Southwest Airlines Co. is a one of the major U.S Airline that operates domestically and is particularly known for its low cost services. It operated domestically for many years until they started operating internationally to a few countries located with US.
Porter’s five forces model analysis will identify the competitive position of Southwest Airlines in the market, considering the effect of these external forces acting on it.
Threat of New Entrants
Southwest Airline has been growing constantly and over the years it has achieved enough economies of scale, but this is the result of huge investments and growth over the years. Southwest Airline has established its brand name on the basis of cost advantage as it offers low cost services. Airline industry is very well established throughout the world and to enter this industry involves huge amount of investments. This factor makes it very difficult for any company to enter this industry and also take up the market of well-established, trusted airlines. Southwest Airline along with other established Airlines are trusted by customers in terms of safety and this aspect makes it difficult for new entrants to gain this trust and make the customers shift to their airline.
Due to these reasons, Southwest Airline is facing low threat of new entrants as the huge investments and establishing cots makes it almost impossible for a new entrant to pose a threat to Southwest.
Threat of Substitutes
When it comes to transportation, people have a lot of options to choose from. The substitutes present for airlines include train, car, bus, or ship. All these options have their own advantages depending on what the buyer is looking for. Every buyer does their cost-benefit analysis before choosing their mode of transportation. If a buyer is looking for low cost, they might shift to other transport modes that are cheaper than an airline, but Southwest is low cost than many other airlines which kind of gives them a competitive edge. If a buyer is looking for convenient and time saving transport, then airline is the fastest mode of transport. This means that the cost of switching is not a lot, in almost all the cases. Due to all these reasons, Southwest is facing high threat of substitutes, which is trying to counter by offering convenience and low cost together.
Bargaining Power of Buyers
Southwest Airline has two kinds of buyers, including individual and group travelers. The travel agents usually buy tickets for group travelers. They have a lot of various options of airlines and most of the time they are looking for low cost tickets. In case of travel agents, they have very high bargaining power as the cost of switching to another competitor is very low. While when it comes to individual travelers, they also face very low switching cost, so they also have moderate bargaining power over Southwest Airline.
Bargaining Power of Suppliers
The suppliers for Southwest Airline include the manufactures of Airplane of training of employees. There are very few airplane manufacturers and all the airline companies buy their airplanes from them. For these suppliers, their only business is through these airlines and they try to build long-term contracts and good relationships with their airlines so that their business keeps on going. Moreover, these suppliers have very high investments in terms of manufacturing the airplanes. So to keep their business growing, they sometimes need to accept the terms of airline companies which make their bargaining power low. So in case of Southwest, the suppliers have low bargaining power.
Rivalry Among Existing Firms
Southwest Airline has a huge competition in the market from its competitors. The competition is from local as well as international airlines and this rivalry is very strong because it takes years for these airlines to establish their brand name and they are always in the industry for a longer period of time because of huge amount of investments and profits. Southwest has many competitors including Delta, American airline and United. With very intense competition in the industry, Southwest constantly needs to develop on its services and work on its competitive edge that is providing low cost transportation.
Reference
Company Overview. Retrieved September 7, 2017, from http://investors.southwest.com/our-company/company-overview
Jansen, B. (2016, October 26). Southwest: Competition from ‘ultra low-cost carriers’ is soaring. Retrieved September 7, 2017, from https://www.usatoday.com/story/travel/flights/todayinthesky/2016/10/26/southwest-low-cost-carrier-competition/92782630/
Phelps, S. (2016, August 24). Southwest Airlines Understands The Heart Of Marketing Is Experience. Retrieved September 7, 2017, from https://www.forbes.com/sites/stanphelps/2014/09/14/southwest-airlines-understands-the-heart-of-marketing-is-experience/#3931fe872bda