[Author’s name]
Threats and Opportunities for Southwest Airlines
Airlines industry is a tough one. While it is very hard to enter it, surviving could also be problematic. The most annoying thing for managers must be that not always everything depends on the management – external environment dictates the conditions of the industry and the best thing the companies can do is to adapt. Due to increasing prices for fuel and intense competition (with price competitions as the main tool), the careers operate on very low margins; all the economic shocks are particularly harmful for the industry. There is a significant upside, though: there is barely a substitution for air travel, at least so far.
Southwest Airlines do very well, given how uneasy the industry is. The company has been showing profits for 40 years in a row (Southwest Airlines, 2013), surviving crises and leaps in the prices for fuel. The aim of this work is to analyze the external environment and to see what threats the company is facing and what opportunities it can exploit at the moment.
THREATS
- Competition within industry. It is true that the companies cannot lower the prices anymore. The services are more or less homogeneous, too. Competitive advantage, however, can be derived from leadership on the particular routs/destinations. The main mode for gaining market share in the industry is consolidation, and Southwest Airlines need to respond to the attempts of competitors by creating new destinations.
- Competition from outside. With cost of fuel, and, accordingly, prices for plane tickets rising, train traveling can emerge as a substitute for at least short-distance flights. As it is pretty much out of control of the company, the best response would be organize as many as possible flights on linger distances and, possibly, to introduce international or “near-international” routs.
- Environmental regulations. Even though nothing has been introduced so far, it is not unlikely at all to happen in future. Even though Obama abstained from both introduction of the carbon tax in the U.S. and agreeing on the EU airline carbon tax, his reign is not eternal, and, with growing environmental concerns, one can be pretty sure that sooner or later something will be introduced.
- Fuel prices and economic downturns. Another industry-wide threat comes from the vulnerability to the economic situation in general: any increase in fuel prices would return to customers; the industry also depends on customers’ income. One of the responses may be hedging against these scenarios by investing in corresponding financial instruments.
- Terrorist attacks and other contingencies. The last thing the industry needs at the moment is, of course, another terrorist attack. Catastrophes involving planes could be harmful, too, however, with recent progress in safety this threat is not that significant.
OPPORTUNITIES
- Expansion. Acquisition of AirTran in 2011 allows the company diversify its routes significantly, expanding into new markets such as Baltimore and Boston and, also, to start operating on near-international destinations – Caribbean and some parts of Mexico (Hawkins, Misra and Tand, 2012). This would also secure the company against some of the threats mentioned above.
- Fuel technologies. With the fuel prices going up, the need for developing cheaper fuel is more and more palpable. Not only would biofuel decrease the operating costs, but it also will diminish the volumes of carbon emissions, which is great for the whole industry.
- Other technologies. Technological progress is rapid, so why not to incorporate in the airline industry? The contract with Row-44, the provider of in-flight Internet access, who, in turn, has an agreement with NFL and MLB, would allow passengers to watch football and baseball games while on board (Los Angeles Times, 2012).
Given how strongly the airline industry depends on external factors (which at
moment are not too friendly), there is nothing surprising that there are more threats than opportunities for the Southwest Airline. However, I consider expansion to be the key opportunity that would outweigh the threats altogether and help the company maintain the leading position on the market.
References:
Hawkins, O., Misra, H., & Tang H. (2012). Southwest Airlines Co. Retrieved from: http://economics- files.pomona.edu/jlikens/SeniorSeminars/Likens2012/reports/Southwest.pdf
Martin, H. (2012). Southwest Airlines to offer football, baseball games via Wi-Fi. Los Angeles Times, February 5th. Retrieved from: http://articles.latimes.com/2012/feb/05/business/la-fi-mo-southwest-wi-fi-20120203
Southwest Airlines Co. (2013), 2012 Annual Report to Shareholders. Retrieved from: http://southwest.investorroom.com/download/2012+Annual+Report.PDF
