Five Force Analysis of Southwest Airline Essay

1. The threat of new entrants.In terms of economies of scale, sou-west fleet grew to 537 Boeing 737 aircraft providing service to 64 cities in 32 states throughout the unify States, with 397 city pairs being served nonstop, by the end of 2008, thus has reached sufficient economies of scale. And southwestward Airline gains its cost advantage through the implementation of upset-cost dodge. It not only flew planes point-to-point mulct-haul flights bypassing the expensive hub-and-spoke operations but as well chose less popular, less congested airports to achieve quicker turnarounds which enabled the airline to proceed with fewer planes and gate facilities than would new(prenominal)wise produce been necessary. Cost consciousness has been a part of its assimilation. Training people for technical skills is possible but imitating SWA culture is out of question.The steep initial investments and fixed costs to enter the airline industry makes it difficult to compete financially with p rofitable southwestern for entrants. When comp atomic number 18d with place competitor, Southwest Airline got the largest net income(TTM) and EPS(TTM) in 2009(Exhibit 5). Since Southwest Airline was the initiatory major airline to introduce ticketless travel and one of the first to designate up a Web site and offer online booking, it has won the high product differentiation. As a pioneer of low-cost strategy, SWA has imbed up its reputation and won a large number of trustworthy customers. However, SWA has no special control over distribution channels. On the other hand, since the publication of in 1978, there is low barrier to set up airline company in the US.2.The threat of substitutes.Southwest Airline focuses on the short-haul flight, so customers argon likely to switch to other transportation means, such as train. And the low-cost airline has been a emerging industry. There are more choices for customer which posts high threat for SWA. To reduce the threat, Southwest prov ides low price or time-optimized tickets, good service to their customers. Price for trains, or gas pedal cost for self-driving are comparable to the price of Southwest ticket for the equivalent route, not much cheaper. Moreover, the switching costs for customers to train or cable car for the Southwest routes requires more travel times,cause a lot of inconvenience.The company scourcreated the Southwest effect, an explosion in the number of people traveling by plane, including many who would have gone by car before.3.Rivalry among vivacious firms.There are many new airline with opposite strategies with Southwest Airline. They offered far more attractive service, such as leather seating and in-flight entertainment systems, for virtually the same fare.With the increase of living standard, people pick comfort to low-cost. The loyalty of Southwests customers will be questioned. And callable to the expensive and highly specialized equipments, the high barriers for exit leads to the white-hot competition.4.Bargaining baron of buyers.Travel agents buy large volumes, theres a tightfistedness of buyers, indeed their switching to a different supplier might have larger impact on the profits. As for individual buyers have almost no strong bargaining power. And switching to an alternative product is relatively simple and is not related to high costs. The airline is not of strategic importance for the customer because there are many other short distance transportation means.5.Bargaining power of suppliers.The market is dominated by a few large airplane suppliers including Southwest Airline. As for the catering, gift serve and other indirect materials, there are many fragmented sources and therefore their power is of almost no significance. The cost of switching from Boeing 737 to Airbus A320 is very high. apart(predicate) from purchase price, the company should pay for the training of employees and the maintenance of new airplanes. The suppliers customers are fragmented, so their bargaining power is low.