Michael Porter’s ideology of The Five Forces Model is the framework for the modern thinking about competition and strategy (Magretta, 2010).
The five forces that any company needs to address in any industry are, The Threat of Entrants, The Bargaining Power of Buyers, Threats of Substitutions, The Bargaining Power of Supplier, and The Intensity of Competitive Rivalry. The forces are interrelated in such a way that if implemented accordingly can bring about the ultimate success of a company. When a company or corporation can look at each of these forces, and address each of these forces with clarity and honesty they will obtain the competitive advantage within their industry.
The airline industry has struggled since 9/11, for various reasons and most airlines have felt the financial impact. However, Southwest Airlines continue to be an industry leader because of their strategic planning that includes Porter’s Five Forces Model. Their success is evident based on their net profit of 459.00 million during the fiscal year 2010, compared to for example, American Airlines which only had a net profit of 143.00 million in the fiscal year 2010 (NewsyStocks, 2010).
Southwest Airline can attribute its success to their simple, yet very effective value proposition: point-to-point short travel routes, with quick turn-around time, at the lowest possible cost and a value chain that includes activities to fulfill their proposition (Southwest, 2012).
The Term Paper on Analysis And Recommendations For The Airline Industry
The United States airline Industry is a complex business that is affected by many internal and external factors. The successes and failures of this industry are constantly fluctuating over time. While deregulation brought great triumph and positive change, the tragedy of 9/11 was the initial factor leading to the downward spiral of failure that the current airlines face today (Siddiqi, 2009). ...
While the industry focused on long and short travel Southwest focused on point to point and quick turn-around, when the industry was wanting higher costs, dealing with agents and ticket offices Southwest was providing low cost reservations (Southwest, 2012).
The simple strategy was what set them apart from their competitors, and over the years they have been able to develop and adjust their strategy which has allowed the company to gain a sustainable competitive advantage. Southwest Airlines recognized their true mission: get Five Forces 2
individuals from one point to the next, in the quickest time, costing the least amount of money (Southwest, 2010).
They dedicate themselves to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride and company spirit (Southwest, 2010).
They have not strayed from that mission to earn a profit; it was not steering away from that mission that has set them apart from their competitors.
Southwest Airlines to remain the company they are today, must continuously evaluate the Five Forces. The Threat for New Entrants appears to be minimal since the strongest barrier is the capital needed to break in to the industry. However, there still is always the threat of more low cost, high volume airlines. Southwest Airlines uses the Boeing jet and thus the bargaining powers of the suppliers, is strong (Southwest, 2012).
The only other supplier is the Airbus, thus they have the power and control over the price which in the airline industry is very expensive and these two suppliers drive the industry cost. The airlines customer Bargaining Power is divided between the business traveler and the leisure traveler.
The Essay on Financial Strategy For The Southwest Airlines
Southwest Airlines was instituted in 1967, initially as Air Southwest by Rollin King and Herb Kelleher and assumed the present name in 1971. It has grown from a small airline to one of the prevalent in the industry in the US as well as in the world. It is considered the leading low-fare carrier in America. Additionally, it is also a major carrier for domestic flights. Ever since its inception, the ...
Therefore, depending on which segment you analyze one is more price sensitive – the leisure traveler while the business traveler is not (Magretta, 2010).
There have always been threats of substitution within the airline industry. There is the automobile, train and bus to get individuals from one point to another. However, today the industry must consider the newest substitution threat, telecommunications. The capability now to email or tele-conference has limited the business traveler and thus airlines have been losing that revenue of the price insensitive buyer. Finally, the Intensity of Competitive Rivalry which over the last decade has become intense to say the least. The high fixed costs, the price wars and the availability on the internet drives such rivalry. Five Forces 3
Southwest Airlines strategy of “keeping it simple and keeping it cheap”, and their devotion to their employees, has set them apart from the rest. The company encompasses what Michael Porter was stating all along, “Aim to be unique, not the best” (Magretta, 2010) and Southwest has clearly embraced that strategy. As long as Southwest continues to follow their value proposition and continues to offer what they promise to customers they will remain unique and continue their success story.
References
Magretta, J. (2012).
Understanding Michael Porter: The Essential Guide to Competition and Strategy. Boston, MA: Harvard Business Review Press. AMR Corporation –Q4FY2010 Earnings. (2011).
Retrieved on June 18, 2012 from http://newsystocks.com About Southwest Airlines (2012).
Retrieved on June 17, 2012 from http://www.southwest.com/html/about-southwest/index.html
