External Environment Analysis - Term Paper Example

It previously operated using Boeing 727 airplanes but has recently updated their fleet to the more advanced airplanes to meet the demands of their customers. The newly purchased planes are more advanced, fast and are more comfortable than the older planes that were previously being utilized. The company has a very busy schedule as it operates over six flights on a daily basis (Southwest Airlines, 2012). The airline company has also made acquisitions of several other companies like Air Tran Airways in the year 2011 during the month of May.

This has enabled them to increase their airplanes due to the expansions witnessed in their operations. In addition, the company has a large labor force that comprises of over thirty seven thousand workers who are qualified in different fields to aid the company in running their activities. The airline company runs its operations in over forty two states within the United States that cover over ninety five of their destinations. Their management advertises vigorously to help in reaching a wider market through several humorous adverts like, “Just Plane Smart” slogans that have become familiar to most travelers within the country.

The company’s strategy of fighting off their competition involves their recruitment of very competent employees, their high productivity along with their offer of low prices for their products. Finally, the company currently has a market capital of over 6.2 billion dollars with a price to capital ratio of 23.49. Their earnings for every share stand at 0.35 whereas their dividend yields stand at 0.02% (Southwest Airlines, 2012). Section 2. Porter’s Forces and PEST Analysis According to the article titled “Porter’s Five Forces, Assessing the Balance Of Power in a Business Situation”, the forces are powerful that are used for determining where the power of a business lies.

The article stipulates that the type of information required when each of the forces includes the powers of the businesses suppliers, their buyer powers, competitive rivalries encountered, threats posed by substitute goods along with the threats of new entrants coming into their market. It additionally suggests that the threats posed by new entrants could be further complicated through their specialized knowledge, the cost advantages they have along with issues such as economies of scale. The competition encountered is augmented when the number of competitors increases, there are quality differences, switching and departure costs along with other differences in the products offered.

Supplier power is influenced by issues such as the amount of suppliers, their scope of operations, the distinctiveness and the businesses ability to obtain substitute products. The threats of substitution are aggravated by substitute performances being greater and the costs incurred in changing from a product to another. Finally, the buyer’s power is said to be influenced by the number of available customers, their order sizes and their sensitivity to the prices set. On the other hand, the article by Dagmar Recklies on ‘Porters 5 Forces’ states that the model is founded on the basis of an organization utilizing the opportunities availed and fighting off any threats it might encounter.

The forces are said to include the bargaining powers of suppliers and customers, threats of new entrants along with substitute goods and the competition witnessed in their market. The article from Value Based Management.Com describes