5 Porters Analysis of Southwest Airlines

5.0 Conclusions

In order for us to analyze and summarize the industrial environment of Southwest Airlines, we use Porter’s Five Forces Analysis that developed by Michael E. Porter.

First, the potential threat of new competitor in Southwest Airlines is moderate; it requires a large initial capital investment in the Airline Industry. New Low Cost Carrier Airlines companies could enter this industry and attract Southwest Airlines customers. But there is the limited availability of landing slots at the US Airports. The landing slots mostly had been reserved by established airlines and are difficult to obtain especially in airports with high passenger demand (Czemy 2008).

There was a case where Southwest Airline are trying to enter another route, but the airport gateway already being reserved by other airline company, and Southwest Airline was forced to leased the gateway from the other airline company with a ten time price from the original leasing fee. In the end, Southwest Airline withdraw from that route because it was unprofitable.

Second, the bargaining power of suppliers in Southwest Airlines is high. The top two airplane manufactures in the world currently are Boeing and Airbus. But Southwest Airline only use one type of Boeing airplane (Boeing 737), so Southwest Airline has strong dependency with Boeing Company that manufactures and sell their airplanes to Southwest Airlines. Since there are very high switching costs for Southwest Airlines from Boeing to Airbus that including the training costs of the pilots and engineers to adapt from Boeing airplane to Airbus airplane, the bargaining power of Boeing is high. Southwest Airlines could decrease or lower the supplier power by purchasing the second-hand airplane.

Southwest Airlines profit margins also heavily depend on the price of oil, which mean the bargaining power of oil suppliers is high. Since Southwest Airlines are a low cost airline, Southwest Airlines only uses regional airports and avoids large airports because it is expensive.

Third, the bargaining power of buyers or customers in Southwest Airline is high because most of the low cost carrier airlines company offers the similar service and most of the customers will select the airline that offers them best value for their money. Because of easy access to information technology, nowadays, customers can compare the flights services and price of the airline company before making their final decision which airline that they are going to choose. Since the switching cost for the customers is very low, they could switch to other airline easily as long as it is suit their financial conditions. That makes the bargaining power of buyers or consumers are high.

Fourth, the threat of substitutes in Southwest Airline is low. There might be many substitutes for long distance travel such as trains, ferries, and cars. These types of transportation substitutes are usually cheaper. But, travel through air has its own advantages in terms of speed, time, and comfort. And Southwest Airlines only target the route that mostly not being taken or used by their competitor. So, the threat of substitute is relatively low.

Fifth, the industry rivalry in Southwest Airlines is high. There are several major low cost carriers airlines company that operating domestically with a similar services like Southwest Airlines. The rivalry in the airline industry had been increasing since many airline company starts to merges and acquisitions with other airline. The main competitors of Southwest Airlines are Delta Airlines, American Airlines, Allegiant Airlines and JetBlue Airways. Allegiant Airlines and JetBlue Airways are the new rivals that emerge following the footsteps of Southwest Airline, they are threatening the market share of Southwest Airline by offering lower cost and attending customer services. Southwest Airline has their own type of competitive advantage, it is from their culture of serving their customer with the best services in US Airline Industry, they do not mind doing extra effort for their customer, as long as their customers are happy and satisfy.