Air travel began in the early 1900s and scheduled flights started in the 1920s (Harris). In the early years, the airline industry competition was nonexistent. The competitive environment changed dramatically over the course of the last century specifically when the industry underwent regulation and then deregulation. The future success of the airline industry depends on the ability to adapt with rapidly changing industry environmental factors.
Southwest Airlines business opened for operations in 1971, after Rollin King and Herb Kelleher raised enough capital to finance their plan. Their service model broke off from the typical large airline policies and procedures. The typical model had an airline that was “home based” from a hub and ran routes to and from that location. This model added cost that Southwest wanted to avoid, causing them to implement point-to-point flights. The leadership team also made decisions to eliminate the inflight meal options to reduce overhead costs. Customer service and the overall experience of their customers became the valued operating vision and mission for Southwest. Eventually utilizing technology for online booking to the fullest potential saved precious time and gained efficiencies. Though the company started strong and grew slowly, several elements affected the long-term success of the company. Some of the factors that caused Southwest to reevaluate organic growth processes included not operating out of key United States hubs, the rise in fuel costs, and troubled contract negotiations.
Five Forces Analysis
Threat of new entrants
According to the Bureau of Transportation Statistics, the average price of an airline ticket was $355.72 during the first quarter of 2011. The average ticket price was $301.39 during the same quarter in 2005, before the US Airways/America West and Delta/Northwest mergers. (Chengery, 2012)
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute
Porter’s Five Forces analysis central concept of industry rivalry highlights product differentiation and diversity of competitors. This concept applies to the airline industry turmoil experienced due to the customer’s voice wanting the lowest cost possible. “Creative strategies can change the structure of the competitive game.” (Grant, 2010) Each airline struggles to offer consumers something the other competition cannot and offer those services while also producing a profit.
Intensity of rivalry among competitors
Deregulation in 1978 of the airline industry made it possible for new entrants to establish businesses, but left the industry volatile. Mergers and acquisitions with in the industry eventually created The Hub-and-Spoke System, which allowed the airlines to attempt to maximize their profitability potential (Harris). Southwest decided against using this type of model, and instead chose to use the lower cost option of point-to-point. Their goal of efficiency led to the crew being...