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Southwest Airlines & ValuJet

The air transport industry is highly competitive and characterized by large national airlines (such as American and United) which compete with smaller regional airlines (such as Southwest). Regulated until 1978, airlines created differentiated service in the form of first class and economy seats so that consumers on the same aircraft were likely to have paid very different prices for the trip.

The industry was deregulated in 1978, with the result that companies no longer competed so much on service as on price. Companies such as Southwest recognized potential for low fares, and began building a niche for themselves by offering low fares with commensurably low levels of service. Southwest's success gave rise to a new generation of low fare airlines, with ValuJet entering the market in the early 1990s. Unfortunately, ValuJet suffered a string of accidents which culminated in the complete loss of Flight 592 in May 1996, bringing the future of this low fare carrier into question.

From an investment standpoint, Southwest is the wiser investment, although those investors who may consider ValuJet a takeover target (and who have high risk tolerances) might consider this a highly speculative stock. The litigation in which ValuJet is involved as a result of Flight 592 is likely to make the likelihood of any takeover attempt remote.

The airline industry has been subject to intense price competition since it was deregulated, and the result has been a number of new air carries which specialize in regional service and no-frills operations. These carriers typically purchase older aircraft (which are less expensive than ordering new aircraft) and often operate outside the industry-wide computerized reservations system. In exchange for these inconveniences, passengers receive low fares relative to the industry as a whole. This research examines two low fare air carriers, ValuJet and Southwest Airlines, and considers them from the stand...

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Southwest Airlines & ValuJet. (1969, December 31). In LotsofEssays.com. Retrieved 02:06, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1695325.html