 | 1,447 164 645 1,621 1,204 524 1,225 586 133 1996 1,331 69 394 571 1,108 349 1,130 369 81 EXHIBIT 4 US Domestic Airline Operating profits (In millions) Source: Bureau of Transportation Statistics, Air Carrier Financial Reports: Schedule P-1.2 American America West Continental Delta Northwest Southwest United US Airways JetBlue Alaska 2015 167.1 188.4 117.6 183.6 38.4 41.8 30.3 2013 | 128.4 194.0 104.3 178.6 65.6 35.8 28.8 2012 126.4 193.0 102.9 179.4 62.4 33.6 27.0 2011 126.5 192.8 97.6 181.8 60.8 30.7 25.0 2010 125.5 79.7 193.2 78.1 102.5 59.0 28.3 20.4 2009 122.4 77.8 100.7 | 63.0 74.6 100.5 57.9 26.0 18.4 2008 131.8 80.5 105.771.6 73.6 110.1 60.6 26.1 18.7 2007 138.4 17.7 81.4 103.3 72.9 72.3 117.4 43.5 25.7 18.5 2006 139.4 23.5 76.3 98.8 72.6 67.7 117.2 37.4 23.3 17.8 2005 138.4 24.3 68.4 103.7 75.9 60.3 114.3 40.2 20.2 16.9 2004 130.2 23.3 63.4 98.3 73.4 53.5 115.2 40.5 15.7 16.2 2003 120.3 21.3 57.6 89.4 68.8 48.0 104.4 37.8 11.5 14.6 2002 121.7 19.9 57.3 95.3 72.1 45.5 109.4 40.0 6.8 13.2 2001 | 106.2 19.1 58.8 97.7 73.3 44.7 116.6 46.0 3.3 12.3 2000 116.6 19.1 62.4 107.8 79.2 42.4 126.9 46.9 1.0 12.0 1999 110.2 17.7 58.0 104.8 74.2 36.8 125.5 41.5 11.8 1998 108.9 16.4 51.0 102.0 66.8 31.6 124.6 41.4 11.3 1997 107.0 16.2 44.3 99.7 72.1 26.4 121.4 41.7 10.4 1996 104.6 15.3 37.6 93.9 68.7 27.3 116.7 39.2 9.8 Southwest's Strategy and Operations Southwest's strategy involved offering no-frills, short-haul, high-frequency, point-to-point, low-fare service. Although Southwest's approach would later become well known and frequently studied, it started out primarily as a response to the constraints faced by the company. Federal regulations led Southwest to focus on intrastate travel among just Dallas, Houston, and San Antonio. The company's first planes were three Boeing 737s purchased because they were available at a discount because of overproduction 10 This small fleet caused Southwest to focus on reducing the time to turn its planes around and get them back in the air. Because of its short flights, the airline did not serve meals. Eventually, Southwest would become renowned for these strategies of flying only point-to-point routes between less congested airports, adopting only one model of plane (the Boeing 737), and offering only one class of service, without meals or assigned seating. Southwest bucked the industry trend of routing planes through a hub-and-spoke (HS) model by flying its planes point-to-point (PTP) on city-pair routes. The HS modeldeveloped in the 1960s and 1970s and used by full-service carriers such as American, United, and Deltawas designed to maximize the load factors for each of an airline's individual planes by bringing customers traveling to the same location together in a central hub from all their different points of origination. The HS model was, however, generally considered to be inconvenient by passengers, and a delay in one flight on a spoke would create a domino effect of delays that would cascade throughout an airline's system of flights. Southwest determined that it would instead focus on putting as many flights as possible on its point-to-point routes by turning the planes around as quickly as possible (see Exhibits 6 and 7). American America West Continental Delta Northwest Southwest United US Airways JetBlue Alaska 2015 93,340,810 115,074,415 142,470,152 69,310,060 24,790,680 28,825,334 21,346,759 2013 65,070,199 98,590,233 115,376,527 65,220,534 50,037,109 25,858,306 17,889,819 2012 65,027,098 95,640,986 112,276,657 67,628,693 47,481,320 24,885,092 | 16,771,209 2011 | 65,253,442 31,242,827 92,864, 167 110,624,339 39,551,017 46,208,387 22,940,694 16,003,023 2010 65,733,760 30,653,722 90,141,070 106,270,433 43,322,801 45,179,861 21,144,663 14,901, 113 2009 66,168,794 31,954,535 55,708,779 32,624,283 101,374,390 45,582,670 44,554,186 20,022,359 14,060,609 2008 71,563,663 34,524,968 59,375,572 38,510,984 101,965,552 51,681,045 48,544,910 20,517,934 14,864,602 2007 | 76,581,414 | 14,674,045 37,117,030 61,599,411 43,812,180101,947,800 56,420,151 37,220,911 20,527,593 15,328,828 2006 | 76,813,449 19,956,043 35,795,440 63,495,888 45,140,701 96,330,250 57,229,074 | 31,886,350 18,098,021 14,916,122 2005 77,296,967 20,867,974 32,971,219 77,581,274 46,690,086 88,435,832 55,172,705 37,040,080 14,462,932 14,603,547 2004 | 72,647,682 20,150,587 31,528,695 79,373,578 45,959,204 81,121,296 60,080,792 37,810,424 11,616,090 14,304,622 2003 | 72,202,834 | 19,187,175 30,853,319 77,792,560 43,310,361 74,768,258 56,307,542 37,302,321 8,949,744 13,103,525 2002 | 77,448,660 18,798,859 31,653,035 83,746,977 43,313,590 72,459,290 57,830,147 43,480,092 5,672,028 12,305,968 2001 61,703,981 19,012,929 34,635,032 86,888,411 44,786,477 | 73,628,735 63,946,774 52,657,538 3,056,371 11,949,955 2000 68,318,711 | 19,466,518 36,590,818 97,965,050 48,462,068 72,568,465 72,449,712 56,666,734 1,128,146 11,875,380 1999 63,892,853 18,265,042 36,129,566 98,212,271 46,666,307 65,287,540 75,435,685 53,271,910 12,073,680 1998 63,986,759 17,304,899 34,985,100 97,878,777 41,930,858 59,053,217 75,058,073 55,603,253 11,652,685 1997 63,976,882 17,743,106 33,858,113 95,965,747 45,168,283 55,943,405 71,875,986 56,364,488 11,223,438 1996 62,343,746 17,585,980 32,217,152 89,598,231 43,535,244 55,372,361 70,041,013 54,585,324 10,965,353 EXHIBIT 6 US Domestic Airline Annual Passengers Boarded Source: Bureau of Transportation Statistics, T-100: Domestic Market (U.S. Carriers) 2015 2012 2011 2010 2009 2008 2001 1996 American 1,4851,340 1,295 1,316 1,290 1,309 847 1,006 Continental 1,231 1,154 1,137 1,156 1,015 1,186 Delta 1,693 1,489 1,420 1,449 | 1,463 1,5131,343 1,653 Southwest 3,053 3,058 3,065 3,106 2,908 2,942 2,391 2,490 United 1,134 1,052 1,086 | 1,175 1,204 | 1,225 801 1,035 1,737 1,679 1,679 1,628 1,677 1,6511,424 US Airways JetBlue 2,434 2,346 2,245 2,160 2,116 2,144 1,444 NA Alaska 1,969 2,019 1,997 1,909 1,746 1,746 1,351 | 1,544 EXHIBIT 8 Southwest Airlines' Market Share Source: Southwest Annual Report 2013 American America West Continental Delta Northwest Southwest United US Airways JetBlue Alaska 2015 15.00% 19.30% 20.80% 13.60% 15.40% 18.70% 23.10% 2013 5.80% 10.10% 7.20% 3.30% 6.70% 7.60% 16.60% 2012 0.20% 7.20% 3.80% 0.10% 5.80% 7.20% 12.10% 2011 -4.90% 5.90% 6.40% 4.80% 4.20% 3.30% 7.20% 10.90% 2010 0.70% 4.40% 8.20% 8.20% 6.40% 6.40% 9.10% 13.30% 2009 -5.80% -1.70% -3.30% 4.40% 2.50% 1.50% 1.10% 8.10% 6.90% 2008 -8.70% -2.50% 0.30% -3.80% 4.10% -8.60% -14.20% 2.50% -0.80% 2007 3.10% -0.70% 4.40% 5.20% 8.80% 8.00% 4.70% 5.80% 5.80% 4.00% 2006 3.60% -0.90% 3.20% 0.20% 6.20% 10.30% 2.30% 7.30% 5.00% -3.80% 2005 -1.70% -3.60% -7.40% -7.30% 10.80% -1.40% -3.00% 3.60% -0.30% -0.80% -2.90% 2004 -2.30% -0.10% -10.60% -3.90% 8.50% -7.40% -4.90% 8.90% -1.70% 2003 -8.30% 1.10% 0.40% -8.10% -3.00% 8.10% -11.60% -6.20% 16.90% -0.50% 2002 -20.90% -8.10% -6.50% -8.30% ---8.60% 7.60% -21.70%-13.30% 16.50% -4.40% 2001 -16.40% -20.80% -4.30% -7.40% -8.30% 11.40% -23.30% -14.30% 10.90% -3.70% 2000 6.90% -0.60% 6.40% 9.50% 6.10% 18.10% 3.80% -0.50% -14.30%-0.70% 1999 6.20% 9.10% 6.00% 11.60% 7.80% 16.50% 7.60% 2.40% 10.40% 1998 10.70% 10.00% 9.00% 12.30% -1.50% 16.40% 8.20% 11.60% 12.30% 1997 9.10% 8.70% 10.10% 11.40% 12.10% 13.70% 7.10% 6.90% 9.10% 1996 8.80% 3.90% 7.20% 4.30% 11.40% 10.20% 6.90% 4.80% 6.20% American America West Continental Delta Northwest Southwest United US Airways JetBlue Alaska 2010-2013 0% 8% 6% 4% 6% 8% 13% 2008-2009 -7% -2% -2% 0% 3% -4% -7% 5% 3% 2006-2007 3% -1% 4% 3% 8% 9% 4% 7% 5% 0% 2001-2005-10% -6% -3% -8% -6% 9% -13% -8% 11% -2% 1996-2000 8% 6% 8% 10% 7% 15% 7% 5% 7%