Analyzing the Strategy of Southwest Airlines Company
Executive Summary
The paper discusses the strategic analysis of Southwest Airlines. The airline company is one of the dominant players in the American domestic industry. The discussion extends to macroeconomic analysis of the company using the Porters Five Forces, PESTEL and Value Chain Analysis. A conclusion based on Porter's generic strategy is provided on how it has supported the vision and the mission of the organization.
Introduction
Southwest Airlines Company is one of the largest domestic airlines in America serving clients particularly from the North-American region. Ever since it was established, the company has grown to own a fleet of airplanes that facilitate its cargo and passenger flights. Despite facing stiff competition from other established companies such as Delta Airlines, the company has continued to come up with innovative strategies to deal with competition. A strategic analysis of the company’s market position provides the opportunity to make recommendations of generic strategies that can be adopted by the company to enhance its competitive advantage. The paper will provide a strategic analysis of Southwest Airlines using Porters Five Forces, PESTEL and Value Chain Analysis.
Porter’s Five Forces Analysis
The five forces analysis provides an analysis of the existing competition in the industry and how the company can align its strategies to gain a competitive advantage. These forces affect the company in different magnitude even though the company can have an influence over certain factors in the market.
The threat of New Entrants
Southwest Airlines is a company that has been growing continuously and has been able to establish a brand in the market. The company is known for its low-cost strategy that allows the clients to access their services at affordable prices. Besides, the level of innovation in this industry only favors well-established companies in the industry. The threat of new entrants is minimal since substantial capital is required to enter into the airline industry. Besides, Southwest airlines have established a market and has gained confidence from their clients on issues to do with safety. In this case, there is an insignificant threat from new players to enter this market.
Threat of Substitutes
Southwest airlines provide transportation service which has numerous substitutes. Clients can choose to either use train, cars, buses, and ships. These substitutes come at a cost and convenience, and the final decision lies with the consumer. However, Southwest airline has brought convenience through its low costs services compared to other companies. As a result, customers continue to put much consideration into this company for their overall transportation needs. The threat of substitutes is not that intense due to affordable costs that have been realized through the low-cost strategy adopted by the company.
Bargaining Power of Buyers
The buyers determine the success of any company and how Southwest airlines has developed its products makes it attractive to clients. Individual and group buyers are two groups of buyers that influence purchasing decisions. The low-cost pricing of the company’s products is attractive to both sets of buyers. However, group buyers have limited or low bargaining power since Southwest airlines provide the best prices of air tickets, particularly to group travelers. Individual buyers have moderate bargaining power due to the attractive nature of the products offered by the company.
Bargaining Power of Suppliers
The main suppliers of Southwest airlines are the manufacturers of planes and organizations that offer training to their employees. The other suppliers are just partners who provide convenience services to facilitate the core business of the company. The manufacturers rely on companies such as southwest airlines to be able to sustain their business. They establish long-term contracts which ensure that their businesses thrive. The capital investment required for the suppliers is high which means that they have to bargain with airline operators to be able to engage in manufacturing. Suppliers have a low bargaining power since their operations depend on the success of airline companies such as Southwest.
Rivalry from Competitors
The competitive rivalry that exists in this industry is intense. There are numerous players in the market both local and international airlines. These rivals have established themselves and have gained a unique competitive edge against other rivals. There is intense competition locally from companies such as Delta, United and American airline. The intense competition means that the company has to develop strategies that would not only improve its brand but give it a competitive over rivals in the market. Besides, Southwest has to address the numerous challenges in the market to prevent rivals from getting a piece of its market share.
Pestel Analysis
The PESTEL analysis provides the macroeconomic factors that affect the operations of the company. Southwest airlines just like other companies are affected with market regulations that span from the political environment to the legal environment. The company must conform to these requirements to be able to operate in the market without many challenges.
Political Factors
There is limited interference from politics in the airline industry. The political climate in America is stable, and southwest airlines operate without any restriction. However, the company must comply with numerous provisions to avoid being at loggerheads with the political class. Besides, it must observe issues to do with safety in a bid to avoid any confrontation stemming from politics that could jeopardize the brand and the reputation of the company. The interference of the government in the affairs of the company is limited as long as it complies with all the government provisions. Southwest airlines have enjoyed success due to a stale political climate that has ensured that its operations are uninterrupted.
Economic Factors
The economic climate of America has been favorable in the last decade even though there have been challenges that have affected the operations of the company. The economic crisis affected the demand for airline services reducing the profit levels of the company. Inflation rates have been fairly stagnant which means that the company has not lost revenue because of inflation. The company does not suffer from fluctuating exchange rates as it operates in a local market. The government policies have favored local companies which means that the company has been able to reap big from favorable economic terms.
Social Factors
The societal culture in this environment has seen the citizens embracing air transport. The attitudes of the population towards convenience brought by air transport has established customer loyalty to Southwest airlines. Besides, the population has embraced leisure and adventure which means that they can take advantage of the low-cost flights provided by the company. The larger part of the American population is made up of literate people, and with the advancement of equality rights, all citizens can now access services without any discrimination. The social factors in this industry favor southwest airlines as it can operate without any limitation.
Technological Factors
Technology has disrupted the manner of doing business in the airline industry. The southwest airline has not been left behind when it comes to embracing technology. The company has embraced technology to improve safety in the industry. Besides, technology has been to lower costs making the services offered by the company affordable to its customers. Southwest has digitized its booking systems, routes taken and services available on board to improve efficiency in operations. Advanced technology is also used in security checks and facilitating connecting flights in the industry. Technology is transforming operations in this company and increased revenues in the last few years should be attributed to technology.
Environmental Factors
Southwest airlines operate in a market that is sensitive to environmental conservation. Different laws have been enacted aimed at forcing these companies to pursue strategies that conserve the environment. It is now a requirement that airline companies comply with the Clean Air Act and other state laws that protect the environment. The company has been at the forefront in promoting best practices such as redesigning crafts cabins to facilitate efficient disposal of wastes. Besides, the company contracted Pratt and Whitely to supply eco-power washing systems to ensure that planes are cleaned from the parking areas. The company is continuously looking for technologies that could help in environmental conservation.
Legal Factors
The legal environment can be considered to be favorable to southwest airlines. Despite engaging in a legal tussle with the Wright Amendment, the company has been able to implement other legal provisions to ease its operations. The elimination of the Wright amendment means that the company can now make more trips in the country. The other legal provisions on discrimination, health safety, employment, intellectual property, and anti-trust laws have been implemented fully by the company. The company is fortunate to operate in the market where legal provisions are clear and easy to implement.
Value Chain Analysis
The value chain analysis provides an analysis of internal activities that gives value to the organization. Southwest airlines have unique activities that have generated value to the overall operations of the company. These activities are geared towards making the company unique as well as lowering the cost of operation. The focus on these goals has seen the company coming up with primary and support activities. The company has enhanced its operations by creating warehouses that facilitate easy movement of goods as well as providing storage facilities to customer goods. Even though these facilities attract a cost, the costing is affordable as the key interest of the company is to enhance customer experience. The company has further harnessed technology to improve its marketing efforts. The advertisement conducted by the firm is based on the data collected from its website. The company targets marketing efforts to specific groups of customers. The data is used to identify a niche of customers who would make choices from the different products offered by the company. Besides, it is the same technology that has been used to revolutionize booking and security checking systems which have resulted in improved efficiency. The efficiency has increased the number of customers using the airlines.
The other area of the value chain is the focus of developing unique products and putting the customer first. The airline industry is more of a service industry, and the views of the clients should be put into consideration. In this regard, southwest airlines have trained their personnel to offer exceptional services to clients. The kind of training and recruitment undertaken by the company ensures that experienced and highly skilled employees with knowledge of customer service are employed by the company. The after sale services provided to clients in this company include linking them to companies that offer transport services to the airport. Besides, some of the client s get help in moving their belongings within the airport. The company further engages in procurement activities to replace old infrastructure with new infrastructure that would improve customer experience and quality of service. Southwest continues to develop the best practices that can be considered to be a benchmark in the industry. The decision to pursue a low-cost strategy to gain competitive advantage has made the airline unique and has established loyal customers throughout the history of the company. Besides, the company continues to be innovative in a bid to remain the preferred destination for both local and international clients who travel to America.
Generic Strategy
The mission and the vision statements of Southwest airlines have helped developed a generic strategy that the company continues to pursue. The low-cost strategy and focus on being unique is something that can be associated with the company. Southwest airline is pursuing strategies that can help to lower operational costs to make its products more affordable to the clients. Despite focusing on this strategy, the company is making its products unique to be attractive to the clients. The strategy has influenced the activities of the company which can be reflected in the value t is creating in the market. Southwest airlines have developed a competitive edge in the market through the quality of its products, focus on creating value for the consumer and close attention to safety in the industry.
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