Southwest Airlines, a US-based airline, is playing a leading role in the aviation industry. Despite the intense competition in the US aviation industry, the company has firmly retained its leading position in the US and across the globe as a low-cost carrier airline. The airline has its headquarters in Dallas, Texas, and is currently providing services to more than 121 destinations with operations in ten more countries. The provisions of convenience, customer safety, and quality service are the marked mission statements of the company’s chief. The business started in 1971 and is growing continuously to date. This period has enabled the company to establish competitiveness in the market. The company has swept the market by providing low-cost services and customer friendliness. The company hit the spot when in 2018, about 163.6 million passengers used the airline service of the company. The strength of any company, mainly the competitional horizons, is determined by many strategic factors, including efficient operations based on low-cost provisions for customers.
The five forces analysis of Southwest airlines signifies the importance of these forces prevalent in the external environment and their role in determining the competitiveness of the company.
Bargaining Power of Suppliers:
Miniature aircraft manufacturer suppliers capture the aviation industry. The main suppliers include Boeing, Airbus, Bombardier, and Embraer. Airbus, besides Boeing, is the leading aircraft manufacturer, and overall, these suppliers have accumulated high bargaining powers. The company uses the aircraft model Boeing 737. This model is highly efficient in operation and specializes in fuel efficiency. It best suits the Southwest company owing to its low-cost pricing strategy. As of today, Southwest has almost 750 Boeing 737 aircraft with passengers ranging from 150-to 175.
As Boeing is the leading supplier in the aviation industry, its bargaining power is relatively high. However, this high bargaining power is cross-checked by Southwest’s strong power to purchase. The airline is further dependent on other suppliers for equipment necessary for the operations like technology or raw materials. Nonetheless, these suppliers exert a weak force because such suppliers are available in substantial numbers, and Southwest doesn’t depend on a single source to obtain raw materials, technology, or equipment. On the other hand, suppliers providing the airline with fuel may exert a strong force of bargaining power.
Bargaining Power of Customers:
This force in Porter’s model measures the power of customers to influence the company. The aviation industry has observed a steady increase in this force due to the growing number of customers. The data shows that the number of passengers who travel from and to the US is increasing. The figures reveal that the passengers crossed 1 billion in the US who used international-based or US-based airlines. The increase in ratio in the year 2018 was 4.8% higher as compared to 2017, and 8.5% increase from the year 2016. Thereby, the increasing number of customers using the airline services has swelled the bargaining force of buyers. Moreover, the emerging trends of offering low-cost to capture the customer base have also significantly played to increasing their bargaining power.
The US aviation market is also served by international airlines among the top ten US-based airline services. The competition grew more due to the saturation of the aviation market and their quests to increase their market share by providing low-priced services. The under-analysis company is providing super friendly, and quality services at reduced rates, and the orientation of these services is adding more to customers’ bargaining power. Moreover, Southwest is not reluctant to offer perks and privileges to its regular customers. The motives are retention and attraction of loyal customers. In addition, the ease of switching brands has added more power to this force. Overall, the customers are exerting a strong force of bargain on the company. The provisions of convenient services, low-cost offers, and efficient operations have moderated this force to some extent.
The Threat of Substitutes:
This threat has surfaced from the competitive power of the rival companies. The rival airlines with competitive abilities are more than a dozen in number, including Delta and American Airlines. The new entrants with innovative technologies have added fuel to the fire. For example, the use of ultra-low-cost carriers such as Frontier, Spirit, and Allegiant has elevated the competition and added to the force of this threat. 2018 witnessed that the Spirit served more than 28 million passengers as compared to the Frontier, which carried around 19 million passengers. Furthermore, the threat is aggravated as Southwest Airlines serves domestic flights across 40 US states; other modes of transportation like trains and cars are a great substitutional threat. Taking everything into account, the bargaining power of substitutes is moderate in force; therefore, the threat of substitutes is moderate.
The Threat of New Entrants:
This force does not exert any significant threat to the company. The aviation industry does not welcome novel companies to establish their operations. Instead, there are numerous barriers to the way. The regulatory and legal clearances are making the process hard. The high capital investment, along with the other risks of aggressive regulations and high taxes, fan the flames. Moreover, the availability of skilled staff and up-to-date technology is another barrier for companies to step into the aviation industry. Above all, brand development takes a lot of capital and time.
In short, the above-discussed factors upset the new entrants to establish their businesses in the aviation industry. Many new entrants have failed to capture extensive market shares in the industry. The competition has already aggravated the industry environment, and the settled companies are employing tactics to retain their market share and customers. Therefore, Southwest has no imminent threat from new entrants in the market.
Intensive Competitional Rivalry:
The aviation industry is witnessing an imminent threat of competitive rivalry in the market. The US aviation industries have assembled a strong market value. Other than the top three companies, many other companies have deeply rooted in the market and business environment. Although the company has considered Delta and American airline as its immediate competitor, other airlines that pose a threat include United, SkyWest, JetBlue, and Alaska. The fuel-efficient and eco-friendly ULCCs have intensified the situation. Despite the growing competition in the aviation market, Delta and Southwest captured the top positions in terms of revenue generation.
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