Question

After reviewing Porter's Five Forces of Competitive Position Analysis in this week's lecture, use the five forces to evaluate the competitive landscape of Southwest Airlines in its industry. If you want to follow an example, look at Investopedia's Porter's Five Forces on analysis on Apple. Be sure to address all five of the forces. This information will continue to assist you as you develop more key risks of your company's business model.

As we know from the course material, Time Value of Money (TVM) says, 'a dollar today is not worth a dollar tomorrow.' Drawing from the information you've found (relative to Southwest Airlines company's competitive advantages and forces), how does Southwest Airlines plan to spend/invest money in research and development over the next several years? How does spending money today for capital investments/projects turn into future revenue? Remember, think about this response through the lens of TVM.

Answer 1

Using Porter's Five Forces to evaluate Southwest Airlines indicates a competitive industry landscape that includes threats from predatory pricing, high supplier power, high buyer power, substitute availability, and strong competitive rivalry. Southwest's R&D investments, viewed through TVM, focus on long-term growth and profitability by modernizing fleets, improving efficiency, and enhancing passenger experiences, converting capital investments today into higher future revenues.

Step-by-step explanation:

To evaluate Southwest Airlines using Porter's Five Forces, one might consider the following dynamics within the airline industry:

• The threat of new entrants is typically moderate due to high capital requirements and regulatory hurdles, but could be influenced by predatory pricing tactics of established airlines.
• Supplier power is high, with aircraft manufacturers being limited and fuel suppliers having the ability to influence prices.
• Buyer power is enhanced in the airline industry as customers have many choices and low switching costs, prompting airlines like Southwest to focus on customer loyalty and competitive pricing.
• Threat of substitutes is moderate to high, considering the availability of other forms of travel, such as driving or taking the train for domestic travel.
• The intensity of competitive rivalry is strong in the airline industry, with airlines constantly competing on routes, prices, and service quality.

From the perspective of the Time Value of Money (TVM), investments in research and development (R&D) by Southwest Airlines would be aimed at modernizing their fleet, improving fuel efficiency, and enhancing passenger experience, all of which can lead to long-term growth and increased profitability by attracting more customers and justifying premium pricing. Capital investments convert to future revenue by providing a more competitive service offering and improving operational efficiency, which in turn can result in a higher return on investment over time.