Explain how Southwest Airlines used the game theory approach to increase its profits. Explain how Southwest Airlines used the game theory approach to increase its profits. Explain how Southwest Airlin

Name

Institution Affiiation

Grouping system

Over the year, the Southwest Airlines has been using the open seat policy; this is where the passengers who board the plane first have the priority of choosing the most suitable seat (Talwalkar, 2015). The main reason for the adoption of this policy is to reduce the cost incurred to create the necessary order of seating. However, over the past years, it has adopted an established procedure of how the passengers boarded the plane despite the fact that they don’t book their seats. Several advancements have been to make the system more effective, travelers who initially arrive at the gate earliest were given priority to board the plane first and pick their favorable seats. However, it leads to camping out at the entrance which caused several arguments and misunderstanding among the passengers and workers (Talwalkar, 2015). In 2007, the company adopted a more advanced system where each traveler was assigned a travel group; A, B or C which had different boarding numbers. The procedure adopted was more convenient within each group; a traveler who had the lowest number was allowed to board the plane the first one. However, the travelers were allowed to choose seats once they were in the plane. Passengers in group A went first followed by B and C respectively. The convenience of the system is that there was order and all passengers queued (Li & Shen, 2012). The numbers assigned to the travelers was determined by the time at which the passengers checked in for a flight, this system benefited individuals who used online to check in for the flights and never helped individuals who wasted a lot of time at the gate.

The EarlyBird Prisoner’s Dilemma

The company also adopted a more effective system which targeted at increasing its revenue as well as reducing the traffic at the booking offices. Upon the introduction of the online platform, the company announced the EarlyBirds prisoner’s Dilemma which allowed travelers who were willing to pay $10 extra. The system did not guarantee the customer a seat of their choice, but they were given first boarding option.

The system entails a Game Theory for the firm to maximize on profits, this is where, the two passengers who are termed as EarlyBirds are competing for favorable seats at the simultaneously, where if none of the passengers pays for the EarlyBird system, then both of them expect better places in the seating lottery (Talwalkar, 2015). If one of the passengers pays for the $10 then he or she will get the better seat and at the same time the company will earn extra revenue, if both pay for the $10, then they will get better seats and the firm will generate more revenue.

The company made an application of the game theory to generate more revenue which was developed based on the human cooperation and conflict with the competitive situation among the passengers. The sciences of the strategy were to ensure that clients compete for the early board with the aim of securing themselves seats of their choice. There is the aspect of Zero-Sum Game where both participant’s gain and losses are balanced (Talwalkar, 2015). If the total benefits of the individuals are added up, and the total losses are subtracted, the final value is zero. The numbers assigned to the travelers was based on the time at which the passengers checked in for a flight, this system benefited individuals who used online to check in for the flights and never helped individuals who wasted a lot of time at the gate.

What was southwest’s primary goal in introducing the early-bird check-in?

The EarlyBird check-in was aimed at creating competition among the travelers for the better seat which finally earn the company more profit as many people will be willing to pay the $10 to get a better seat (Li & Shen, 2012). The strategy was based on the Game-Theory, where those individuals who were willing to pay the $10 were entitled to better seats, and those who were not willing were driven to a worse situation which motivated them to pay the $10. Therefore, the primary aim of adopting the system was to cut on the marginal cost, increase customer competition and thus to increase its revenue which results in profit maximization.

Explain how Southwest Airlines used the game theory approach to increase its profits

The customers of the company were required to pay $10 for a one-way flight to secure a priority seat as they were allowed to board first. The system was used to impact a game to the minds of the travelers as they were confused whether they should pay the $10 or not, on the other side they were competing with other customers (Li & Shen, 2012). The urge to pay the $10 and the existing competitions resulted in high turn-over rate on the receivable accounts. The high turn-over translates into huge profits for the company. The earnings of the company were identified to have grown by 44% upon the adoption of the system.

What is the outcome of the game involving early-bird check-in?

The outcome of the game was increased revenue to the firm. Also, an order was established as traffic at the booking offices of the airlines were cut off as many travelers were able to get their tickets online (Li & Shen, 2012). The conflict between the employees and the passengers also reduced the number of clients who were waiting at the gate board reduced.

Identify what the passengers’ dominant strategy is

The possible outcomes of the plan were;if neither pays for EarlyBird, then both can expect okay seats in the seating lottery.

If one person paid the $10, he or she gets a good seat, but, if both of them pay, they will be competeing for the good seat for the lottery seat.

EarlyBird check in(EB) No

EB

NO

Therefore, the dominant strategy is to pay the $10 so as to get a good seat.

Determine why travelers face the Prisoner’s Dilemma with the early-bird check-in process

The passengers experienced the Prisoner’s dilemma as they were experiencing a conflict of either to pay the $10 or avoiding paying. The two choices had consequences which allowed them to enjoy or suffer. Willingness to pay was accompanied too with comfort as they were allowed to select a seat of their choice upon boarding the plane, on the other hand, failure to pay the extra ten dollars drove them to worst situations (Zhang et al., 2018). The check-in process was automatic and more efficient.

Advantages and disadvantages of the early-bird check-in process for Southwest Airlines.

Advantages

The system is cheap as the company is using an online platform to check in customers. It also reduces traffic at the offices as a passenger can get their tickets online. It is also a significant source of extra revenue which translates into huge profits (Zhang et al., 2018). It reduced on the conflict between the employees and clients, clients and clients pertaining who arrived first. The system entails grouping and use of numbers which makes the process more efficient.

Disadvantages

In the event that there are many persons who are purchasing ticket with the extra $10, the customer will be given group B which is not as good as A. In addition, in situation where the customer is not able to arrive in time yet he had been checked it, his or her ticket will be issued out.

Suggest ways in which other companies can utilize the strategy

Over the years, many companies are not able to meet their goals due to the systems adopted by their management. To maximize their profits, there is the need to develop working strategies which will entail cooperation and planning among the employees and the administration. Redefinition of success should be made. Customer satisfaction should be the driving motive upon the development of the strategy (Zhang et al., 2018). Alternative development strategy should be provided to ensure the success of the business and attainment of the set goals.

References

Talwalkar, (2015) Southwest Airlines boarding and game theory

Hafezalkotob, A., Mahmoudi, R., Hajisami, E., & Wee, H. M. (2018). Wholesale-retail

pricing strategies under market risk and uncertain demand in supply chain using evolutionary game theory. Kybernetes.

Zhang, A., & Zhang, Y. (2018). Airline economics and finance. In The Routledge Companion to Air Transport Management(pp. 171-188). Routledge London and New York.

Li, Z., & Shen, H. (2012). Game-theoretic analysis of cooperation incentive strategies in mobile ad hoc

networks. IEEE Transactions on Mobile Computing, 11(8), 1287-1303.