Tuesday, November 13, 2007

Southwest's model is changing

Southwest's model is adapting to meet the demands of the higher-yield business traffic that airline's covet. It has created a new fare category, Business Select, which will offer amenities that business travelers enjoy. A ticket in the new fare class will allow travelers to board first, more frequent flier points will be accrued, same day itinerary changes are possible, flights can be canceled, and one free alcoholic drink will be offered. Ticket flexibility combined with frequencies are features that business travelers benefit from. It appears as if Southwest's business model is getting a little upgrade as it focuses its attention on premium passengers.
Below is a small presentation which shows the relationship between market size and business model complexity. If airlines want to operate with the masses then the model must be simple, however competitive forces push an airline to adapt its model. As the airline moves up the scale it can operate in new markets, yet it adds complexity to accommodate the needs of this new market. As you can see this may result in an death-till-the-end spiral. This is the concept found in Clayton Christensen's work, however adapted to the business model framework rather than the production framework.

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