MBA Assignment 3: Analysis of Southwest Airlines' Strategic Choices

This report provides a comprehensive analysis of Southwest Airlines' competitive environment, employing Porter's Five Forces model to assess external factors such as new entrants, substitute threats, competitive rivalry, and supplier/customer bargaining power. The report examines Southwest's internal strengths and weaknesses using the value chain framework, focusing on core competencies and capabilities. It further explores the impact of organizational culture on strategic choices and evaluates the benefits and drawbacks of the AirTran Airways acquisition. The analysis highlights the importance of differentiation strategies, a flexible organizational culture, and strategic acquisitions for sustaining a competitive advantage in the airline industry. The report uses information from various sources to determine the efficiency of the business processes managed by the company to become successful and profitable.

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Executive summary
The report was prepared to analyse the competitive business environment by using the
Porter’s five forces model to determine the threats of new entrants, substitutes, competitive
rivalries, bargaining power of suppliers and customers. The differentiation strategies were
chosen as effective for sustaining in the competitive environment and with the acquisition of
AirTran airways, the organization gained a sustainable position. The value chain analysis model
was also used to understand the core competencies, capabilities, which further strengthened the
ability of the company to sustain in the marketplace. The maintenance of a flexible and string
culture and by acquiring AirTran Airways, the company entered new markets and gained more
profit in business too.

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Table of Contents
Introduction......................................................................................................................................3
Question 1: Porter’s five forces model used by Southwest Airlines...............................................4
Question 2: Internal analysis by Value chain framework................................................................8
Question 3: Impact of organizational culture on the strategic choices..........................................13
Question 4: Benefits and drawbacks of acquisition of AirTran Airways......................................15
Conclusion.....................................................................................................................................18
References......................................................................................................................................20

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Introduction
The main aim of preparing this report is to analyse the competitive environment where
the business organization named Southwest Airlines has been operating. It will help in
identifying the capabilities, core competencies and other factors that can contribute to the making
of strategic choices and decisions at both corporate and business levels. The information about
the company has been derived from various external sources and is being assessed to determine
the efficiency of the business processes managed by the company to become successful and
profitable all throughout. Porter’s five forces model will be used to understand the level of
competition and determine how strategies can be formulated by the organization to sustain in the
business. The company to analyse the strengths, capabilities, core competencies and the weak
areas where improvements will be needed to be done also utilizes the Value chain framework.
The choice of competitive strategy will be based on the differentiation, hybrid or cost leadership
procedures (Allio & Fahey, 2012). The culture of the organization will be focused on as well for
identifying the strengths and weaknesses of the company and furthermore discuss the positive
effects created by the acquisition of AirTran Airways (southwest.com, 2017).

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Question 1: Porter’s five forces model used by Southwest Airlines
The Airlines industry in United States change from time to time and this enabled the
Aeronautics board to regulate the airlines routes and set proper prices of the services delivered to
the customers. There are mergers and acquisitions too, which has resulted in enhancing the
market share by attracting more customers and this created a sustainable place in the market. Due
to the inappropriate management of airlines rules and regulations, the fares of services were not
set properly and this created scopes for other companies to enter the market and target market
segments (Antràs & Chor, 2013). Nowadays, with the failing of air fares and high level of
competition, the demands for airlines travel have also increased. To conduct the external
analysis, the Porter’s five forces framework is used to understand the level of competition in the
market and examine the structural factors that have acted as major forces in driving the business
processes (Berchicci, 2013).
Southwest Airlines is one of the most popular airlines company that has been operating in
both domestic and international areas by providing airlines services at a relatively lower cost
compared to the competitors in business. The Porter’s five forces model is used by the company
to analyse its competitive position in the market and understand the effects created by the
external forces such as threat of new entrants, competitive rivalries, threats of substitutes,
bargaining power of suppliers and the consumers (Bock et al., 2012).
Threat of new entrants
The business organization has gained high economies of scale that has created enough
opportunities for the company to obtain greater market share. Huge amounts of investments are
done, which has enhanced its brand name and image and furthermore allowed the company to

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enter the new markets with ease and effectiveness. The business organization is known for its
delivery of good quality services provided at a lower cost (southwest.com, 2017). The threat of
new entrants is a major factor that makes it difficult for Southwest Airlines to sustain in the
competitive business environment. The company has though been true to its customers in terms
of the safety and quality, because of which, it has created difficulties for the other companies to
gain their trust and loyalty and make them shift t their airlines company (Claver-Cortés, Pertusa-
Ortega & Molina-Azorín, 2012). Moreover, the quality of services is excellent and is available at
lower prices, which has kept the customers satisfied too. Thus, it could be understood that the
threat of new entrants in the market is quite low and with the huge amounts of investments and
establishment of costs, it had prevented the new entrants to pose any threat to Southwest Airlines
(Dobbs, 2012).
Threat of substitute products or services
People always want to move from one place to another by availing proper transportation
facilities and there are a lot of options to choose from for the service users. These various options
have different kinds of benefits based on the actual needs and requirements of the service users.
The service users carry out a cost benefit analysis while choosing the mode of transportation that
will be suitable for them while moving from one place to another. Southwest Airlines offers
good quality transportation services at very lower cost that gives the company a competitive edge
over its competitors. In case the service users look for convenient and time saving airlines
services, then they can switch on to some other airlines company and thus the threats of
substitutes are quite high for Southwest Airlines (E. Dobbs, 2014).
Bargaining power of the purchasers

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The business organization has two different kinds of purchasers including the passengers
who travel alone and the others who travel in groups. Because of the wide range of options
available, they tend for look for the airlines services that are available at lower costs. The travel
agents possess high power to bargain because for the customers, switching to another company
poses very little threat. The individuals who travel alone experience lower cost of switching to
services of another airlines company. Due to this, the bargaining power is moderate for the
buyers of Southwest Airlines (Eccles, Ioannou & Serafeim, 2012).
Bargaining power of the suppliers
The suppliers have the roles of delivering good quality raw materials and resources that
are required to make the processes of manufacturing and production successful. The
manufacturers of the aeroplanes are termed as major suppliers and they has developed long
lasting relationships and formed contracts with the company owners to keep the business
function properly. They require huge amounts of investments for the production of aeroplanes
and make sure that the business grows consistently. The suppliers have low bargaining power,
because they need to accept the terms and conditions of the airlines company and then deliver the
best quality services to the customers for keeping them satisfied as a whole too (Espinoza &
Ukleja, 2016). The organization is dependent on the rise and fall in prices of oil, which also
creates high bargaining power for the suppliers. The increase in prices of oil can even make
changes to the cost of fuel of Southwest Airlines and to tackle this kind of issue, Southwest
Airlines has utilized the regional airports to deliver the services rather than using any expensive
international airports (Estampe et al., 2013).
Intense competition by the rivalries

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There is presence of high competition in the market due to the presence of other local as
well as international airlines companies. The competition is strong and so it is important for
Southwest Airlines to maintain a positive brand name and image for improving the quality of
services and furthermore allow the company to gain competitive advantage in business. The
mergers and acquisition of other small companies have increased the competitive rivalry. Delta
Airlines is a major competitor, because it has acquired United Airlines and Continental to deliver
services covering multiple cities and other continents. The market share of Southwest Airlines
has also been threatened because of the competitors and so it is necessary to implement
immediate measures for managing the low price trade activities and customers’ services at the
same time (Evans, Stonehouse & Campbell, 2012).
From the analysis of these aspects, it could be understood that the airlines industry had
been quite attractive according to the high profit margin, which had been experienced due to
these competitive forces illustrated above. The most important forces that should be considered
by the US Airlines industry included the threats of substitute products or services and threats of
rivalries in business. These two forces have posed high threats for Southwest Airlines and so it is
important for the company to analyse the competition in the market and create something better
and innovative through the formulation of new strategies to keep the customers inclined towards
the company (Fearne, Garcia Martinez & Dent, 2012). This would also influence their buying
behaviours and make them gain a positive mindset to purchase the services of the company
rather than from any other companies in the competitive business environment.

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Question 2: Internal analysis by Value chain framework
The internal analysis is used by Southwest Airlines to evaluate the strengths, capabilities
and core competencies that can help the company to gain competitive edge over its competitors
in business. The company’s ability to focus on the price and time sensitive consumers has
brought fruitful results, because it has allowed for analyzing the present market scenario and take
necessary measures for improving the quality of services and keep the customers satisfied as a
whole too. There are various strengths and weaknesses of the company, which have been
assessed by using the Porter’s value chain framework. The weak areas are addressed to formulate
strategies and resolve those issues and furthermore make suitable choices based on the core
competencies of the organization (Gamble & Thompson, 2014). The strategic abilities of the
organization have helped to obtain competitive edge over its competitors based on the resources
and core competencies. The resources are tangible and intangible assets whereas the core
competencies of the organization have helped the company to utilize its assets properly and
respond to the external environment with convenience (Gereffi & Fernandez-Stark, 2016).
SWOT analysis
Strengths
The company has experienced a good profit margin for the past few years consistently,
because of which, the company has gained a secure financial position and remained profitable
after the global financial crisis too. It is a popular brand and through effective advertising and
promotion al activities, the company has maintained a good brand image identity, thus emerging
as one of the major travel brand according to the American Brand Excellence Awards. This has
allowed for differentiating its services quite easily, which has not only facilitated the process of

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gaining high levels of profit but also has gained a competitive edge over its competitors with
ease and effectiveness (Gobble, 2012). The maintenance of a robust domestic network is another
strength of the company, because of which, it has a strong demand for services within the market
place.
Weaknesses
Few weaknesses of the organization are fewer opportunities to generate revenue, outdated
products and services. The balance sheet showed that it is important for the company to leverage
new products to appeal the service users and make good profit in business consistently
(southwest.com, 2017).
Opportunities
The repeal of Wright Amendment has allowed the company to expand its services by
operating in more countries and there is inclusion of new services including flights to Los
Angeles, Nigeria, Atlanta, San Diego and Washington National. The new and innovative
international operations and processes have also made the organization gain a favorable position
in the market and it made huge contribution to the business outcomes derived by the company
(Haucap et al., 2013). The new international operations had helped in the diversification of
networks and penetrated the different market segments to foster better production and greater
satisfaction among the customers based on the good quality of products that were available at
lower prices. Southwest Airlines has developed partnership with the international airlines
companies to enhance the flow of traffic as well as attract and retain new and existing service
users (Hill, Jones & Schilling, 2014).
Threats

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Southwest Airlines has faced massive competition in the market, because there are many
other companies that have provided airlines services at very low cost to enhance the air travel
facilities. The average fare increased to seven percent, which had increased the demands for the
low cost airlines, furthermore made the company face difficulties to survive in the competitive
business environment (Vazirani, 2012). The costs have increased and it has created issues during
the formation of new contracts after the terms and conditions are fulfilled. Due to this, it has
become one of the highest pay structures within the airlines industry. The culture maintained
within the workplace is deteriorating, which has not hampered the company’s image but also has
degraded the brand name and image, furthermore posed major threats for the organization
(Hollensen, 2015).
Porter’s Value Chain framework
The Value Chain Framework proposed by Porter has helped the organization to analyse
the internal environment and provide a strategic direction to become successful in business.
Southwest Airlines has remained profitable for the past few years, which had increased the
customer base largely and even delivered the customers with good quality services at low cost.
The low cost air tickets have attracted many customers, furthermore made them inclined towards
the company and the existing service users were also retained. The company’s financial
condition is stable and the employees have been working hard to develop a healthy culture and
make it easy and convenient for the passengers to fly from one place to another (Jones & George,
2015). The manager of the organization is dedicated to his roles and responsibilities, which has
also motivated the employees to perform their best for the benefit of the employees and enhance
the customers’ services. The major norms are personalized letters, effective problem resolution
techniques and friendly staffs.