Faux vertical integration – Southwest Airlines

That the airline industry is notorious for being unprofitable is widely known as in the long standing joke “How do you become a millionaire? Start as a billionaire and buy an airline.” SouthWest Airlines remains the singular exception to that and the company underscored it by reporting a profit for 64 straight quarters, a record unmatched in the industry. While its business success has many attributes ranging from hedging fuel prices to a highly efficient boarding process, the airline is one of a few that makes money by deriving revenue from sources such as hotel bookings on its website. The site offers real time hotel booking ability unlike any of the majors like Delta or American who merely direct a visitor to a hotel company’s website.

Besides hotels, the airline also plans to make money by offering in-flight wireless services. That strategy gives SouthWest all the benefits of vertical integration without the ownership headaches that come with owning diverse but complementary businesses. Could not hotel companies do the reverse and sell airline tickets?

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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