External Environment Analysis Case2
Executive Summary
Southwest Airline has been able to succeed in a very competitive environment in several aspects. With the huge number of competitors and small differentiation of the services issued, clients have few choices when selecting a flight and small switching costs related to selecting a varied airline. The company does not have several landing locations as its rivals; its direct technique attracts clients who search to arrive at their destination at the right time with limited costing.
Southwest has varied choices in the hard period it is facing. This is basically on the basis of the stringent concepts and a rigid business technique. The recommendation is with no affliction on the strategy applied, the airline should keep into consideration the operation of the airline and the advancement and growth of the important cultural aspects the company inputs in its staff. In the future, this paper looks at the technique mode that the company applies for growth. The choices
Introduction
This is a business report that is organized at the request of the board of directors and CEO as the Southwest Airlines Company consultant. This report would be useful to handle certain options at the turbulent time in the airline industry. The analysis would involve analytical tools like the five porter’s forces, the PEST analysis and SWOT analysis.
External Analysis
Externally, the airline is hard to compete. The porter’s Five Forces Analysis shows the threat those new competitors face is medium, the suppliers and buyers are strong, the level of competition is high and the threat is medium (Fuller, 2010). The suppliers are small in size but are quite vital to the airline. The buyers have limited switching costs and have several choices when selecting an airline. The price is quite vital when a client buys. The competition is high as there are several competitors in the market. These forces add onto each other making it hard for the competitors to be recognized, however it does not retain the new comers from making it hard in some areas. A good strategy would lead to success.
Porters Five Forces
These forces of the industry shows that it is hard to compete in. a limited threat of new comers, high level of purchaser’s ability, high level of supplier strength, medium threat of substitutes and high level of competition leading to high level of competition.
There is high threat of competition, several strong competition issues the same goods covering the similar paths (Porter’s Five Forces, 2007). There are about 28,000 business flights every day, making the market flooded. The airline is left to contend on the basis of price and time of the flights. The airline has to acquire clients from the competitors.
Considering the threat of new entrants, it is low. The airline costs are high; the fixed costs hinder easy entry into the airline. The massive fixed costs leads in economies of scale as the fixed costs have to be spread to several units to limit per-unit charges. It involves a lot of time to meet a trustworthy and network which attracts clients.
The capability of the buyers is quite high. Several airlines issue similar products leading to small differentiation. The clients meet small switching costs and in most instances select flights on the basis of time and price. There is similarly the threat of backwards integration as well as a high cost and quality sensitivity.
The threat of substitution is medium. In limited distances, there is the threat of substitution which is high due to the varied choices; several of them are cheap and convenient. In greater distances, the planes are cheap and quick for transit leading to limited choices. The major substitutes involve vehicles, trains and ships.
The ability of the suppliers is quite high. There are four known manufacturers of the planes; airbus, Bombardier and Embraer. The Southwest airline reduces their ability using Boeing 737. The switching costs are considerable as the training and parts are precise to a form of plane. The airplanes are necessary in Southwest’s business.
Southwest Airline PEST Analysis
The environment is a formation of an industry. For the purpose of survival, its standpoint, resources, problems as well as chances are created and conditioned by its environment. This is hence necessary for an industry to observe the much needed transformation occurring in its environment and create policies to adapt to these transformations.
The holistic environmental aspect of the airline is explained to be as a sense of competition. The rivalry between competitors was quite intense that two rivals combined to bring about the fall of the Southwest Airlines prior to its start of operation (PEST analysis, 2009). After not hindering the operations, the competitors started to place hindrances in all the processes taken by Southwest Airlines.
Political Analysis
In rigid governments, the political tendency is necessary for the operation of every industry. The state of government assists the business to power the competition of the business sector using fiscal and monetary elements. The political backing helps in the search of markets, the lack of it leads to difficulty. The Southwest applied the Airline Deregulation Act set up by the US congress in 1978. The law allows inter-state flights; it however faced difficulty by the political aspect which later went to its favor. The government has been helpful incase airlines face adverse situations; it assisted 2 big airlines in the event of their financial woos.
Economic Analysis
The moment when the economic situations of Southwest Airlines are not that good, the airline is highly vulnerable; competitors are able to take advantage of its state for their success, the supplier power to the airline is lost; it brings about the ability of new entrants to the industry, the government support drops. As for the case of the airlines which have a discount, they are able to acquire earnings. Persons on the other hand search for affordable travel choices.
Social Analysis
The airline has had the norm that it takes travellers to their favorable destinations. This has been and will forever be in the coming time. Moreover, with the relatively high number of Spanish speaker living and staying in the US, there is an added need to have two languages being spoken.
Technological Analysis
Technology has brought about advanced methods of ticketing travellers; the e-ticking system and the self-checking machine. Technology has similarly made it possible for individuals to make comparisons of suitable prices.
Conclusion
Southwest Airlines is placed at a good location when compared to the other airline industry. It has undergone an economic drop leading to a strain in the airline’s client base; this has brought about a decline in the revenue and drop in confidence in the coming time. The drop in disposable gain has a meaning that individuals are not likely to fly and the latest sales numbers have revealed this drop. In this environment, it is significant that the Southwest Company goes on to be keen in keeping its cost low while attending to their triple bottom line, which will help in maintaining several clients. On the other hand, this is an opportunity to apply its ability on the balance sheet as a way to add on its strength and no limited risk.
Bibliography
Fuller, M. (2010). Strategic Analysis of Southwest Airlines. Saint Francis: BSAD.
PEST analysis. (2009). Retrieved on August 15, 2011 from: http://www.valuebasedmanagement.net/methods_PEST_analysis.html
Porter’s Five Forces: A model for industry analysis. (2007). Retrieved on August 15, 2011 from: http://www.quickmba.com/strategy/porter.shtml
