five force analysis of Southwest Airline
Porter’s five forces framework
1. The threat of new entrants.
In terms of economies of scale, Southwest fleet grew to 537 Boeing 737 aircraft providing service to 64 cities in 32 states throughout the United States, with 397 city pairs being served nonstop, by the end of 2008, thus has reached sufficient economies of scale.
And Southwest Airline gains its cost advantage through the implementation of “low-cost strategy”. It not only flew planes point-to-point—short-haul flights bypassing the expensive hub-and-spoke operations but also chose less popular, less congested airports to achieve quicker turnarounds which enabled the airline to operate with fewer planes and gate facilities than would otherwise have been necessary. Cost consciousness has been a part of its culture.Training people for technical skills is possible but imitating SWA culture is out of question.
The high initial investments and fixed costs to enter the airline industry makes it difficult to compete financially with profitable Southwest for entrants. When compared with key competitor, Southwest Airline got the largest net income(TTM) and EPS(TTM) in 2009(Exhibit 5).
Since Southwest Airline was the first major airline to introduce ticketless travel and one of the first to put up a Web site and offer online booking, it has won the high product differentiation. As a pioneer of “low-cost strategy”, SWA has set up its reputation and won a large number of loyal customers.
However, SWA has no special control over distribution channels. On the other hand, since the publication of in 1978, there is low barrier to set up airline company in the US.
2.The threat of substitutes.
Southwest Airline focuses on the short-haul flight, so customers are likely to switch to other transportation means, such as train. And the low-cost airline has been a emerging industry. There are more choices for customer which posts high threat for SWA.
To reduce the threat, Southwest provides low price or
1. The threat of new entrants.
In terms of economies of scale, Southwest fleet grew to 537 Boeing 737 aircraft providing service to 64 cities in 32 states throughout the United States, with 397 city pairs being served nonstop, by the end of 2008, thus has reached sufficient economies of scale.
And Southwest Airline gains its cost advantage through the implementation of “low-cost strategy”. It not only flew planes point-to-point—short-haul flights bypassing the expensive hub-and-spoke operations but also chose less popular, less congested airports to achieve quicker turnarounds which enabled the airline to operate with fewer planes and gate facilities than would otherwise have been necessary. Cost consciousness has been a part of its culture.Training people for technical skills is possible but imitating SWA culture is out of question.
The high initial investments and fixed costs to enter the airline industry makes it difficult to compete financially with profitable Southwest for entrants. When compared with key competitor, Southwest Airline got the largest net income(TTM) and EPS(TTM) in 2009(Exhibit 5).
Since Southwest Airline was the first major airline to introduce ticketless travel and one of the first to put up a Web site and offer online booking, it has won the high product differentiation. As a pioneer of “low-cost strategy”, SWA has set up its reputation and won a large number of loyal customers.
However, SWA has no special control over distribution channels. On the other hand, since the publication of in 1978, there is low barrier to set up airline company in the US.
2.The threat of substitutes.
Southwest Airline focuses on the short-haul flight, so customers are likely to switch to other transportation means, such as train. And the low-cost airline has been a emerging industry. There are more choices for customer which posts high threat for SWA.
To reduce the threat, Southwest provides low price or