Airplane Case Study essay
Southern Airlines is one of the most successful airlines due to its low-cost strategy. At the moment, the company still holds a strong position in the market, but there is a risk that other low-cost airlines that simulated its model could enhance their position and tighten the competition in the industry. Therefore, Southern Airlines should come prepared to possible challenges associated with the appearance of new rivals, including the increasing competition from the part of companies operating in other segments of the market.
At the moment, the bargaining power of suppliers is high, although it is important to place emphasis on the fact that Southern Airlines is totally dependent on Boeing as the only supplier, while there is an alternative company that can also supply aircrafts of the same class, Airbus. The dependence of Southern Airlines on Boeing is almost absolute because it cannot shift to another supplier since such a decision would need the complete restructuring of the fleet and training of the personnel.
The bargaining power of customers is high today because the recent economic recession has had enormous impact on the airline industry and caused substantial financial losses of many airlines because of the drop of the number of customers. In such a situation, Southern Airlines cannot compensate its losses by increasing the price because it has to keep customers interested in services of the company, while the price was always the main advantage of the company over its rivals. This is why today customers are in a privileged position, while Southern Airlines offers them maximum flexibility in booking and changing tickets providing minimal essential services for the lowest price.
The threat of new entrants is rather low at the moment, because even those companies that currently operate in the market face substantial difficulties. Therefore, new entrants will have substantial difficulties, if they decide to enter the market right now, when it is in a steep decline. In such a situation, Southern Airlines puts potential new rivals in a disadvantageous position because they can hardly offer customers lower price, while the price is the determinant factor for many customers today (Calder, 2012). As a result, the company should not worry much about the risk of the appearance of new entrants although there are options of existing companies operating in other segments to develop their low-cost subsidiaries.
The threat of substitute products is medium because customers cannot always refuse from flights. Southern Airlines offer faster delivery of customers than any other means of transport, like trains, for instance (Littman, 2002). In such a situation, substitutes are likely to attract a part of customers of airlines, including customers of Southern Airlines, but still customers cannot refuse totally from using services of the company, especially the company offering services at the lowest price in the industry.
Thus, the competitive rivalry within the industry is tight at the moment and Southern Airlines should come prepared to confront the tightening competition. To put it more precisely, Southern Airlines faces the tightening competition from the part of low-cost airlines which simulate its own model and offer similar services at the similar price not only in those markets, where Southern Airlines does not operate, but also in those markets, where the company counts on a large share of the market. In addition, the company faces the threat of airlines operating in other segments developing their low-cost subsidiaries.
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