Southwest Airlines Porter's Five Forces

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Facts

Strategic Issue Southwest Airlines strategic issues stem around trying to figure out how to lower costs and raise revenue in order to stay competitive and how to expand in a way that creates the strongest company. Rising fuel prices led to some of the costs. After a nice drop in jet fuel prices in 2009, the price began to rapidly rise again over the next two years. Above all is the increasing costs associated with rising wages.
For a little over a decade Southwest has been fighting rising wages. Since Southwest is no longer a small airline employees have been demanding the higher wage and lower hours that employees at other airlines have become accustomed to. Breakdowns between management and labor unions have led to employees
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After a drop in fuel prices in 2009 the cost of fuel has drastically increased. While there is nothing they can do about the cost of fuel, they can look to exchange older plane and planes used on longer routes with new more fuel efficient plans. Another thing they can do is try to pick their routes based on revenue and fuel consumption. While this is not the only thing they need to worry about when picking their routes, it should definitely be a big part of their consideration.
Porters Five Forces
Threat of new entrants The threat of new entrants is currently low. Starting an airline takes a substantial amount of money, so even in good economic times the threat is low. But, now the threat is very low. Banks and people are weary about loaning money for anything especially the amount that is required for a new airline. Within the past few years several airlines have gone bankrupt or been acquired. For new entrants this doesn’t look very enticing.
Threat of substitute services The threat of substitutes is moderate. Since Southwest Airlines is only a domestic airline all of it flights are in competition with cars, buses, and trains. Depending on the ticket prices, fuel costs and the time allotted to get to the destination any of these means of transportation could be considered the best route to go for a customer. The shorter the route the more threat the airlines seem to
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I don’t see this changing. They are used to that plane so they are the most efficient with it. The downside is that fuel prices are going to rise and using the same plane means the fuel efficiency stays the same. The Bags Fly Free motto is great and should be kept. It has helped differentiate them from other carriers. However, this means new revenue has to come from somewhere else. While the added charge of $40 for the first 15 passengers per flight is creating more revenue it is also angering customers who feel they are paying more for the same service as other passengers. Staying domestic is safer. It’s what southwest knows and they have been fairly successful at it but it does cut down on adding new routes and customers. New routes can be added in the U.S. through acquisitions but they are costly and history has shown acquisitions have a high chance to failure. Staying domestic severely limits their growth unless they are able to create a strategy good enough to take the bulk of the domestic share.

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