Southwest Airline’s External Environment Essay (Critical Writing)

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Operating Environment

Firm’s Competitive Position

Southwest Airline industry faces rigid and highly unpredictable competition on the part of other airline services, including AirTran. The key competitive factors involve cost structure and pricing, frequent flyer schedules and programs, and customer satisfaction (Morningstar Document Research 19).

Additionally, the company also competes with other types of transports that now face significant technological advancement. Introducing new high-speed rails constitutes the major threat to the company because it provides flights for short destinations only.

Operating environment is closely associated with level of customer service (Pearce and Robinson 87). At this point, the report asserts that company has the lowest ratio of complaint and the decent quality of services, including on-time performance, advanced flight equipment, and level of comfort. Introducing new models of aircrafts ensures lower maintenance costs and better use of fuel (Morningstar Document Research 21).

Relationships with Suppliers and Creditors

Southwest Airlines depend on single engine and aircraft suppliers, as well as on suppliers of other spare parts. In this respect, the company can face significant problems in case some of its suppliers fail to deliver additional equipment on time (Morningstar Document Research 28).

As per creditors, the solvency evaluation of company’s financial ratios indicates’ the capacity to resist long-term creditors. The ratios also reveal the firm’s ability to consider business conditions and minimize net losses (Drake 9).

Nature of Labor Market

Southwest’s success in carrying out business can lead its employees to higher compensation packages. Labor market conditions, therefore, will have to choose a stronger position to take control of lower costs.

Due to the fact that the company has sustained fruitful relationships with its workers, it can convince them to help maintain lower costs. Such a strategy is essential for facing rigid competition (Bundgaard et al. 4).

Remote Environment

Economic Factors

Cost of fuel is the major threat to company’s success, along with the increased taxes. Restricted control of fuel and taxes can create serious consequences for other aspects of company’s development (Morningstar Document Research 26).

Social Factors

Compliance with health regulation is an important factor that Southwest Airlines should consider while attracting new employee base, as well as capturing new customers (Morningstar Document Research 17).

Political Factors

Heavy regulation and high taxes pose the major obstacle to the company’s normal functioning. This is of particular concern to security regulation, environmental regulation, international control, and safety regulation.

To begin with, the Company is largely affected by the Aviation and Transportation Security Act that focuses on various procedures addressing light deck security, airport perimeter availability, training programs for airline crew, and screening of cargo and passengers (Morningstar Document Research 18).

The costs spent on reinforcing these procedures should be introduced to maintain safety and security of passengers, as well as sustain good reputation among other airline companies.

Environmental regulations imply the company should follow federal regulations associated with the environmental protection, including the Clean Air Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act (Morningstar Document Research 19).

There should also be provisions monitoring the company’s policies that regulate climate change and greenhouse challenges. Additionally, the Airport Noise and Capacity Act implies that the company should introduce local noise reduction programs to ensure comfort to the districts near the airport.

Technological Factors

Southwest Airlines largely depend on advances in technology because they have a potent impact on the quality of services and customer satisfaction. More importantly, it also identifies the company’s competitiveness (Morningstar Document Research 26). Therefore, the firm has strongly been committed to exploring new high-tech opportunities to support new operations and strategies.

Industry Environment

Porter’s Five Forces Model Analysis

Currently, the airline industry in the United States is determined by significant competition and high level of volatility. Capital intensity and technology development also influence high level of concentration, which contributes to rivalry among other airline companies.

The concentration derives from the inflow of new entrants. However, the threat is minimal because operational costs situation and intense competition provides new approaches to managing the industry (Hawkins, Misra and Tang 13).

Boundaries of the Industry

The main boundaries of the industry refer to technological advancement, narrow-focused orientation in terms of services provided, and lack of mobility and flexibility in industry (Morningstar Document Research 25). External environment is constantly changing and, as a result, most of global concerns can have unpredictable consequences for its development.

Structure of the Industry

Pricing is considered a significant factor in shaping the airline industry infrastructure. Expanding route structure is also a priority for the company because it can enhance the company’s competitive stance.

Competitors and Major Determinants of Competition

The major determinants of competition involve heavy regulation procedures focusing on quality standards and environmental procedures, rapid development of new high-speed rails that can substitute major short-routes flights provided by the company, and constant technological advancement.

All these issues hamper the successful operational and industrial development. Additionally, increased costs and high taxes imposed by the federal government have made the company’s managers to reconsider their financial policies, as well as define which areas should be less financed.

Recommendations for Improvement

The analysis of the above-presented initiatives, as well as company’s analysis of external capabilities reveals a number of challenges that should be tackled to overcome the rigid competition and sustain stead growth and development. First of all, the airline company should reconsider its low-cost policy that restricts its possibility to enter the global environment and comply with the established requirements.

Specific attention should be given to minimal differentiation that creates low profit margins, leading to serious price competition. Therefore, budgeting considerations are vital to make shifts to product diversity.

Second, the company should develop new destination points that can exclude the possibility of substitution the flights by less expensive kinds of transport, including high-speed rails, car, and bus. At this point, Southwest Airlines should conduct an independent research to define which destinations will be in high demand among clients to predict future costs and profits.

Third, greater control of technological development should also be taken into consideration because it can present alternative solutions in terms of supply of new spare parts. In particular, the aircraft quality can also reduce the costs on maintenance and ensure extra spending on customer services.

In such a manner, it will be possible to handle social challenge and develop a new corporate responsibility framework that can promote higher level of competitiveness of the company over other airline industries.

Finally, adhering the to environmental protection principles is another important approach to improving the company’s capacity and introducing new moral and ethical framework to act in a global setting. Employee’s awareness will also be increased due to strict regulations.

Works Cited

Bundgaard Tycen, Bejjani John, and Edmund Helmer. . PDF File. 2006. 1-34. Web.

Drake, Wayne. “.”, Accounting for Financial Decisions. PDF File, 1998. Web.

Hawkins Owen, Misra Rahul, and Hao Tang. “.” Griffin Consulting Group. PDF File. 2012. 1-30. Web.

Morningstar Document Research. Southwest Airlines CO-LUV. US: Security and Exchange Commission. 2013. Print.

Pearce, John and Richard Robinson. Strategic Management. US: McGraw-Hill/Irwin. 2012. Print.

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