Although the US airline industry is competitive, Southwest Airlines has managed to maintain its position as the largest airline company in America due to huge investments and growth over the last years. The airline has successfully positioned itself in the market through its low-cost strategy. The airline industry requires significant investment and main players, includingthe Southwest Airline, are well-established making it difficult for new companies to enter. Southwest Airlines has earned the trust of its customers as a low-cost airline and it is difficult for new airlines to displace the company from the market. Nevertheless, Carlsson-Szlezak et al. (2020) noted that the COVID-19 pandemic has adversely affected the global economy including the airline industry, which has witnessed a decline in the numbers of flights. Besides, most airlines were forced to scale down their operations since the movement of passengers has been limited as the global community strives to limit the transmission of COVID-19. Other than chartered airplanes and cargo planes, business in the airline industry has been in standstill. Thus, Southwest Airlines faces a low threat of the market as new firms have no motivation to enter the market in times of a great disruption of businesses.
Customers usually have several substitutes to choose from when it comes to transport. For instance, people can decide to travel via premium class airlines or low-cost airlines. .Within their airline industry, the choice of substitutes depends on the services offered by airline companies as well as the cost of air tickets. Southwest Airlines is known for its low-cost services, but other companies, such as United Airlines, can still compete with it in terms of the additional services offered by high-cost competitors. Nevertheless, Southwest Airlines has maintained its low-cost approach even when the plane capacity has reduced during the COVID-19 times. Therefore, the company is expected to attracted more budget passengers, which implies that Southwest Airlines is currently facing a low threat of substitutes (Porter, 2008).
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Airline ticket buyers are either individual or group buyers. As for individual travelers, the cost of switching to other airlines is low as several companies offer the same services implying that they have moderate bargaining power over Southwest Airlines (Porter, 2008) . Travel agents usually organize air tickets for group travelers and they are often interested in getting the cheapest alternative for their customers and can easily switch to a cheaper alternative. Thus, buyers have moderate power over Southwest Airlines.
The suppliers of airline companies are mainly airplane manufacturers as well as the trainers of employees of airline companies. Currently, airplane manufacturers are few and airline companies can easily switch from one manufacturer to the other. Southwest Airlines mainly used Boeing aircraft and has maintained a good relationship with the supplier over a long period. Nonetheless, airplane manufacturers often accept the terms of airline companies to maintain them as their customers. Under COVID-19 times, several airplanes have been grounded due to fewer flights. Experts believe the economy might take longer to recover from the current crisis, which implies that the airline industry is expected to suffer adversely ( Carlsson-Szlezak et al., 2020). Thus, manufacturers such as Boeing must have less bargaining power since their success depends on the success of airline companies, which can ground long-range airplanes and go for cheaper ones suited for shorter distances.
Competition in the airline industry is strong because most companies have been around for long and have established trust among their customers. Therefore, each company is under pressure to exceed their customers’ expectations to maintain them. For Southwest Airlines, competitors include Delta, United, and American airlines. Competition among firms operating in the same industry increases when there is a sharp decline in demand as witnessed under the COVID-19 times (Gamble, 2019). However, Southwest Airlines has continued to develop its services under COVID-19 times to remain competitive. For instance, the company’s website states that they “employed stringent cleaning and physical-distancing practices” to limit the transmission of COVID-19 in the cabin ( Airline Cleanliness and Cleaning Standards, 2020).
In summary, the airline industry has been adversely affected by the COVID-19 pandemic as airline companies strive to survive in the wake of a reduced number of flights and stringent travel regulations. For a company such as Southwest Airlines that has been banking on its low-cost approach, the reduced carrying capacity adversely affects its financial health. Therefore, COVID-19 has served as a wake-up call for the company to explore other competitive strategies to remain productive until the end of the pandemic.
References
Airline Cleanliness and Cleaning Standards . (2020). Southwest Airlines. https://www.southwest.com/airline-cleanliness-social-distance/
Carlsson-Szlezak, P. Reeves, M. & Swartz, P. (2020, March 3). “What Coronavirus Could Mean for the Global Economy.” Harvard Business Review. hbr.org.
Gamble, J., Peteraf, M., & Thompson, A. (2019). Essentials of Strategic Management (6th ed.). McGraw-Hill.
Porter, M. (2008, January). The Five Competitive Forces that Shape Strategy. Harvard Business Review. https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy
