Southwest airlines - Assignment Example

Southwest Airlines al Affiliation: Southwest Airlines operates in the LUV industries whether it is rated among the top regional airlines. The Southwest Airlines company is located in Dallas, Texas in the United States of America. It was founded in 1967 and adopted its current name in 1971 according to Rahman (2010). In June 2011 it was announced the biggest airline in the U.S. on the basis of the number of domestic passengers that it serves.Industry AnalysisSince the institution of the Airline deregulation Act, of 1978, Southwest airline has experienced low profits for a number of years.

This is because the deregulation led to the airline’s lowering of fares as new firms ventured into the market. To understand the results of the deregulation, it is vital to apply Porter’s Five Forces analysis of the company.RivalryThe extent to which rivalry thrives usually affects the general profitability of the airline. The concentration of the market is a major issue which affects rivalry. Routes, hubs and airports operated by several carriers experienced strong rivalry Ahlstrom and Bruton (2009).

Factors contributing to this rivalry include high and fixed costs, price wars, excess capacity, easily accessible prices through the Internet and low differentiation. Among the competitors of Southwest Airlines include AMR Corporation, Air France-KLM, United Continental Holdings, Inc., British Airways Plc, Delta Air Lines Inc., and Continental Airlines, Inc.. The competitors have seen the Southwest Airline’s fare prices and prit margines godown as they have cut a share of the company’s market.

EntrantsDuring the first about ten years of deregulation, the airline industry experienced a lot of entrants with 22 new airlines being established according to Desai, Patel and Quach. This entrance of new airlines implied that the airline industry was to experience inefficient economies of scales hence couldn’t support a lot of new entrants. Economists predicted fewer barriers to entry in the market and new firms were likely to organize airlines and new assets to new routes. However it was later observed that there could only exist eight major carriers.

The increase the major carriers to eleven would lead to eight of them filing for bankruptcy, disappearing or merging.SubstitutesThe various substitutes to air travel include road transport, trail transport, and water transport. However, the significance of trains, ships, and buses as airline substitutes has significantly declined over time. Exchanging costs between air travel and others substitutes are literally low according to Duggan (2003). However, the pertinent significance of the substitutes changes according to the reason for travel, customer type and the route.

For instance business trip travel encourages air travel as opposed to ground travel, same to longer distance travel. Supplier PowerDuring the post deregulation era, wage rates have proved to be the cause of several union strikes happening in the airline industry. Hence they have contributed to the high operating expenses experienced by southwest airline industry. The bargaining power of the employee varies depending on employee skills, experience and knowledge, and the unionization of employees.

Pilots’ and cabin crews’ bargaining power is low due to the existence of other readily available pilots.Buyer Power The lack off coordination and organization among airline customers leads to lower power for the buyers. The way in which airlines can change their prices differs depending on the route as well as the type of customers as suggested by Werther and Chandler (2010). Routes occupied by many airlines raise the accessibility of substitutes hence are more likely to face competitive prices.

Generally, the Southwest Airline provides low cost, simple and friendly services that differentiate it from its competitors. Hence this allows it maintain much profits in the airline industry. Southwest Airlines are guide by the principle of doing it differently.Reference listAhlstrom, D. & Bruton, G.D.(2009). International Management: Strategy and Culture in the Emerging World. Auckland: Cengage LearningDesai, K. Patel, V. & Quach, D. Southwest Airlines. Accessed March 10, 2012http://www.mcafee.

cc/Classes/BEM106/Papers/UTexas/351/Southwest.pdfDuggan, W. (2003). The art of what works: how success really happens. New York: McGraw-Hill Professional Rahman, J. (Jun 29, 2010) Five forces in airline industry. Accessed March 10, 2012 http://www.slideshare.net/joharahman/five-forces-in-airline-industryWerther, W.B. & Chandler,D. (2010). Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. London: SAGE