External Environment

Executive Summary

The Southwest Airline has grown to become successful in varied ways. Taking into consideration the high number of competitors and differentiation of services allocated, the customers have limited options when choosing the transit mode. The company has a direct destination which attracts its customers who desire to get to their destination in time at a cheaper cost. This paper attempts to look at the external environment of the airline company and accord recommendation on the way forward.

Introduction

This is a business report that is compiled for the board of directors and CEO of the Southwest Airlines as the company consultant. The report will be vital in addressing some choices at the difficult period by the airline industry. The analysis takes into consideration PEST and SWOT analysis.

External Analysis

In the external realm of the business world, the company faces stiff competition. Following the Five Forces porter’s analysis, the threat faced by emerging competitors is moderate, the suppliers and purchasers are high, the rate of competition is great and the threat is moderate (Fuller, 2010). The suppliers are limited and important. The purchasers have a small switching costs and a number of options when choosing an airline. The cost is important for the customer. The competition is great with the number of people involved in the market. The forces combine to make it complex for competitors to be noted. A better strategy would result to success.

Southwest Airline Porter’s Five Forces

These forces show that it is difficult to compete in the market. There is a high threat of competition; there are a number of many other airlines that use the same path making the competition stiff (Anonymous, 2007). Approximately, the number of business flights are 28, 000 each day resulting to a flooded market. The airlines are hence left to compete with regard to price and time covered.

In regard to the threat of new entrants, it is quite low. The costs of new airlines are quite high; these fixed costs block easy entrants into the market. The great fixed costs bring about economies of scale since the fixed costs have to be distributed to a number of units to reduce the per-unit costs. It requires a lot of time to acquire a client.

The ability by the buyers is quite high. A number of airlines offer the same products bringing about limited differentiation. The customer acquires a reduced switching price and in a number of cases goes for the flight with regard to time and cost. There is additionally a threat of falling integration and high charges and quality sensitivity.

The threat that is posed by substitution is moderate. In short distances, there is the threat of substitution that is high considering the options; most of them are affordable and suitable. In bigger distances, the airplanes are affordable and fast in transporting bringing about limited options. The popular substitutes are cars, trains and ships.

The ability by the suppliers is great. In this airline industry, there are four popular manufacturers; airbus, Bombardier and Embraer. The Southwest airline limits their ability with the application of the Boeing 737. The switching costs are substantial considering the training and parts being exact to build a plane. The planes are vital in the airline industry to the company.

Southwest Airline PEST Analysis

The environment forms the industry. For a company to survive, its resources, issues and opportunities are determined by the surrounding. It is necessary for a company to take into mind the changes in its surrounding and form policies that meet these changes.

The whole environment aspect of the industry is based on competition for the Southwest airline. The rivalry is quite high which brings about the drop of Southwest Airline before its operation (Value Based Management, 2009). Later to not blocking the operations, the competitors start to block the procedures applied by the Southwest Airlines.

Political Analysis

In strong governments, the political trend is vital for the management of all the industries. The state of the government helps the business to make a strong competition with application of fiscal and monetary aspects. The political support assists in acquiring markets, which missing it brings about hardship. The Southwest Airline follows the Airline Deregulation Act used by the US congress in 1978. The law follows the inter-state flights; though it is impacted by complexity by politics that later favored. The government is useful in hard times; it helped two airlines in financial crisis.

Economic Analysis

In times of economic instance, the airline is greatly vulnerable; the rivals use this for its benefit, the supplier power is taken away, it allows entrants to the company, the government backs the drop. For the airlines with discount, they on the other hand are able to get benefits. The clients hence look for cheaper travel options.

Social Analysis

Southwest airline has had the trend of taking its passengers to their desired locations. This is set to continue. Additionally, with the high number of people speaking Spanish and staying in Unites States, there is the desire to have two spoken languages.

Technology Analysis

Technology has allowed for e-ticketing model and self-checking machine. Additionally people have been able to compare prices over the internet.

Conclusion

Southwest Airline is located in a better place when compared to other airlines. The airline has undergone an economic failure that has brought about loss in confidence with the drop in sales. In its surrounding, the company has applied affordable cost while meeting the triple bottom line necessary in keeping customers. This is similarly an opportunity to be used in the balance sheet to increase strength and reduced risk.

Recommendation

The Southwest airline has choices in this hard time. This is with regard to hard concepts and strong business methods. This recommendation does not affect the strategy; the company ought to follow the operation of the industry and development if the significant cultural tendency the company applies to its employees.

References

Fuller, M. (2010).Strategic Analysis of Southwest Airlines. Saint Francis: BSAD.

Value Based Management (2009).PEST Analysis. Retrieved on April 26, 2012 from:    http://www.valuebasedmanagement.net/methods_PEST_analysis.html

Anonymous (2007). Porter’s Five Forces: A model for industry analysis. Retrieved on April 26,       2012 from: http://www.quickmba.com/strategy/porter.shtml