Overcapacity has led the major United States airlines to compete with Southwest's low fare pricing strategy. However, due to the company's brand image of efficient and effective low fare service, Southwest has been able to ward off its competitors (e.g. Delta, United, and American Airlines) and maintain its position of market share leader in the United States. As the industry becomes increasingly commoditized and US demand slows, it is time for Southwest to consider global options so that it ensures its presence in the future, while maintaining profitability. Who are some of the major competitors?
Southwest Airlines – 2008 Case Study Executive Summary Millions of people fly everyday. Southwest airlines provide low-fare travel among 58 cities in the United States. Although the airline industry suffered greatly in the aftermath of September 11, Southwest was able to continue to hold strong. Southwest airline continues to maintain steady sales as much of the industry was affected by changes in laws/regulations and competition entering the market. In the following report there is a brief introduction to Southwest Airlines and their strategy and then what, if anything, they need to do or not do to remain at the top and competitive in the airline industry.
In Airlines the threat of entry is higher than in the oil industry. In fact, even if there are barriers to entry (economies of scale and initial capital investment are high), product differentiation is higher as it depends on different destinations. Today, the threat of substitutes in the oil sector is low because of nuclear power, hydroelectric, solar and wind energy. Airlines have more substitutes, particularly trains, so the threat is high (except for longer distances where it’s lower). The threat of rivalry in the oil industry is low: the concentration is very high so it’s easy to face rivalry.
JetBlue's core strategy is to “provides high-quality customer service at low fares primarily on point-to-point routes" (“JetBlue”, 2005). Offering alternative choices to customers such as point-to-point routes to areas that are not catered to by most airlines as well as large metropolitan areas that have had” high average fares” is another part of their strategy. Differentiating their product and service is another part of the plan. Items like new aircraft, leather seats, free LiveTV at every seat and pre-assigned seating are just a few things that make JetBlue different (“JetBlue”, 2005). I would say that JetBlue would fall under both customer intimacy and product leadership customer value proposition.
I always thought since people are always traveling and going on vacations, and if you are like me you don't like to drive, so I never thought the airline industries was the weakest. As I listened I finally got why the would be the least profitable, consumers are fickle and are always looking for a deal. I think finding that the beverage industry is one of the most favorable is a shock as well, but in the time when obesity is at all time high that is not shocking to
Economic scale: European airline industry has achieved economic scale in which it creates a barrier of entry that the new entrants have to compete on a large scale (eNote, 2012). In order to compete to the existing competitors, easyJet offered low fares by minimizing cost as much as they can. easyJet’s low fare strategy focuses on offering airfare without meal service and business class seating. Moreover, easyJet also encouraged Internet sales to reduce the business operation cost generated by hiring reservation agents (Kumar, N & Rogers, B 2000). b.
They also offer profit sharing which encourages the employees to help make SWA successful. Outside of their employees, SWA operates only one type of aircraft. This reduces the need to store additional parts and eliminates the need to train pilots and technicians. Lastly, they fly point to point, rather than from hubs, which reduces delays and captures demand as larger airlines might not fly from smaller airports. File 3. pg.
Case Summary and Important facts Despite the fact the airline industry had 87 new-airline failures in the US over the past 20 years. David Neeleman convinced a group of investors and quickly raised $130 million from venture-capital community. With its strong capital base, JetBlue acquired a fleet of new Airbus A320 aircraft and focused on innovation, providing the most valuable and the most excellent travel experience, low-cost, point-to-point service to large metropolitan areas with high average fares or highly traveled markets that were underserved, mainly on central and Western routes in the US. During 2001 and 2006, the airline industry was facing a number of external stress, such as the 911 terrorist attacks, Iraq War, SARS, high price of petroleum, ect. The airline industry in US has been challenged and many of firms were bankrupt.
- Airport gates and time slots are very scarce as every airlines are competing for the exact same product. * Buyers power Customers of airlines have very low switching costs and brand loyalty, because the primary purchase factor is the price. This determines high power of buyers. * Threat of new entry The usual belief is that air transportation is a very difficult market to enter. However, this is far from the truth.
JetBlue believed that its web-based booking, rather than booking through ticketing agents, the company would be able to gain greater control on managing seat sales which in turn avoids customers being bumped. JetBlue also uses paperless cockpit, no meals served on any of its flights, and paperless ticket, which all reduce time and costs. They also use a single aircraft type, which in the long run keeps training costs low, and manpower utilization at a high. Another way that JetBlue utilizes it resources is by using the new A320s, which are larger and more fuel-efficient. JetBlue also has less congested airports, which helps to speed flight departures and get their passengers to their destinations in a faster manner.