Southwest Five Forces

Q1: Please systematically analyze Southwest's strategic positioning in the U.S. market in 2002, applying Porter's Five Forces framework.

In order to analyze Southwest Airline’s (SWA) strategic positioning, one first has to analyze the U.S. airline industry. Being a reputable tool that is backed by sundry research of superior theorists, Porter’s Five Forces framework facilitates a structured analysis of the airline industry and SWA’s strategic position within it. In general, Porter’s Five Forces framework helps to assess the profit potential in an industry and, hence, the attractiveness of that industry.

In the following, this paper analyzes the U.S. airline industry within all five forces and outlines Southwest’s strategic positioning in order to compete in this industry.
Rivalry among existing competitors
In 2002, the level of existing rivalry among existing competitors in the U.S. airline industry was high, similar as it is today. The ten major airlines control 95% of the total market. It was characterized by consolidation due to mergers and acquisitions as well as bankruptcies. Since all marketers follow the same undifferentiated business model, carrying passengers by airplane from one destination to another is not changeable in its core value proposition, price pressure was a major issue. However, this was accompanied by increasing costs due to, for instance, ascending oil prices. Trying to stem increasing competition, most airlines enhanced operational efficiency. This, however, did not decrease the degree of rivalry as competitors could simply imitate practices. Moreover, passenger transportation is heavily influenced by macro trends such as globalization, demographic change and environmental disasters. Rivalry being especially boosted in 2002 by 9/11, the average industry revenues heavily decreased compared to the previous year. Whereas the entire industry generated a return on equity of -62.2%, SWA even though was able to generate a return on equity of...