Southwest Airlines Oligopoly

The airline industry has been historically hard to compete in. For years, the industry has been considered an oligopoly consisted of Delta, US Airways and United. Market entry barriers are extremely high. Hence, it is almost impossible for new competitors to enter the market due to high startup costs. Nevertheless, Southwest Airlines was able to join the Big 3 in the late 1960s. While the company is extremely popular and profitable today, there are certain problems associated with the operations of the company.

The airline industry was heavily affected by the Housing crash and the financial crisis of 2008-2009. Number of airline passengers felt below 800 million a year for the first time since 2005. Nevertheless, as the economy is recovering

Nevertheless, the passengers have a variety today. Southwest airlines have joined the major companies in 1960s and rapidly became very popular due to cheap prices, reduced travel time and customer services. According to the graph presented below, the company had the biggest market share in 2015 based on domestic flights. Southwest has an exclusive deal with Boeing and only uses efficient planes that allow the passengers to get to the destinations in less time. Boeing 737 is a smaller plane that does not need as much fuel. Hence, the plane is perfect for domestic flights. In addition, the company constantly upgrades the planes. As a result, it does not have to spend as much as competitors on repairs and maintenance of the planes. While the company remains extremely profitable and popular among the airline passengers, it did face some difficulties. The market share of domestic flights felt from over 20% in 2015 to 18.3% in 2016. As a result, American Airlines had a bigger market share of domestic flights. In order to keep up the market share and to continue to grow, Southwest Airlines will have to make improvements and change certain aspects of the

The company has always been known for lower airfare costs. Nevertheless, the business does need to make some changes to avoid problems that the company is currently experiencing. For instance, it is very convenient for domestic flights. However, if passengers are travelling internationally, they may have to reconsider using Southwest Airlines. The majority of international flights take off from major airports, such as JFK in New York City, O’Hara in Chicago and LAX in Los Angeles. A part of the reason, Southwest remains so profitable is the fact that the company does not fly to major airports. This way the company is able to drastically cut its operating costs. Instead of landing in O’Hara, the company goes straight to Midway, which is another airport in Chicago area. While it is profitable for the company, it can create serious problems for the passengers who only have a limited number of hours to get from one airport to another airport just in time to make the connecting international flight. Planning the trips becomes another problem for the customers of the airline. A large number of passengers like to plan the trips, especially international trips using Expedia, Orbitz or other websites. Not only do the websites offer the full flight itineraries to customers, but they also have very attractive vacation combos available. For instance, customers who book a flight on Expedia also have hotels at discounted rates