Until 1978, commercial scheduled airlines existed in a highly regulated industry. Following 1978, that industry was largely deregulated with the result that airlines could enter markets and establish routes easily, and could set their own prices. The result was a large number of consolidations, mergers, acquisitions and new entrants, followed by price wars and a shakeout in the industry.
Large airlines moved to a hub and spoke configuration that involved shorter average trips for planes, but increased travel time for consumers. Airlines began to try to differentiate themselves on price and service, and competition grew increasingly fierce.
One airline that came through deregulation stronger and more profitable than almost any other was Southwest Airlines. It existed as a regional carrier before deregulation, and used strategies of no-frills, short routes and efficient operations to succeed in the post-deregulation era. Close relationships with its labor unions enabled the company to operate under a low-cost structure that made it possible to reduce fares significantly as it entered new markets. Operating the same type of airplane (the Boeing 737) kept maintenance costs low. Other airlines have watched Southwest's success, and are now trying to emulate its strategy.
Founded in 1967 in Texas, Southwest Airlines has been known for having unconventional business practices, including female flight attendants who wore hot pants in the late 1970s. Its unconventionality was born out of the fierce competition in the airline industry. Where other carriers, such as American and TWA focused on nonstop long routes, Southwest offered regional service to a few airports. It is likely that Southwest would have remained just another regional carrier, like AirCal, had it not been for the airline deregulation that occurred in 1978. Since that time, Southwest's unconventional approach has enabled it to gain a large share of the markets...