Macro-Environment of Southwest Airlines (Revised Text) Economic

Macro-Environment of Southwest Airlines (Revised Text)

Economic Environment: encompasses all factors that have a direct effect on GDP, unemployment, inflation, interest rates, and exchange rates (Gimbert 48). The most fundamental are; fuel prices, and the effect of economic cycles. Economic downturns brought about by such factors as the 2007 financial crisis and the September 2011 tragedy drive airline customers across the U.S. To cut down on personal expenditure. The company, as a result, faces lower levels of air ticket demand, although the levels of customer expectations remain unchanged.

World fuel prices are quite unstable. Southwest Airlines largely depends on fuel; as a matter of fact, fuel costs account for almost half of Airline companies' operational expenses. An increase in the price of fuel impacts negatively on profitability; the company may not consider raising its air fares, so as to protect its excellent-service-at-low-cost reputation.

Political and Legal Factors: federal, state and local regulations have an impact on Southwest Airline's operations (TSHA). Government action, through the Federal Aviation Administration (FAA) has significant influence on Southwest Airline's core operations (TSHA). The 1979 Wright Amendment, for instance, prevented the airline from carrying out non-stop plane service from Dallas Love Field (TSHA). A law expected to take effect in 2014 seeks to repeal the Wright Amendment, after which non-stop flights will be legal, and the company will be forced to change strategy (TSHA).

Southwest Airlines is subject to aviation taxes and is affected by changes such as the imposition of additional taxes, changes in the amounts charged for airport passenger facility, and the enactment of new regulation regarding labor, consumer and environmental standards made to the FAA reauthorization legislation by Congress (TSHA). Southwest Airlines operates under the regulatory jurisdiction of the DOT, and has to comply with its consumer protection standards on matters advertising, airline code sharing, and specialized treatment of persons with disabilities, among others (TSHA).

Following the 9/11 tragedy in 2001, Congress adopted legislation aimed at tightening security and preventing a reoccurrence of the same. To this end, Southwest Airlines has to comply with the provisions of the Aviation Security Act, which require airlines to, among other things, train their crew on the handling of security matters, thoroughly screen all passengers, and maintain an adequate number of federal air marshals aboard flights (TSHA). Southwest Airlines, moreover, has to operate in compliance with the stringent security-enhancement rules set by the TSA, including carryon luggage requirements and the payment of the Aviation Security Infrastructure Fee (TSHA). Recent years have seen numerous modifications made to these rules; a factor that makes it difficult for the company to predict the effects of such changes in the short-term and in the long-term (TSHA).