Southwest Porters Five Forces Essay

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EWMBA 299 – Competitive Strategy

Southwest Airlines

Introduction
The domestic US airline industry has been intensely competitive since it was deregulated in 1978. In a regulated environment, most of the cost increases were passed along to consumers under a fixed rate-of-return based pricing scheme. This allowed labor unions to acquire a lot of power and workers at the major incumbent carriers were overpaid. After deregulation, the incumbent carriers felt the most pain, and the floodgates had opened for newer more nimble carriers with lower cost structures to compete head-on with the established airlines. There were several bankruptcies followed by a wave of consolidation with the fittest carriers surviving and the rest being
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The minimum efficient scale was not very high since airlines could choose to compete in a few markets, and costs were more or less proportional to the number of flights offered and the number of markets the airline wanted to operate in. The main consideration for profitable entry seemed to be the ability of airlines to fill their airplanes above the breakeven point. In an industry fraught with price competition, brand identity and reputation did not have significant value either. In the airline industry, exit costs are not very high either. Planes could be easily redeployed to other markets, or sold off, and gates and landing rights could be sub-leased to other carriers.

Substitutes
There are a number of substitutes to air travel, especially over short distances. These include taking other modes of transportation such as driving, taking the train etc., or not traveling at all. The use of technology (like WebEx, NetMeeting, video-conferencing etc.) that facilitates remote virtual collaboration is becoming a good substitute for business air travel as well.

Supplier Power
The primary inputs to the airline industry include airplanes, labor and fuel. There are only two major manufacturers (three at the time of the case – Boeing, Airbus and McDonnell Douglas) for large commercial aircraft. This, along with the relationship specific

Sankar Ram Sundaresan

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EWMBA 299 – Competitive Strategy
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