Skywest

Rising fuel prices has a huge impact on the airline industry. In an article published by the New York Times in 2007, oil prices were hovering ‘near $100 a barrel’ which caused the International Air Transport Association (IATA) to ‘slash’ their predicted profits for 2008 from ‘$7.8 billion to $5 billion’ (Clark, 2007). In 2008 high fuel prices were ‘dominant factor’ in the losses that faced the industry, and continued to same effect in 2009 (Dunn, 2009). Diagram 2 shows how fuel price has increased and fallen over the last 5 years.

In my opinion the most important challenges that the airline industry has to deal with are the volatility caused by air plane accidents or terror attacks, the economic crisis and the competition from low cost airlines. Firstly , some terror attacks could have a significant decrease in the demand for air trips. For example after the attacks of the September 11,2001 the flights in U.S.A. were decreased more than 20 percent and despite this, most of the planes travelled with half of their passengers capacity ( Raymond et al., 2003, p.178). Secondly, the world economic crisis has forced the companies to adjust the cost of fares , therefore and their earnings. Finally the low cost airlines had managed

Another barrier the new entrances have to confront is the high capital requirement. The airline industry is tremendously capital intensive.

As major airlines go bankrupt, opportunities to take over the flights and collect on that revenue that was going to the majors can be realized for Sky West. It can go global. External threats include rising fuel costs, and limited domestic opportunities.

The report finds that Delta Airlines has successfully emerged from its bankruptcy in 2005 to report successful returns in both 2007 and 2008. With its 2008 acquisition of Northwest Airlines Delta became the world's largest airline, further improving its position in the airline industry. Despite this current positive position report also finds potential adversities

Southwest Airlines Co. began its operations in 1971 and has been serving the industry for the past 43 years now (Southwest Airlines, n.d.). It is the major domestic airline, and ranked number one in 2014 by the Bureau of Transportation Statistics (United States Department of Transportation, 2014). Back in 1971 the airline began its services in Texas in the cities of Houston, San Antonio, and Dallas. The company has been ranked as the nation's largest low cost carrier (Mergent, 2012). It offers the lowest fares, and has the lowest cost structure in the industry.

Every entrepreneur would have once in for a while had tumbled upon the success story of ‘The Southwest Airlines’. The founder, Herb Kelleher in one of his interviews to CNBC mentions that there were key moments in the history of the airline where things could have gone horribly wrong, but he came up with out-of-the-box solutions that not only saved his business, but made it thrive.

Prior to those events, the industry was already facing challenges due to a weak economy. Fuel cost had risen sharply, and had therefore increased the operational cost of Delta and the airline industry on a whole. Consequently, long distance travel has significantly decreased since September, 11th. Companies started changing the way they do business. Instead of face to face meeting, companies either chose to conduct their business through video conferencing and/or teleconferencing. Another reason why business travel experienced a reduction was because of lower travel budgets of companies. In fact, with the lower travel budgets, companies had to find cheaper means of flying. Companies that chose to fly to transact their business were more often choosing discounted airfares and use of the internet to find low cost flights. Thus, as travelers chose discounted airlines for business travel, smaller carriers such as Jet Blue, Southwest, and Air Tran were all striving at the expense of Delta and the other major airline companies. The September 11th, 2001, terrorist attacks and threat of further terrorist attacks caused a decline in vacation travel. In the years after September 11th, the Iraq war and health concerns such as SARS and the avian flu, were additional reasons for the decline in vacation travel. This accumulated drop in demand for travel, both business and personal, pushed some airlines closer to chapter 11 bankruptcies.

Each year, airline companies (such as Delta and Northwest in 2006) are declaring bankruptcy leaving more cities existing allowing more airlines to fly to

1. Fuel Companies – Fuel is one of the airline industry’s largest variable costs (on average 40% of their budget). Aside from hedging or put and call options, which can backfire, airlines are at the mercy of fuel companies and have very little bargaining power (Hargreaves, 2012).

When thinking about airline companies, most people naturally gravitate to the big name carriers of current times. Delta, American, United, and Southwest usually top the list of companies that come to mind when discussing airline companies. Throughout history, however, a multitude of airlines have operated in the United States and abroad. Some of these merged or were bought by other companies forming the mega airlines we see today. Others were not so fortunate. The airline industry is a complicated business with high costs and narrow profit margins. Many airlines have simply succumbed to these challenges unable to turn a profit. One of these companies, most people have

Bankruptcy is the new solvency for America’s legacy carriers in the past five years. Deregulation, terrorist events from September 9, 2011, and the recent recession are likely culprits but inefficient business practices share in the blame. The growth of low cost carriers helped to push airlines such as Delta and United to file for bankruptcy and enter mergers with other floundering legacy carriers. The latest bankruptcy announcement comes from American Airlines, the last of the legacy carriers to file for Chapter 11 protection (De La Merced, 2011). Heavy debt, inefficient aircraft, and high labor costs are forcing American Airlines to restructure just to compete. Profitable airlines are increasingly dependent on consumer fees, fewer routes, and sold out planes to maintain a positive cash flow.

The airline industry is currently unprofitable; it lost $9.4 billion in 2009 and is forecasted to lose another $2.8 billion in 2010. Analysts agree that, if done properly, merging two airlines into one can reduce capacity in a saturated industry that already has too many planes in the air, and permit the newly merged carrier to cut its employee ranks and consolidate costly operations for services like reservations and gate maintenance. If profits return, the airlines could invest them into improving customer service and possibly waiving fees for baggage and in-flight meals that have frustrated travelers. However, the key words are “if done properly.” Past experience of airlines has shown that consolidation has not always fostered higher prices and profits (Knowledge@Wharton, 2010). For example, in 1987 USAir acquired Piedmont Aviation for $1.6 billion. Prior to the merger, these two comparably-sized firms were among the most profitable carriers in the industry. However, soon after the merger USAir became the least profitable airline and almost went bankrupt. Analysts conclude that the major source of the value destruction in the merger was USAir’s workforce integration strategy. The decision to win labor peace by expending USAir’s more generous work rules and pay scales to

After the Deregulation Act of 1978 in the United States, the airline industry was forced to adapt to the rapidly changing environment (Goetz & Vowles, 2009). At the time, the nominally regulated air transporting environment permitted the airlines to begin services on any desired route, giving them a great deal of liberty in the market. Although things were going well for those involved in the aviation industry, several factors began to have a negative impact on the industry. For instance, as the competition started to escalate, airlines began to take a competitive stance against one another, fighting for their share of the market. Moreover, the World Trade Center tragedy in 2001 had an adverse impact on the entire airline industry (Coy, 2005). Adding to the predicament, the recent financial crisis of 2008 and the current inflation in fuel prices have caused the US airline industry to regroup the fleet formation, making it the most competitive airline industry in the world (Ryerson & Kim, 2014). The whole airline industry now found itself struggling to survive.

There have been few inventions to change how people live and experience the world considerably as the creation of the airplane. Today, traveling by air has become the norm and it would be difficult to imagine life without it. Air travel has improved the way people are able to conduct business by shortening travel time and changing their thought of distance. The companies within the airline industry exist in a very competitive market. One of those companies, Southwest Airlines, features low-fare, no-frills air service with frequent flights of mostly short routes. Costs are kept down by the exclusive use of Boeing 737 aircraft, which allows for low maintenance costs and quicker turnaround times for flights, and by an emphasis on ticketless travel (Encyclopedia Britannica). This paper will address two segments of the general environment and how they affect Southwest and the airline industry; evaluate how Southwest has addressed two forces of competition; predict what Southwest might do to improve its ability to addresses these forces; assess the external threats affecting Southwest; discuss Southwest’s greatest strengths and most significant weaknesses; determine Southwest’s resources, capabilities, and core competencies; and analyze their value chain.