1) The Porter’s Five Forces
The Porter’s Five Forces is defined as a framework that analyses the business environment and the business strategy that aims at determining the competitive intensity of an organization in the market today. The five forces includes The threat of the entry of new competitors, The threat of substitute products or services, The bargaining power of customers (buyers), The bargaining power of suppliers and The intensity of competitive rivalry. An analysis conducted by the Southwest Airline in matters pertaining to the threat of the entry of new competitors is experienced when the numbers of airline transporting companies have increased from the most dominant 7 airlines companies to approximately 43 companies all the way from 1982 to date. The market couldn’t absorb all the new entrants in the market thus in 1993 a major market analysis was undertaken that paved way for the streamlining of the industry and from that only 11 airline companies managed to dominate the air transportation business. By 1978, 8 influential companies either went bankrupt, merged with other companies or stopped operating completely; these events resulted to Southwest airlines to have little threat from new competition entering the airline market (Comeford, & Callaghan, 2001).
The threat of Substitutes: in the past the numbers of people who were using buses, cabs, trains was very high, but with time the numbers of people who used air travel was on the rise; thus reducing the numbers of substitutes to the airline. This is as a result of a reduction of the costs of air transport and the time spent while traveling; for this reason more people traveled to oversees, business trips and other urgent traveling reasons. These different methods have resulted to the reduction of substitutes as a result of the reduced cost of traveling (Gittell, 2005).
The threat to suppliers bargaining power is countered by the company when the company has provided the manufacturers with the opportunity of having high bargaining power; this is as a result of the company being most influential. The employees such as pilots are not in a position of moving to other companies and supply labor there, in view of the fact that they already have the best package and are satisfied (QuickMBA, 2010).
The threat of buyers bargaining power is the inability of airline customers, this is when southwest airline is able to organize and coordinate lessen the power of individual buyers. This is when the company would ensure that the customers are given the opportunity of bargaining their. In this case the company devised a way in which the airline plying various routes would know the customers feedbacks; thus reducing the cases of being charged more fare. The company also studied and subsidized the fares as opposed to other airline companies that have dominated the routes resulting to the customers opting to use southwest airlines.
Competition is also reported in the southwest airline company; this is because there is an increase in the numbers of competing service providers in the airline industry. The airline industry was dominated by the 8 airline providers who controlled 92% of the total market share this is by 1982. This resulted to an increase in the company’s profitability as they dominated the Routes, Hubs and Airports, thus resulting to an increase in the competition between these companies. Other factors that resulted to competition included the price wars, easy access to internet connection by customers, high fixed costs and low differentiation, thus the company strives at ensuring that it caters for the competition in order to succeed in the business (Comeford, & Callaghan, 2001).
Explanation of the report by the company
The report has provided us with a clear perspective on the way southwest airline company is trying to meet the objectives in the airline business. The compliments that supports the airline industry includes the incorporation of hotel facilities and rental car services. This is when it collaborates with these service providers to offer its customers with added services such as cars, accommodation, and food all enclosed in one package as a result of the collaboration between the companies (QuickMBA, 2010).
It’s considered to the nations fourth largest carriers this is according to the recent research that was conducted on the company, a survey that was as a result of monitoring the boarding that the company booked in the recent past. The company began its services in June 18th 1971 with only 3 airbuses and at the same time serving 3 cities (Dallas, Houston and San Antonio); the company grew immensely and today the company occupies around 350 airbuses and operates in all the sections of the country (America). The company also offers the lowest operation costs that are primarily point-to-point, and the lowest and simplest fares. The company is an employer of approximately 34,000 employees (Desai & Quach, 2000).
Challenges faced s by the company
The company is faced with a lot of challenges /threats that tend to threaten the existence and operations of the company to offer its clients with the most effective services they include internal and external. Some forms of internal effects includes the bargaining power of suppliers and The threat of substitute products or services, while the external factors includes The threat of the entry of new competitors, The intensity of competitive rivalry and The bargaining power of customers (buyers) (Gittell, 2005).
In this case external threats that the company faces is the entrance of new entrants into the market and according to the analysis is seen a having High effect on the companies external environment. This will raise a problem to the company as a result of the company that is newly coming up with strategies that are the same as the once that are being applied by southwest airlines (Desai, & Quach, 2000). This will to some point distort the customer base of southwest which is seen as a dominant carrier in America; the strategy that is used by the company in providing the customers with high quality and cheaper services. This will result to high competition to the southwest airlines as a result of the new effective pricing of the company and this will definitely make the company look for better strategies. Thus posing a strong threat to southwest airline, and from the previous statistics it is clear that the companies that were formed from 1978 to 1992 were a very competitive lot that gave southwest stiff competition. Therefore the southwest airline had the opportunity of improving its operations; this is by conducting nation wide promotions aimed at retaining its customers. This would ensure that the company had sustaining strategies that would counter the challenges that are being offered by the other companies thus succeeding in the airline business for a long time (Comeford, & Callaghan, 2001).
The second challenge that southwest airline faces is threat of substitute products or services; this has a high effect in the company’s external environment. This is because Southwest airline is well known to be a carrier that dominates the short haul air transport in America; but there is a strong challenge that is being evaluated by the management team of whether to start offering its clients with long haul air transportation (Gittell, 2005). The management is skeptical if the company the threat of substitute products or services starts offering long haul services will it be successful as the present case. This has resulted to the company to be in a state of quagmire and failed to reach a consensus on to provide the long haul routes; because of certain factors including the increase in the demands of the customers who will demand meals, improved comfort while traveling amongst other issue that pertains to their safety. At the same time the company will have to spend more on fuel and less passenger carriage as a result of the increased time of operations consequently the company will encounter a lot of loses from this plan (Gittell, 2005).
The other threat that the company is encountering is bargaining power of suppliers; this has a moderate influence on the company’s external environment as the company has to comply with the demands of their airbus manufactures /suppliers. This will ensure that the manufactures and the management come up with a more appropriate way of ensuring that the products (airbuses) are well maintained. At the same time they have to adhere to the duties and hours of operation; thus reducing the cases of malfunctioning of the products and hence reducing the cases of the customers losing credibility on the air company. This was because the company was less involved in accidents and other mechanical faults. As a consequence it offers the airline company with the opportunity to negotiate with the manufacturer with the opportunity of purchasing the products at a subsidized rate (Desai, & Quach, 2000).
Southwest Airline Company is also facing the threat intensity of competitive rivalry; this is experienced in the SLP; the company has a high rate of influence in the company’s external business environment. This is as a result of the increase in the numbers of the rival companies crop up and from the increase of these companies; thus ensuring that the company faces stiff competition that are aimed at reducing the life line of the Southwest airline Company. This to some extent will result to the company encountering the stiff competition due to the increase in quality service delivery to the customers. The situation would make other airline companies reduce fares, improve customer care amongst other services which will make them have an added advantage as the most effective carriers in the region (QuickMBA, 2010).
The last threat that Southwest Airline Company is the bargaining power of customers; in this case they are the customers of Southwest Airline Company. This will result to a high control of the industry environment, the customers in this case have a lot of needs and demands that tend to affect the way the company operates, this is through the use of the customer care /service. The company will have to evaluate, monitor and test the needs of its customers and thus from that they will be in a position of determining the necessary changes that a company has to implement. These strategies will help the company to succeed in its customer service delivery thus ensuring that the company is in a position of maintaining /increasing its customers; this would include establishing a loyal scheme for customers (Desai, & Quach, 2000).
The SWOT analysis of Southwest Airlines Company
The company has to exploit every opportunity in order to maintain /improve its intensity in the industry. At the same time it must improve its effectiveness in the handling of customers thus ensuring that the company is a position of dominating the airline industry. Opportunities that are yet to be exploited by the company is the increasing its routes of operations from the short hauls to long hauls. This will not only increase the company’s expenditure but also increase its income; thus emerging as a dominator of both the long and short hauls and thus emerging as the best airline company in America (Comeford, & Callaghan, 2001).
The main Threat that the company would faces is the establishment of rival companies that offer the company’s customers with favorable deals. They will try to attract customers from the company which will be seen as a great threat to the company. The companies have strategies of distorting the market with lower deals which cause price wars; this is despite the current economical changes that are seen as major setbacks by most companies in this era (Zahorsky, 2009).
In conclusion the use of PEST analysis has ensured Southwest Airline Company can achieve its success in the airline industry. It has applied this strategy as a way in which the company has to evaluate the ways in which the market operates and thus help the company adjust to the market behavior. It also ensures that it has the best ways it can fit and succeed in the market by offering the competitors with immense competition.