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Week 6 External and Internal Environments Assignment
Ashley White
BUS499 Business Administration Capstone
Due: 5/15/2022
Week 6 External and Internal Environments Assignment
Southwest Airlines is one of the leading airline companies in the United States. The company deals with the transportation of people across the world at significantly low costs. The paper will address how technological and economic segments have influenced the corporation and how well the company has addressed the issues of competitive rivalry and the bargaining power of buyers. Besides, the paper will also analyze external threats, opportunities, strengths, and weaknesses of the corporation. Generally, the paper will address the external and internal environment of Southwest Airlines.
General Environment
In management, various general environment segments include legal, environmental, technological, social, economic, and political factors (Michael, 2020). The two highest segments impacting Southwest Airlines are technological and economic factors.
Technological factors
Southwest Airlines heavily rely on the most progressive technology since the company is dedicated to customer satisfaction and quality of services. Nevertheless, new technologies have led to other opportunities and severe threats for the corporation. This factor has enabled comprehensive communication, thereby offering consumers new alternatives for regular traveling. For example, customers can receive ticketless travel services through the Southwest Airlines website due to new technologies. Unfortunately, the company’s reservation system needs some modification to enable the selling of international tickets to remain in competitive advantage. The technological factor is fundamental for Southwest Airlines because it determines how the corporation competes in the global market.
Economic factors
Economic factors also significantly impact the corporation. It is imperative to note that weak economic progress impacts the purchasing power of the targeted market. According to the website, the company is prominent in providing services at a low cost. Southwest Airlines has experienced an upsurge in fuel contracts, as demonstrated by the US Securities and Exchange Commission (2022). According to SEC filings & forms, Southwest Airlines operators rely on energy. Hence they are affected by the increase in jet fuel prices. This factor is vital because the recent increase in fuel contracts and taxes has become a new significant threat to the corporation’s success and consumers who are used to low costs.
Five Forces of Competition
There are five forces of competition: barriers to entry, competitive rivalry, the threat of substitutes, and the bargaining power of both supplier and buyer (Michael, 2020). Southwest Airlines seem to have effectively addressed buyers’ competitive rivalry and bargaining power for their success.
Competitive rivalry
In the airline industry, the issue of competition has become stiff, particularly with acquisitions and mergers in recent years. For instance, the emergence of Delta Air Lines Company which acquired corporations such as Northwest Airlines and later merged with companies such as Continental and United Airlines, are serious rivals. On the other hand, Nataraja and Grantham (2020) present the market share of five major airlines – United Airlines (15.13%), Southwest Airlines (17.51%), Delta Airlines (17.06%), American Airlines (17.72%), and Alaska Airlines (6.37%). According to the statistics, Southwest Airlines is the second leading company after American Airlines. This factor demonstrates that Southwest Airlines has been able to address the issue of competitive rivalry through efforts such as low cost and customer satisfaction.
Bargaining power of buyers
The bargaining power of consumers has been one of the key focus areas for the corporation. This force is characterized by the price preference that the company offers to the customers. Southwest Airlines has achieved this by providing its customers with services that best value consumers’ money. The flight’s prices and other services are available on the company’s website, where buyers can compare to make their decisions. According to Nataraja and Grantham (2020), consumers can now demand quality service and higher value from the company due to the emergence of the internet. Southwest Airlines has achieved this goal by ensuring that its targeted consumer receives its services in an interactive and repair.
Future Improvements
Regardless of the company’s effort to improve on competitive rivalry and the bargaining power of buyers, I believe they can do more to enhance their ability to address these forces. For instance, following the recent rivalry from other airlines on low cost, I think Southwest Airlines should reconsider their advancement in technology in the provision of quality services. This factor is essential since it may restrict them from penetrating the global market to be on competitive advantage because other competitors might use more advanced technologies. On the issue of the bargaining power of buyers, I think Southwest Airlines might review its low-cost plan. With higher prices in jet fuel in mind, the company can set effective costs that suit consumers.
Greatest External Threat
One of the fundamental external threats to Southwest Airlines is the political issue. The context of politics comes when regulatory bodies such as Federal Aviation Administration (FAA) impact the normal operations of the airline. For instance, the current FAA guidelines are based on the airline’s safety, comp. These regulatory activities disrupt the normal operations of Southwest Airlines, thereby reducing the profitability of the company. This factor is also a threat because the company would spend a lot of time on legal battles in courts, which is more likely to impact profitability. Therefore, Southwest Airlines can prevent this issue by complying with at least all the guidelines stipulated in the law.
Greatest Opportunity
The existing most significant opportunity for Southwest Airlines is the idea of promoting positive public relations. This also includes opportunities to facilitate a healthy team-oriented culture in the organization. For many years, the corporation has been known for its effort to promote customer satisfaction by frequently interacting with them and offering them quality services such as low cost. Besides, unlike other airline organizations, Southwest Airlines identifies ethical treatment as their social practice. As a result, the corporation has no pressuring formal rules and complex manuals. However, the company can continue taking advantage of this opportunity by creating a more comprehensive interacting platform to enhance positive public relations.
Strengths and Weaknesses
I think one of the greatest strengths of Southwest Airlines includes customer focus or marketing, a firm, flexible business model, and 17 years of profitability. The corporation has continued to be profitable regardless of the recent threatening economic trends, such as the upsurge in fuel contracts (Nataraja and Grantham, 2020). On the other hand, some of the significant weaknesses of the company are its large fleet of aging planes and its overdependence on oil. For instance, the expected aging of a plane is about ten years, forcing the corporation to decide on maintaining or scrapping them.
Strategy or Tactic
Southwest Airlines has the opportunity to take maximum advantage of the above strengths to be on the competitive edge. For example, the company should consider advancing its interactive technologies to maintain customer relationships. Also, regarding flexibility, the corporation might consider spending more expenditure in new landing areas for the smooth running of activities. Southwest Airlines might need to emphasize their weakness, such as aging planes and dependency on oil. The increase in jet fuel would mean an adjustment in ticket pricing. Also, to avoid losses, the company should strategize in maintaining their planes to avoid disposing of the entire plane.
Resources, Capabilities, and Core Competencies
Southwest Airlines’ significant resources include its personnel, partnerships, IT infrastructure, sales channels, maintenance infrastructure, and a fleet of aircraft. Financial resources are another resource since the corporation generated a net income of about 2.3 billion US dollars in 2019 (Southwest Media). The capability of the corporation includes human resource management, marketing, distribution, and overall management. Lastly, some of the core competencies of Southwest Airlines include service, post-flight ground activities, in-flight activities, pre-flight ground activities, and ticketing.
References
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning.
Nataraja, S., & Grantham, B. (2020). Rivalry amongst Top-Five Major Airlines in The U.S. Market. International Journal of Research -GRANTHAALAYAH, 8(7), 160-173. https://doi.org/10.29121/granthaalayah.v8.i7.2020.596
Southwest Airlines Newsroom. (2022). Southwest Corporate Fact Sheet. Southwest Airlines Newsroom. Retrieved 11 May 2022, from https://www.swamedia.com/pages/corporate-fact-sheet.
US Securities and Exchange Commission. (2022). the United States Securities and Exchange Commission Washington, D.C. 20549. Southwest. Sec.gov. Retrieved 11 May 2022, from https://www.sec.gov/ix?doc=/Archives/edgar/data/92380/000009238022000020/luv-20220331.htm.