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In terms of passenger traffic, Southwest Airlines was one of the largest U.S. airlines in the globe. Unlike its competitors, the corporation steadily generated profits while navigating the 2008-09 recession, the September 11 attacks, and the oil problems. However, the carrier is facing some big issues, including the efficiency of legacy carriers in the United States and mergers involving US/American Airways, Northwest/Delta, and United/Continental Airways. Smaller firms such as Spirit, Alaska, and JetBlue are also threatening the company's low-fare strategy and cost advantage. The firm is also facing the challenge of managing the acquisition of AirTran that involves carefully integrating more than 8000 workforce and managing a fleet of different aircrafts from the one used by Southwest. Since the case was written, Southwest has not experienced new problems, with only stiff competition and cost-issues being their major worries.
The mergers among different airlines are threatening to derail the success of Southwest. Airlines enjoy economies of scale that lead to the reduction of costs, particularly lower prices from consumers. Southwest also faces stiff competition, with the merged airlines having access to new markets and other tourist destinations. The acquisition of AirTan is also likely to weaken or change Southwest’s culture that has successfully sailed them through the industry. If left unaddressed, these problems could be start of Southwest’s demise. The mergers in the industry could lead to increased efficiency and lower fares among its competitors, driving Southwest out of business. The industry will have no new entrants and services of these companies would not be easily substituted. In the event that the integration of AirTan is not well-managed, Southwest could lose or change its culture to one that may no longer be appealing to the market.
Mergers and acquisitions are often bad news for competitors. Firms are able to invest heavily on research and development with an aim of providing better services to consumers. Using the Porter’s Five Forces Model, the competitive power of Southwest can be determined. The model includes five forces that undeniably plays a in every industry and company. These forces include:
Competition in the industry
Due to increased mergers and acquisitions, Southwest has more worthy competitors that are able to offer similar products and services at a lower price. The competition in the industry is likely to threaten the position of the airline.
Potential new Entrants
The potential for new entrants in the airline industry is low due to significant capital and time required.
Power of Suppliers
Suppliers are quite powerful due to the unique nature of their products and services. Furthermore, switching costs are high.
Power of customers
Customers are powerful due to their large number and low switching costs
Threat of Substitutes
There are no substitutes to airline services hence the threat is low.
To manage its major problems, Southwest should analyze its competition, differentiate its services, maintain its existing customer base, increase its marketing, increase research and development and target new markets. Since the case was written, Southwest has taken steps to improve by getting innovative and targeting new customers in current and new markets. These strategies have seen the airline’s company base grow and its profits stabilize despite the harsh economic conditions.
If Southwest acts on the recommendations, it will penetrate new markets and hold the majority of the airline market share. Differentiation of products will provide consumers with a different experience that will make them repeat customers. Intense marketing will popularize the brand across the world while increased research and development will lead to new ways of reducing costs even further.
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