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Southwest vs. Jetblue Airlines - Essay Example

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Southwest Airline The industry chosen is airline industry and the point of reference is Southwest Airline. Airline industry is one of the most lucrative yet challenging industries to operate in. It is among the most regulated industries in the world. This is because the risks facing the industry are real and enormous…
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Southwest vs. Jetblue Airlines

Download file to see previous pages... Southwest Airlines was first incorporated as Air Southwest Company on 15, March 1967. Its mission is to provide air transport to passengers within Texas State. However, Southwest Airline is currently operating in six states. It is serving over seventy cities, which enables the airline to make about three thousand three hundred flights daily. The porter’s five forces of the Airline industry with reference to Southwest Airline The first factor is the new entrant’s factor. Air industry is critical to economic growth and development. It is critical in any economy. Therefore, it is an industry perceived by many as highly lucrative. However, huge amount of capital is required to start air transport business and industry is riddled with high level risks. The industry also experiences complicated licensing, certification and regulations procedures, which makes it hard to penetrate. Furthermore, increasing cost of fuel makes it difficult for many people to venture it. The second factor is threats of substitutes. The substitutes to air transport are road, rail and water. Southwest Airline faces competition from road because most (80%) of its customers are domestic customers. If road transport improves, the airline may lose bulk of its domestic customers. Southwest Airline has been lobbying against the introduction of high speed rail transport services in the State of Texas. This is to prevent competition from substitutive high speed train services. Third factor to consider is the bargaining power of customers. Customers do not have a strong bargaining power in the air industry. As a result, they do not have a collective bargaining power to influence air prices. The fourth factor is the bargaining power of suppliers. Suppliers of aircrafts and spares are influential to prices making it difficult for operators to bargain. This is due to the standards on aircrafts and its spares that FAA imposes on operators. The operators must purchase genuine parts that are mostly expensive. The suppliers of fuel are few; therefore, they largely influence the prices of fuel. Airline operators do not have powers over the fuel suppliers and are left to develop ways of improving fuel efficiency. For example, Southwest Airlines introduced use of high pressure water to clean the engine, an exercise that improves fuel efficiency by 1.9 percent. The company has also managed to contain its employees through strong team coordination, open communication and promotion of work-life balance. Furthermore, the employees are also supported by top management. This has made employees proud of the company. Fifth factor to consider is the level of rivalry within the industry. This is among the real threats that can bring the industry down. Southwest Airline faces direct competition from JetBlue and AirTran Holdings, which are also low cost carriers. To minimize competition and increase its revenue base, the company acquired Muse Air in 1985, Morris Air in 1993, ATA Airlines in 2008 and Air Tran Airways in 2011. Acquisitions enabled Southwest Airline to absorb key routes in the Pacific Norwest and acquire operating certificate as well as landing slots in LaGuardia Airport. However, the company failed to acquire Frontier Airlines thus lost Denver market. Strategic valuation method The strategic valuation method that is useful in valuing the company is the shareholder Value Analysis. Shareholder value analysis refers to financial analysis, which estimates the ...Download file to see next pagesRead More
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