1. Discuss Porter’s Five Forces of industry competition, with relation to the entry of Southwest Airline in the airline market. The Porter’s Five Forces are as followed:
The rivalry factors that could influence Southwest include high fixed costs, excess capacity, low differentiation, and price war. Fixed costs in the industry mean the costs of planes, fuel, pilots, flight attendants, and additional staff for luggage and customer service. All of these factors need to meet governmental regulations. Further, the company had to hire professional employees in this industry and cost the company a lot of money. In order to recover these costs, airlines are willing to maximize capacity of each flight through increasing revenue passenger mile. Threat of new entrants:
New entrants, the other airlines companies, are possible to influence the economies of scales of the airlines industry. However, entering an airline industry need to spend a lot of money and time. For instance, they need to limited gate spaces, spend high capital cost, and computer system costs. As Southwest had already become the first model of the short-haul flight industry, it is difficult to other airlines to accomplish this goal. Substitution:
Substitution to air industry includes car, buses, trains and trips. The most possible substitutions are vehicles and coaches; however, flights are much more convenient than these terms of transportation. The reasons are flights can directly fly to the destination, and it will save time and energy.
Supplier Bargaining Power:
Southwest only contracts with Boeing Company. So, Boeing can be considered its only one manufactory. So, the Southwest strongly relies on Boeing. The employees’ bargaining power is low because other pilots are readily available. Buyer Bargaining Power:
The customers are willing to compare the ticket costs of Southwest with other airlines. Southwest always uses the low-cost strategy, so it has many buyers. The...
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