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Problem

Discuss the switching costs that Southwest Airlines would incur if it began to phase out its fleet of Boeing airliners with replacements from Airbus. What steps could Airbus take to reduce these switching costs? How might Boeing counter to strengthen its relationship with Southwest?

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Step 1/2

It is inevitable for any business firm to move business operations from one firm to another. This transaction of switching from one business organization to another by firms leads to certain losses and costs. These losses or costs are termed as "switching costs”. These switching costs are of two types. These switching costs are as follows:

1. Investments

2. Risk of exposure

When SW airlines began to phase out its fleet of B Airliners with replacements from AB, SW Airliners would incur switching costs of investments.

SW Airliners switching costs of investments:

• The investments made in previous airliners are lost.

• New investments are required to train the employees to execute new airliners operations.

• Basic business procedures are to be changed as it varies from organization to organization.

The new partners for SW Airlines, AB also possess switching costs in the name of risk of exposure. Following steps could be taken by AB airlines to reduce these switching costs.

Step 2/2

Steps to reduce switching costs:

• AB Airliners must invest resources for secured and mutual commitments which last for long.

• Assisting customers with proper planning along with SW Airlines to secure long-term relationships with customers.

• To highlight the name and value of services which helps in procuring benefits?

• New operational linkages and information sharing mechanisms must ensure to be quite similar with previous business transactions. It assists without causing any investments for personnel training programs.

Even when SW Airlines began to phase out its fleet, B Airlines might counter to strengthen its relationship with SW Airlines.

Steps to strengthen relationship with SW Airlines:

• B Airlines must pursue SW Airlines loyalty by providing efficient services.

• Must create opportunities to expand the relationships.

• To make continuing dialogues for mutual commitments.