Essay Sample on Supply and Demand Condition

Introduction

The airline has seen consistent improvement in terms of market and the quality of services that they offer. The Southwest market share has seen a massive increase over the past several years a time at which it has experienced tremendous growth in revenue from their local passengers, the airline's revenue rose from 18% in 2016 (Hanke, 2016) . I am going to evaluate the trends in demand of Southwest airlines and am going to base my discussion on the income of the airline.

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Income

Firstly, the income of the airline is the best way that we will be able to identify whether the airline has a high demand for its services or not because an airline that receives a lot of income means that it has a lot of customers. In the case of Southwest Airlines, the company enjoys a lot of customers and demand for its products. Since 2006 to date, the airline has seen a massive increase in the amount of income that they earn at the end of every financial year. As evidenced in the income graph below of Southwest airline below that goes back seven years, the airline enjoyed a lot of income increase, their earnings rose steadily since 2011 to 2017 a year in which the earned the highest income. This trend of consistent growth in the income of Southwest airlines means that the demand for their products and services has also seen a significant increase in the local markets where people using air transport have decided using the airline more frequently as compared to their competitors in the air transport industry. The main passengers of Southwest airline are the local Americans who wish to use air transport to travel between cities and towns within the country.

In the graph above we can see that over the past seven years the demand of the products and services offered by the airline increased steadily from 2010 to 2017 with the year 2017 having the most income and market in the entire seven years.

Technological Improvement

The airline has integrated several technological advancements in the systems so that they will be able to improve the quality of services that they offer to them and also ensure customer satisfaction. The airline integrated an OpsSuite App which is a web-based application that was developed to handle the many activities that go on within an airport and also ensure that the customers make it safely to their destinations (Taneja, 2014).

Price Elasticity of Demand

The airline has a distinct method determining the number of princes that they are supposed to set; they consider the modes of transport outside their industry like rental car companies and buses. Before the airline looks at something else they first find what the passenger can pay and this gives the airline a competing edge over other airlines, and this makes the prices of Southwest airline elastic. Since the consumer of service and products offered by Southwest airline seeks to achieve time-saving and convenience and still get low rates, they will settle for Southwest Airlines.

Availability of Substitutes

The availability of substitutes in the industry significantly affects the responsiveness of the customers to changes in prices. For example, the Southwest airline faces a lot of completion like spirit airlines and Alaska air and the United Airlines that significantly affect how the consumers will respond to change in the prices of products. Many substitutes mean that the consumers will have so many products and services to choose from and they will, therefore, settle for products and assistance with the least cost.

Since the price of the Southwest airline is elastic, it means that the customers of the airline are very responsive to change in those prices and, therefore, Southwest airline cannot be able to increase their rates since they will risk sending away the consumers to substitute airlines that offer cheaper services. The prices and services provided by the airline are therefore set by the customers, and they will portray a negative response in case the airline decides to increase the rates.

Production Cost

Like many businesses all over the world, Southwest airline also faces some costs that the airline faces when carrying out its daily activities. Some of the operating expenses that meet the airline include, fuel costs, labor costs and maintenance costs. These are costs that the airline has to incur because they are significant to the daily operation and activities that are carried out within the airport. For the customers to move to their destinations safely, the places need to be maintained, and the faulty parts replaced and repaired, this will require that the airline incurs the expenses of maintaining and improving the planes. Also, the airline has employees who need salaries and remunerations as compensation for the services that they render to Southwest airline; this also means that the airline will also have to pay for these expenses. These expenses in Southwest airline have increased over the past few years due to the increase in the demand for products offered by the airline. Growth in the demand for the products leads to more employees hence increase salaries paid. Expenses are things that take money away from the organization and; therefore, they don't add any value to the organization; instead, they reduce the profits that the organization earns.

Southwest airline can base their production levels on both the variable and fixed cost that they face. Some of the Variable value that they meet include; general and administrative expenses, salaries and debt. Some the variable costs that they face include; overtime, fuel, and maintenance. Since the airline mainly incurs a lot of variable costs, the can decide using more advanced technology when carrying out their activities and this will help them cut down on the number of employees that are required to handle daily. Integration of such technology will also ensure that the organization offers products and services of high quality that are necessary and meets the expectations of the customer.

Overall Market

The Southwest airline operates within the air transport market which has been embraced by a lot of people in the current generation. The Southwest airline controls 18% of the entire American domestic market, the main competitors of the airline include; American Airlines which also controls 21%, Delta Air Line which controls 20% and the United Airlines that controls 17% of the entire market (Stringer, 2016). The pie chart below shows in details the market share of all the local airlines that are in the United States of America over the past ten years. The pie charts also show how the airlines have increased their market share over the ten years, and all the airline have confirmed an increase in their market share percentages.

Barriers to Entry

The primary barriers to entry into this industry are the high initial cost that is required to set up and maintain an airline. The cost of buying, maintaining and fueling airplanes and at the same pay, the person managing them is so high such that it scares a lot of people from venturing into the industry. This barrier helps keep away potential investors, and hence Southwest airlines are safe from facing a lot of competition.

Market Structure

The Southwest airline operates within an oligopoly market structure since very few airline competitors characterize the structure. This market structure makes it hard for the airline to have an influence and control over the entire market since every airline that is in this industry has an individual market share that it controls.

Recommendations

From the above information concerning the Southwest airlines, I will recommend the airline should strive to become more relevant the industry and manage its future production activities basing their advancement on the fact that the company is gaining popularity among the local air transport users. The airline should consider using technology in their transport activities since a lot of people have gone digital and therefore the southwest airline should embrace digitalism. It is also crucial that the airline acquires a new place that are modernized and more comfortable so that their customers will be more comfortable. The airline is among the top three airlines that hold the largest shares in the local industry in America, and this, therefore, makes it possible for them to embrace and integrate new and advanced into their activities since they can easily afford it due to their ever-increasing income. The airline can become more robust and even attract more customers if they have modern airplanes that enhance the experience of travelers. The airline will be able to maintain its activities and grow by integrating new and advanced technology that will keep them a step ahead of their competitors. When a customer enjoys the experience of traveling in a comfortable plane, they might not notice even if the airline increased their prices slightly.

References

Clark, P. (2018). The Market Evaluation. Buying the Big Jets: Fleet planning for airlines, 45104. Retrieved from https://books.google.co.ke/books/about/Buying_the_Big_Jets.html?id=SAcqDwAAQBAJ&redir_esc=y

Hanke, M. (2016). Airline e-Commerce: Log on. Take off. London, England: Routledge. Retrieved from https://www.routledge.com/Airline-e-Commerce-Log-on-Take-off/Hanke/p/book/9780415775809

Stringer, D. H. (2016). America's Local Service Airlines. Apt Collectibles. Retrieved from https://www.barnesandnoble.com/w/americas-local-service-airlines-david-h-stringer/1123884016

Taneja, P. N. (2014). Designing Future-Oriented Airline Businesses. Ashgate Publishing. Retrieved from https://www.routledge.com/Designing-Future-Oriented-Airline-Businesses-1st-Edition/Taneja/p/book/9781472442963