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Problems and Issues Analysis
The external analysis indicates that high barriers of entry into the industry combined with little product differentiation, steady but not high market growth, and rising operational costs create a highly competitive and concentrated market industry particularly amongst its top producers. These threats to the industry shape the tier 1 and tier 2 problems and issues facing Southwest.
Southwest continues to confront this competition head-on by holding fast to their core competencies of a strong, positive corporate culture, efficient operations, and financial strength. Despite new “ultra-low-cost carriers” that have managed to break through the barriers of entry in this industry (Southwest Airlines, Co., 2017), Southwest has maintained its place with a dominant market share in domestic flight services in the United States. To maintain their “competitive advantage and performance” and continue to capture value as well as create value for consumers, new strategies must be determined to address these threats (Schmidt & Keil, 2013).
Suppliers continue exerting the threat of their bargaining power in an attempt to gain profits from the industry. Southwest’s strong financial position and efficient operations has provided a means for combating these forces on their market share. However, new strategies are necessary to keep these rising costs and threats under control by taking advantage of external opportunities available to them. Continuing to utilize economies of scale to their advantage, exploiting consumer dependence, and the absence of an attractive substitute for this type of travel will also help control high operating costs.
The lack of a high growth forecast for market value and volume in the coming years threatens this industry’s profitability and does not relieve the pressure of increased competition (MarketLine, 2017). Growth internationally, however, does provide an opportunity for the airline industry. Market development strategies as well as market penetration internationally are a means to circumvent these threats. Unfortunately, expansion internationally carries further problems and issues of increased and unknown risks and costs. An industry report remarked that “the economic performance of a country is directly associated with the performance of the air travel sector in that country…and the airline industry is particularly vulnerable to macroeconomic changes that affect consumers’ available income for leisure and the demand for business traveling” (MarketLine, 2017). With that said, considerable research is necessary to develop an appropriate plan to expand internationally.