Question

Industry and Competitive analysis: Southwest Airlines

History

Competitive analysis, porter five

financial analysis (recent)

Comfort analysis

business strategy

Performance

growth factor

key success analysis

profitability analysis with comparison with rivals; ROE, EPS, Net profit, Revenue

SWOT analysis

Fuel Hedging

Assets

Awards

Answer 1

Competative Analysis:

Southwest Airlines did fairly well as compared to competition. The 30 consecutive years of sustained profitability is a proof of this.

The airlines’ low turnaround in 2001 was at a competitive edge at 24 minutes-30 minutes faster than the entire industry. This turnaround time enabled Southwest’s aircrafts to fly more trips, and more trips meant more revenues.

How profits were targeted is also a major point of comparison with the competition. People Express, an imitator, though it grew rapidly, failed to meet its profit targets and were not able to cope up. Major airlines that came up with their low-cost brands also failed at this as they inherited management and cultural problems which their full-service airline faced.

Economically and socially, the customers to whom Southwest catered to were price-sensitive-mostly business and pleasure fliers and Southwest catered to them exceptionally well.

Southwest offered unique alternatives in response to competitors who clearly wanted to engage in price wars. Southwest did engage in price wars (e.g. with Braniff International with its $13 offer), but it competed not merely on the basis of price but also of value proposition (e.g. giving incentive in the form of gifts to customers who paid $26 instead of $13). These alternatives were embraced by Southwest passengers.

The things Southwest did not do proved to be one of their most significant key success factors. For instance, it did not adopt the hub-and-spoke route system (which almost every airline adopted)since it would be inconvenient for their passengers who preferred point-to-point flying.Their also refrained from connecting with other airlines, using interline baggage checking as these do not support their low-cost strategy, and implementing the conventional assignment of seatsto provide further convenience to passengers.

Internally, Southwest employees contribute to its competitive advantage as they are not merely employees, but employees satisfied with their job and have attitude.

Southwest Airlines Co. Porter Five (5) Forces Analysis for Services Industry

Threats of New Entrants

New entrants in Regional Airlines brings innovation, new ways of doing things and put pressure on Southwest Airlines Co. through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Southwest Airlines Co. has to manage all these challenges and build effective barriers to safeguard its competitive edge.

How Southwest Airlines Co. can tackle the Threats of New Entrants

• By innovating new products and services. New products not only brings new customers to the fold but also give old customer a reason to buy Southwest Airlines Co. ‘s products.
• By building economies of scale so that it can lower the fixed cost per unit.
• Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as Southwest Airlines Co. keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.

Bargaining Power of Suppliers

All most all the companies in the Regional Airlines industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins Southwest Airlines Co. can earn in the market. Powerful suppliers in Services sector use their negotiating power to extract higher prices from the firms in Regional Airlines field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Regional Airlines.

How Southwest Airlines Co. can tackle Bargaining Power of the Suppliers

• By building efficient supply chain with multiple suppliers.
• By experimenting with product designs using different materials so that if the prices go up of one raw material then company can shift to another.
• Developing dedicated suppliers whose business depends upon the firm. One of the lessons Southwest Airlines Co. can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Southwest Airlines Co. profitability in the long run. The smaller and more powerful the customer base is of Southwest Airlines Co. the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.

How Southwest Airlines Co. can tackle the Bargaining Power of Buyers

• By building a large base of customers. This will be helpful in two ways. It will reduce the bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its sales and production process.
• By rapidly innovating new products. Customers often seek discounts and offerings on established products so if Southwest Airlines Co. keep on coming up with new products then it can limit the bargaining power of buyers.
• New products will also reduce the defection of existing customers of Southwest Airlines Co. to its competitors.

Threats of Substitute Products or Services

When a new product or service meets a similar customer needs in different ways, industry profitability suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives. The threat of a substitute product or service is high if it offers a value proposition that is uniquely different from present offerings of the industry.

How Southwest Airlines Co. can tackle the Treat of Substitute Products / Services

• By being service oriented rather than just product oriented.
• By understanding the core need of the customer rather than what the customer is buying.
• By increasing the switching cost for the customers.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. Southwest Airlines Co. operates in a very competitive Regional Airlines industry. This competition does take toll on the overall long term profitability of the organization.

FINANCIAL ANALYSIS CAN'T BE COVERED. (Big Data) takes time two hours isn't possible to solve it.

Comfort analysis -   Southwest Airlines has grown from a small Texas carrier in 1971 to the nation’s fourth largest airline. It is important here to notify that the current section primary analysis the strategic management of Southwest Company before changes in leadership occurred. Before experiencing the leadership changes, southwest Airlines’ was very successful and competitive firm that rated on the top of five companies in USA Southwest clearly defines its existing purposes, which is to provide the lowest fares for business and leisure travelers traveling between states. Instead of competing with large-scale airlines to fly international routes, Southwest focuses on “point-to-point” interstate short trips, and more on maximizing the profitability than focusing on market share. This strong vision outweighs the allurement of international flight market, keeping Southwest airline concentrated on its own niche to gain profit.

Business startegy -  Southwest Airlines' business model is based on extremely efficient operations, low-cost pricing, and innovative logistics solutions. Furthermore, their strategy also includes a deep focus on customer experience and looking ahead. Finally, none of this would be possible without a motivated team of employees. Through this sound strategy, Southwest achieved multiple competitive advantages that have allowed it to stay relevant in a rapidly changing world.

profit analysis can be done if you complete financial analysis:

SWOT analysis for Southwest Airline

Strength, Weakness

Concentrating on the niche market

Cost-consciousness

Speed and Efficiency

High Service Quality

Flat Organization

Successful Internal Marketing

Successful External Marketing

Strong leadership (Herb Kelleher, Colleen Barrett)

Excellent relations with customers

Excellent relations with employees

Culture/Values/Spirit

Image of fun/excitement

Dependence on single aircraft supplier (Boeing)

Retirement of Herb Kelleher

The current Boeing 737 jets may not be enough to fly long-haul flights

Increasingly costs

Entertainment and food are two unavoidable issues for Southwest when it comes to long-haul flights and international flights.

Weak relations with labour unions

Leadership management and challenges

Opportunity ,Threats

Short-haul business traveller market is a potential market. Point-to-point trips between cities are a new niche in airline industry.

Few low-cost competitors that fly internationally (JetBlue, Virgin Atlantic)

Code-sharing with other airlines can save costs of expanding into this market by themselves

International destinations are desirable places to visit for leisure

The market segment to grow in the future

Uncertainty of economy – not so much money for holiday travels

High fuel costs (not a current issue, but perhaps in the future)

Other large-scale airlines could offer lower fares to compete with Southwest.

decline in customers’ need for affordable short-haul carriers.

Rise in ticket costs because of international airport taxes

Some threat of substitutes

Federal tax burdens (effect on price-conscious travellers)

Intense rivalry in industry

Concern about terrorism among travellers

Rewards and Pricing

Southwest Airlines also has one of the better rewards programs in the industry. Southwest gives points to customers. They can use the points to purchase future flights. It also has a partnership with Chase Bank and offers customers a Southwest credit card. The card allows them to accumulate Southwest Airlines points when making other purchases. Keeping customers engaged is a big competitive advantage for Southwest Airlines.

Besides motivated employees and great customer service, Southwest Airlines offers one of the lowest-priced solutions for air travel. Its pricing strategy offers extremely low prices compared to other large airlines, such as Delta and American Airlines. Southwest had to build its business model around low operating costs to be able to offer low prices. It only has a few aircraft types, which helps the airline reduce its costs. It also services smaller airports that don't charge as much for gate access. If a customer can find a lower-priced ticket, Southwest Airlines matches the price.

Fuel Hedging:

The Southwest Airlines example especially applies to how shippers would use Trucking Freight Futures, because in both cases the party would likely be covering a naturally short position. Southwest would buy crude oil contracts and take a long position in the futures market to hedge its naturally short position.

Imagine that Southwest bought West Texas Intermediate (WTI) at today’s price, $58.32/barrel, 12 months in advance. If the price of oil – and therefore jet fuel – went up over the course of that year, against airlines’ natural position, Southwest would be protected, paying a lower price than its competitors. If the price of oil and jet fuel went down, then Southwest might end up paying more than its competitors, but at least the airline would know what its costs were going to be ahead of time.

Assets:

Southwest Airlines total assets from 2006 to 2020. Total assets can be defined as the sum of all assets on a company's balance sheet.

• Southwest Airlines total assets for the quarter ending September 30, 2020 were $35.596B, a 34.97% increase year-over-year.
• Southwest Airlines total assets for 2019 were $25.895B, a 1.33% decline from 2018.
• Southwest Airlines total assets for 2018 were $26.243B, a 4.51% increase from 2017.
• Southwest Airlines total assets for 2017 were $25.11B, a 7.83% increase from 2016

AWARDS:

Southwest Airlines was recognized as:

• Best Airline North America,
• Best Airline United States,
• Best Economy North America, and
• Best Low Cost Airline North America