CASE STUDY ON SOUTHWEST AIRLINES

COMPANY BACKGROUND
Southwest airlines was founded as Air Southwest on March 15
th
,1967 by herb Kelleher and
Rolling king.The company is better known for its innovation in business model and strategic
human resources practices. When it started its service southwest only had three Boeing 737-200
aircrafts in 1971. It is the most accepted low cost and passenger friendly airlines. It provides low-
fare transfort in 58 cities in the united states.

TASK 1. PORTERSS FIVE FORCES OF COMPETITION
The external environment plays an important role in the organizations internal strategic
choices and performances.( Grant, 2012, p.66) porters five forces model supports in shaping the
competition of an industry that directly marks the overall strategy of an industry. Michael E.
Porter developed a model which mainly describes the five elementary forces that should be kept
in mind while developing a business strategy(Porter 2008). The forces constitutes, industry
rivalry, the threat of new entrants, the power of the buyer, the power of supplier, threat of
substitutes.
So each of these forces which have a significant impact on the strategy of the industry are
discussed below:

INDUSTRY RIVALRY: high

Industry rivalry is the main cradle to find out the overall cost-effectiveness and productivity of
the organization.it can be considered as one of the strongest amongst the other forces. There are
many similar forms takes place including cost differentiation, introduction of new product,
advertising, improvement in services. Profitability of industry limits rivalry amongst the
industries( Porter.M.,2008). The intensity of rivalry also relies on the competitors size and
power of the business which in turn becomes hard to avoid.

According to the case of southwest, airline industry market is utterly saturated and the number of
service providers than desired have increased both local as well as international. One the most
noticeable competition on Airlines is the price. Southwest faced rivalry cause the primary focus
of any airlines was to provide best services in food, baggage, seats ,including lower cost, timing
of the flight, flight route etc. merger and acquisitions are the part on industry rivalry.
Northwest airlines was acquired by delta airlines which was the main competitor for southwest
in2008 and they eventually grew stronger. They provide their customer with various tour
throughout the united states that connects form mainly four continents, as these kinds of facility
were missing from southwest (Mouwad. J, 2010). Similarly jetblue airways and allegiant airlines
were copying southwest by offering similar kinds of services including better customer services
and no frill, point to point low cost trade at lower cost( Mouwad, J, 2010). Even other airlines
choose many strategies southwest has been the choice of the customers and is footing out from
its competitors.

THREAT OF NEW ENTRANTS:low
The competition of the industry reaches far above the ground level usually when new entry in
the market takes palce. This leads to chaos in the business secondary to come up with new ideas
to the exixting players in the market.Prices, costs and rate of investment which are necessary
attributes for competition are pressurized when new entrants bring new capacity to the
industry(Porter, 2008).
(Entrance in airline industry is very difficult as per the brand name of a particular industry is not
easy to tempt out replacing the other brands. One of the major barrier to enrty is due to the
capital involved in leasing aircatfs, human resources, security aspects and service provided to the
customers.( http://www.studymode.com/essays/Porter's-5-Forces-Model-Airline-448452.html)

JetBlue airline is one of the major threat for southwest which started its operations in 2000. Jus
like southwest they are up to low cost airlines which in term makes them the rival in some
scenario. However, they couldnt be a much threat for southwest as JetBlue couldnt gain
customer attention and coverage unlike southwest, since it had been in the market since more
than 40 years.(http://www.studymode.com/essays/Southwest-Airlines-External-Analysis-
1066751.html) similarly, with government control and limited space for landing slot is also the
entry barrier for new industry. Eventually there will be less threat for southwest airline for new
years from now.

THREAT OF SUBSITUTES:LOW

In airline industry the substitute products could be the traditional products like, cars, bus, trains
that have equal level of satisfaction as airlines. These are usually cheaper than air travel.
However this depends upon customer to customer and the route of the journey and there is
probably low chances of switching cost over these substitutes. For instance, family vacation
could favor driving and long business trip could favor flying. They are not usually a loyal
customers.

In case of southwest, they have pointed the price in such a way that it is cheaper to fly from los
Angeles to Phoenix than to drive or take or rent a bus or a car. This clearly proves that southwest
got minimum threat from its substitutes, even though they have many rivalries with other
airlines. They have a strong position in the airlines industry. (
http://www2.uhv.edu/wang/MGT6331/TermProject/SampleProjectSW.pdf)



BARGANING POWER OF BUYER

Bargaining power of the buyer plays an important role in any service airline industry. Customers
choose those airline which provide them with the best value in lower cost, receving the same
kind of services. So, bargaining power of consumer is very high which is closely linked with the
price. Consumers have access to different kinds of technology provided, they can choose among
the best deal before making a final decision. (http://writepass.com/journal/2014/01/southwest-
airlines-swot-pestel-five-forces-analysis/)
Southwest focuses on customer service, so they ultimately give substance to its customers.
Eventually, tries to satisfy their needs in any condition to retain their customers. Southwest can
deliver thsese attributes depending upon its speed on how it can cope up with the loyal clients.
Websites like kayak.com, skyscanners
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MORE TO WRITE




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BARGANING POWER OF SUPPLIER:

Labor, airframes and jet fuels are the three most receptive inputs of the airline industry. And the
main aircrafts supplier for large airlines is Boeing and airbus; there is quiet little chance of
assistance between the suppliers. Having long-term contract with the manufactures airlines
cannot easily switch contracts. And eventually has encouraging credit.)

Around $200million is required to make a single plane, so only few suppliers are there in airline
industry. Airline firms play an important role for the manufactures as they are the only source of
income for these companies. So eventually the bargaining power of supplier is low.
(https://sites.google.com/site/admn703ai/the-team)
On the contrary,the supplier for southwest is the Boeing aircraft. In case of southwest they have
been planning to switch over Boeing to Airbus (Southwest, 2013). The cost of switching is very
high as per the training required for the pilots and the engineers as well-so the bargaining power
of boeing will be ultimately high.





TASK 2.