For almost a couple of decades, there has been a high risk of potential entry by other competing industries for instance in 2001; Jet Blue became one of the competitors and the same was observed with Virgin America in the year 2007. (Peoples, James H. 45). The existence of such competitors has affected the unit cost of the industrial services. To merge the requirement of the customers, Southwest Airlines opted a reduction in the unit cost. The industry can compete well with the new entrance through the offering of the customized products and entering the industry on a large scale.
Bargaining Power of Suppliers
At the Start of the year 2001, the industry was faced with challenges regarding the oil prices. The prices of jet oil accounted for about 25%of their revenue in the year 2009. The constant rising in the prices of oil is as a result of stronger demand from other Nations, i.e., India and China.
Bargaining Power of Buyers
The consumers demand fare cuts despite the increasing prices of oil. To make matters worse, the fare for the increase travels to internet sites including Travelocity, Expedia and Orbits have been drastically cut down as per the demand of the consumers.
The Threat of Substitute Product
The main reason as to why the industry has been unprofitable is because of the threat of substitute product to the consumers. Southwest Airlines are among the low-cost budget carriers and have maintained the strategy to compete for the large carriers including Delta, United, and USAir. With the emergence of the competitors in the industry, what can make the threat of substitute product increase is the customer's choice for the services. The competitors may choose to lower their prices which would ultimately make Southwest Airlines apply the same to merge the market forces for customer satisfaction.
Rivalry among the Competitive Firms
At the beginning of the year 2001, most of the airlines became bankrupt including Northwest, Delta, and the US Airways. At the end of the year some of this industry beginning merging having such desires that including lowering the cost.
In summary, when the chances of new entry into a given industry are low, most of the established industries take such advantage and dramatically raises the prices which in turn interprets to their higher profits. The case has been a vice versa when it comes to Southwest Airlines. The industry has to lower their prices to operate at the same level as the competitors, and this has affected the marginal profits of the industry.
How is Southwest Airlines stacking up against other major airlines?
The business model of the Southwest Airlines works with the efficient operations; for example, it has an in-depth focus on the experience of the customers, logistics solutions and the low-cost pricing. Also, it has the motivated employees and associates. With these strategies, Southwest Airlines has gained a better competitive advantage which has enabled it to remain relevant in the competitive world. Notable, despite the shortcoming that the Southwest Airlines have always faced, it is seen that the industry has always aimed to achieve its level best, for instance, merging with most of the industries is seen as the only way of eliminating the unexpected failures. In 2010, Southwest announced to merge with AirTran.
Southwest Airlines strategic shortcomings that need to be addressed
It is apparent that the entrances by the competitors have significantly affected the potentials of company profits. It has lowered the prices, and in particular, the industry profits have been significantly lowered. Higher rates of profits and the stabilization of prices within their environment are the higher expectations in the industry. The industry, therefore, needs to address on the ways of tackling the rising competition in the industry to realize its continuous success. Firstly, to address on these shortcomings, the industry has to emphasize on various policies, for instance, the cancelation policy that enables the customers to decline a reservation up to about 30 minutes before the departure of the flight. Such policies would help the airline develop a high level of their brand loyalty. Moreover, Southwest Airlines would adequately address the shortcomings by improving on their reward programs for example offering of the points for buying flights which the customers will use to book their future flights.
Lauer, Chris. Southwest Airlines. Santa Barbara, Calif: Greenwood, 2010. Print.
Peoples, James H. Pricing Behavior and Non-Price Characteristics in the Airline Industry. Bingley [England: Emerald Group Pub. Ltd, 2012. Internet resource.
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