I. Executive SummaryA. Problem StatementSouthwest Airlines faced direct competition on 9 routes in the intra-California market with United Airlines and their "Shuttle By United". Shuttle By United was designed to be a high-frequency, low-fare, minimal-service short-haul flight operation initially serving destinations in California and adjacent states with the intent of "matching Southwest's strategy" . In the four months since Shuttle By United's inception, competition has been fierce, resulting in Southwest and United cutting prices and calling for a market blitz in this 9-route area. Recent news reports highlighted that Shuttle By United intended to discontinue some services (most notably the Oakland-Ontraio route) and increase fares by $10.00 per ticket. Southwest's responses to this and the ongoing threat of losing market share to United should be: o Continue targeted advertising in the 9-route intra-California market and weather Unted's initial storm and wait for their withdrawal (the airlines Continental airlines tried to compete directly with Southwest and lasted 16 months before completely exiting the "point-to-point" market. United's recent actions may demonstrate an inability to compete long-term and are only in their fourth month.) .o Match United's fare increase of $10.00 per ticketB. Summary Recommendation:o Continue targeted advertising on intra-California routes that are directly impacted by Shuttle By United and maintain current pricing strategy.I. Industry AnalysisA. Description of Industry and Segments Deregulation lasting 16 years (1978) led to an increase in domestic carriers from 36 in 1978 to 100 in 1985. The route system of the major carriers is "point to point" (Southwest. ... .. half of the document ......Ed's recent actions may demonstrate an inability to compete long term and I'm only in month four).o Match United fee increase by $10.00 per ticketA. Targeted Marketing Dedicated 16% of total capacity to the intra-California market with no negative impact on other markets to date. Continue to promote “The Low Fare Airline” slogan, especially with the advent of rising prices of tickets from Untied. Walk- The rising fare of $69.00 remained unchanged from the fourth quarter of 1993 to the fourth quarter of 1994, allowing profitability to remain stable. United's average passenger fare is currently 5 % - 10% higher than Southwest and the recent $10 increase could drive them out of the market.  Twenty-two consecutive years of profitable operations that are unmatched in the US airline industry. It is the largest airline in the United States based on the number of passengers carrying revenue..