Southwest Airlines competes in the air transportation industry with a primary focus on the passenger transportation segment of that industry. Southwest Airlines also competes in the so-called low-cost or no-frills sector of the passenger airline industry (Southwest Airlines, 2005). In today's air transportation environment, however, low-cost airlines compete directly with full-service airlines, regardless of what analysts may say. Today, full-service airlines and low-cost airlines, for the most part, are competing for the same customers (Gimbel, 2005). The industry analysis portion of a strategic analysis of Southwest Airlines, therefore, considers the passenger airlines as a whole, as opposed to considering only the so-called low-cost segment of the industry. The analysis of the industry and of Southwest Airlines is presented within the contexts of (a) Porter's (1995) Five Forces Model and (b) a SWOT (strengths-weaknesses-opportunities-threats) analysis for Southwest Airlines.
The analysis of the passenger airlines industry is performed within the framework of Porter's (1995) Five Forces Model. The model assesses the competitive structure of an industry within the context of five factors. The five factors are (a) the threat of new entrants, (b) the bargaining power of buyers, (c) the threat of substitute products, (d) the bargaining power of suppliers, and (e) the intensity of rivalry among the players in the industry. Porter (1996) pointed out that rivalry among existing competitors can become intense as each competitor attempts to improve industry position through the use of price competition, advertising, product introductions, and increased customer service. The assessment of competitive forces in relation to the passenger airline industry in the United States is as follows:
1. Threat of New Entrants (Barriers to Entry): The barriers to entry into the passenger airline industry in the United States are relatively hi...