Since 1980, the airline industry has endured low profitability in which annual losses far outweighed combined annual profits (by approximately $43.2 billion).  Southwest has managed to be one of the only airlines to achieve profits every year since 1973 due to being low-cost providers.  In order to identify the reasoning behind the losses for most airlines, it is critical to conduct an analysis of the five competitive forces and how each competitive force affects the industry.  
Rivalry among competing sellers directly impacts the overall profitability of the airline industry, resulting in a strong competitive force throughout the airline industry.  Rivalry is a significant factor as a result of the high market concentration in the industry.  Additional factors that contribute to rivalry include high operating costs, excess capacity, and low differentiation.  Also, since ticket prices can be easily compared by consumers over the internet, rivalry is increased due to the “price wars” that occur as one airline attempts to undercut another airline prices.  Southwest Airlines has achieved success as a low-cost carrier but in turn has increased the competitive pressures between airlines to also attract enough passengers to meet capacity on flights.  
The potential threat of new entrants is a fairly weak competitive force because the cost of entry is so high in the airline industry.  Barriers to entry include costs of acquiring the fleet of airplanes and also low industry profitability.  The barrier to entry to entry in the industry is high due to current entrants, sizable economies of scale as well as their significant cost advantages due to experience and learning curve effects.  Entering the major airline industry would require substantial resources and capital, thus making the competitive pressure of new entrants weak.
Since Southwest Airlines currently service short routes domestically, the competitive force regarding the offering of substitute products is moderate.  Alternative methods of domestic travel that currently exist are buses, automobiles, trains, or not traveling at all.  When passengers are traveling a short distance, alternatives may become more appealing.  Since substitute transportation methods exist, consumers have the option to select which method best meets their needs and wants resulting in substitutes constituting a moderate competitive force in the industry.
Supplier bargaining power in the airline industry consists mainly of fuel suppliers and airplane manufacturers/suppliers.  In recent year, fuel costs have skyrocketed thus making it even more difficult for airlines to turn profits, thus the supplier power competitive pressure is moderate to strong.  Fuel suppliers have both pricing power and bargaining leverage over the airlines since fuel costs are based on supply and demand.  Also, at this time there are no substitutes for crude oil and jet fuel further strengthening supplier bargaining power.  In the past, Southwest had devised a fuel hedging strategy that consisted of modifying the amount of its future fuel requirements that were hedged based on management’s judgment about future oil and fuel prices; however, in 2008-2009 the supply of jet fuel was on the decline resulting in losses of $408 million.
