Southwest Airlines
Case Analysis “Southwest Airlines 2008”
Valerie Deneen
The University of Iowa
Case Analysis “Soutwesth Airlines 2008”
U.S. Airline Industry Overview
Ever since the Wright brothers successfully flown the first airplane in 1903, air travel had become one of the most popular means of long distance travel. From 1937 to 1978, air transportation was part of public utilities and was regulated by the federal Civil Aeronautics Board in the U.S. Airfares, routes, schedules, and number of airlines, were all regulated; airlines were guaranteed to have a reasonable return of investment. It was an attractive industry because of the high return and few competitors. In 1978, the Airline Deregulation Act was passed and signed by President Carter. The deregulation would allow the airline industry to operate under market forces.
Attractiveness of U.S. Airline Industry
Michael Porter (1979) argued that the attractiveness of an industry is determined by five basic forces, “The nature and degree of competition in an industry hinge on five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services (where applicable), and the jockeying among current contestants.”
Before deregulation, the barriers of entry to the airline industry were very high. The airline industry was operating as public utility, any new airlines entering the industry must be approved by the U.S. government, and bureaucracy made it very difficult to enter. Deregulation lowered the barriers of entry for the airline industry. The threat of new entrants becomes a high force for the airline industry.
The bargaining power of customers is very strong in the airline industry since there is little differentiation between one airline and another besides the ticket fare. Consumer loyal is low because they can easily compare and choose from different airlines on the internet.
Fuel, engines and employees are the important
Valerie Deneen
The University of Iowa
Case Analysis “Soutwesth Airlines 2008”
U.S. Airline Industry Overview
Ever since the Wright brothers successfully flown the first airplane in 1903, air travel had become one of the most popular means of long distance travel. From 1937 to 1978, air transportation was part of public utilities and was regulated by the federal Civil Aeronautics Board in the U.S. Airfares, routes, schedules, and number of airlines, were all regulated; airlines were guaranteed to have a reasonable return of investment. It was an attractive industry because of the high return and few competitors. In 1978, the Airline Deregulation Act was passed and signed by President Carter. The deregulation would allow the airline industry to operate under market forces.
Attractiveness of U.S. Airline Industry
Michael Porter (1979) argued that the attractiveness of an industry is determined by five basic forces, “The nature and degree of competition in an industry hinge on five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services (where applicable), and the jockeying among current contestants.”
Before deregulation, the barriers of entry to the airline industry were very high. The airline industry was operating as public utility, any new airlines entering the industry must be approved by the U.S. government, and bureaucracy made it very difficult to enter. Deregulation lowered the barriers of entry for the airline industry. The threat of new entrants becomes a high force for the airline industry.
The bargaining power of customers is very strong in the airline industry since there is little differentiation between one airline and another besides the ticket fare. Consumer loyal is low because they can easily compare and choose from different airlines on the internet.
Fuel, engines and employees are the important
References: Porter, M. E. (1979). How competitive forces shape strategy. Michael E. Harvard Business Review, 57 (2), 137-145.