Quick airplane turnaround time allows Southwest to realize 56% higher utilization of its planes compared to its competitors (see Exhibit 1) driven by the difference in turnaround times. In theory, one Southwest plane could make 11 point-to-point flights in 16 hours of operation (assuming flights start at 6am and end at 10pm) while its competitors could make only 4 flights flying the same route. This higher utilization allows Southwest to fly the same routes as competitors more frequently and it can do so with fewer planes that are more highly utilized, which cuts down the costs of people, gates rentals and airport taxes. Exhibit 2 provides a breakdown of employee cost savings and demonstrates that with quicker turnaround times, Southwest can rent fewer gates. Finally, the higher utilization and more efficient use of planes frees up capital for the company to enable them to purchase additional airplanes to meet the demand if necessary.
Hub-and-Spoke and Point-to-Point
Both the hub-and-spoke (H&S) and the point-to-point (P2P) have their own distinctive advantages and disadvantages. In the H&S system, significantly lesser routes are needed to serve the network. This is because the number of pairings in a P2P network increases at a greater rate than the increase in nodes. Since there are less routes, assuming the number of planes are the same, airlines can schedule more frequent flights along each route and make full use of the capacity…