Southwest Airlines - External Environment Analysis Essay - 1

Southwest Airlines - External Environment Analysis - Essay Example This paper will look at the Five Force Model affecting the degree of competition as developed by Michael Porter and discuss the effect of each factor on the airline industry. We will also conduct a PEST analysis for Southwest Airlines as part of the airline industry. The Porter Five-Force Model Michael Porter put forth his Five Force Model in his groundbreaking work ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’ back in 1980. In the decades that followed, he has further explored the global business arena in terms of competition, the value chain, the competitive advantage of nations and even how to create and sustain superior performance in business. Porter maintains that the five forces that affect the level of competition among firms in an industry are (1) barriers to entry and exit; (2) threat of substitutes; (3) bargaining power of buyers; (4) power of suppliers and (5) existing rivalry between firms. In the same work, Porter has also anal yzed industries as falling into one of the following five groups: (a) Fragmented; (b) Emerging; (c) Mature; (d) Declining and (e) Global (Porter, 1980). In fact, Porter’s analysis serves as a good theoretical tool to supplement a firm’s PEST analysis, which we shall now conduct for the airline industry in general and Southwest Airlines in particular. Sources-barriers to entry and exit: The high cost of entry and exit in the airline industry globally include investment in equipment, infrastructure, buildings and facilities, an experienced workforce and aircraft maintenance and inspection, insurance, safety and security features. The high cost of aircraft and fuel is also affecting airline sustainability and the bottom line (Southwest website, 2012). Sources-threat of substitutes: Alternative choices for air passengers would include fast trains, buses, automobiles and even ferry services. However, nothing beats the convenience of an airplane. Terrorist threats, luggage r estrictions and safety and security checks can also scare passenger away (Porter, 1980). Sources-bargaining power of buyers: With the Passenger Protection Act in place to safeguard customers against price hikes, and insurance, safety and security measures that must be maintained at all times, and discount prices that are eagerly picked up by bargaining customers, this puts the buyers in the driving seat on many counts (David, 2011). Club memberships and frequent flyer miles may be offered to regular passengers to help retain their loyalty, and there are often possibilities of an upgrade to a higher class if seating is available.   Sources-power of suppliers: McDonnell Douglas and Airbus Industries are two of the most well-recognized aircraft manufacturing firms having a global recognition and reputation. Both of these firms take most of the world’s orders but there are also a number of smaller firms that make smaller and lighter aircraft for other purposes.