Southwest Airlines, with its headquarters in Dallas, Texas, is a leading airline in the US that is operating in more than 40 states in the US. The company serves international destinations such as Jamaica, Mexico, Cube, and Costa Rice, among others. Southwest Airlines Co. or Southwest is the parent organization of Southwest Airlines and is a favorite among the air transport users for its low prices and quality provision of tits services. The company was founded in 1971 with only three aircraft (Boeing 737) for air operations. Southwest adhered to the point-to-point mode of service as compared to a hub and spoke method used by the majority of the US-based airlines. The company hit the spot when in 2018, it was ranked as the top air carrier that served maximum passengers than any other airline on domestic flights. Southwest Airlines carried around 163.6 million passengers in 2018; this figure was surpassed in the successive years. The top competitors in the market are American Airlines, Delta Airlines, and United Airlines.
The aviation industry is a highly challenging sphere subject to economic, technological, and political hardships. The Airline business has become aggressive and competitive besides being rigorously taxed and regulated by governments. Moreover, it faces unprecedented contests for profitability and compliance. The expansion and growth face other challenges of the diverse range, including high operational costs, intensive competition, pricing, and regulations. This PESTEL/PESTLE analysis would reveal external factors affecting the business of the company. Therefore, Southwest is working to overcome these challenges, and are revealed in the succeeding discussions.
Political Factors Impacting Southwest Airlines
Political policies and regulations deeply impact the profits and operations of aviation industries across the world. Before 1978 when the aviation industry was regulated by the governments, it faced immense scrutiny and control by the federal government. Nonetheless, the deregulation let the industries play in the freedom of choice in pricing and routes. Still, the industry is subject to the highly taxed and most regulated business. The last few decades have witnessed a sharp rise in taxes. The data revealed by Airlines for America, from 1990 to 2016, the airline industry was inflicted with a rise in taxes by 400%. The taxes have grown to $23 billion in 2016, where it was just $3.7 billion in 1990. The aviation industry is controlled by two main federal agencies, namely DOT (Department of transportation) and FAA (Federal Aviation Administration). These agencies are responsible for enforcing and issuing consumer protection regulations besides issuing licenses. These bodies in the US have given a tough time to the already working aviation industries and to those who are seeking to enter this industry. The Federal Aviation Administration (FAA) has control over a diverse array of issues which include safety regulations such as giving licenses to crew and pilots, regulating the operation, maintenance, and even manufacturing of aircraft. Also, it overviews safety, surveillance, as well as oversights air transportation operations. In the same way, these authorities regulate air traffic, quality, and maintenance of airports and check on the registration of airplanes and parts.
Nevertheless, the airlines often complain about the excessive authority of these departments. In the meantime, Dot is criticized for charging abusive taxes that hinder airlines from providing innovative fair policies to their customers. Airlines are unable to afford programs of zero-fare. Moreover, the FAA imposed further limitations on the airlines for flight charges, and overbooking, besides regularizing accommodation for disabled passengers. These regulatory departments are accused of passing legislation that puts an unnecessary burden on the economy and hinders them from offering more jobs and retards their growth. Thereby, these political legislations have put pressure and barriers in the way of these airlines. The last few decades have witnessed the imposition of high taxes on the aviation industry as compared to other businesses. Even worse, the changes in governmental policies on fuel adjustment, taxes, transportation, and marketing adversely impact Southwest Airlines’ business growth.
Economic Factors
The economic factors can impact the profitability and operations of the aviation industries working in the US. This industry is also vulnerable to international and national economic conditions. For instance, the steady economy in 2018 has caused modest growth and benefits for the airline industry. The demand side of this industry fluctuates and depends on the economic condition of the state. The fixed high rates become a problem when the overall economy is not stable. Although the economic fluctuations alter the growth and revenue of the aviation industry, the steady growth of the US economy and market has benefited the aviation business. However, any incident of recession in the economy can negatively affect the business of this industry. Moreover, the rising competition is another challenge that forces the industry to offer modest rates and, thereby, a cut in revenue and industrial growth. As the prevalent economic conditions of the US are quite healthy, a reduction in unemployment has been observed nationwide. This situation has circulated the economy, and the public has been able to spend more on leisure and travel activities. These circumstances have greatly benefited Southwest Airlines.
The main revenue for Southwest airlines comes from the US, and the stable market of the US has helped to foster optimistic growth. The annual report of 2018 stated that the company accumulated a massive sum of $22 billion in 2018, a figure higher than the $21.15 in 2017. Moreover, the increased competitiveness in the industry after deregulation has also impacted on the company’s position. The most competitive companies in the aviation market are Delta Airlines, American Airlines, and JetBlue. Besides these companies, the new entrants with ultra-Low-Cost-carrier technology have aggravated the competitive situation at the domestic level. These competitors (ULCCs) based include Sun Country, Frontier, Spirit, and Allegiant. The past few years have witnessed massive growth in this industry. Thereby, the rise in competition led to aggravated marketing and operational costs. The quest to capture market share has threatened the Southwest market share in the US.
Impact of Sociocultural Factors on Southwest Airlines
Sociocultural factors have a significant impact on the economy and the growth of businesses. Demographic elements impact the functioning and effectiveness of businesses in marketing and national and global operations. To demonstrate, the tendency to travel has been observed highest throughout the millennial crowd. The statistics about the travel history of people aged between 18 and 29 years have found that 14% of these people have travelled several times within the past years for private reasons.
These factors have the potential to impact the industry in many ways. The rising awareness and the penetration of technology have necessitated the public to travel even more. The demand is dependable on the social and economic conditions of the regions. It is observed that in the region with higher levels of growth and social development, traveling by air is more common for them. Moreover, the maintenance of social reputation is the sine qua non for the business to be successful. This factor helps in the retention of loyal customers along with the capture of a new customer base. Therefore, to maintain the brand image, the company has effectively pursued a socially responsible image so that it can win society’s confidence and trust. Southwest has invested in improving social responsibility and, thereby, the environment. Southwest has been actively contributing to social works and charities for the past years. Finally, the company’s recognition as customer-oriented and fair-price has secured a competitive edge in the market for Southwest.
Technological Factors
Technological elements have a great play in the aviation industry to promote revenue and growth. Technology has become a significant factor in the aviation industrial sector due to many reasons. The increased focus on customer convenience, safety, and intensifying competition are the main contributors. Apart from the rising competition, fuel-efficient operations, safety, and customer convenience are significant for Southwest to secure profits and optimize growth. The company has been using Boeing 737 since its inception due to its fuel efficiency.
In the same way, the increased use of the internet and mobile phones have revolutionized all industries. Mobile apps have been used for bookings and customer info services. Therefore, the company must invest in these technologies to ease the process for its customers. Southwest has successfully improved its mobile app technology. Google pay has enabled the customers to get a boarding pass from there along with the iOS optimized version. Even more, Southwest has improved its messaging services to secure a superior edge in giving services. This has enabled the company to foster customer convenience and a better user experience. The use of digital marketing has increased the advertising capabilities of the company. Southwest uses social media platforms like Twitter, Facebook, and Twitter for its marketing and promotion.
Environmental Factors
Environmental factors are now immensely shaping businesses in the contemporary age. The aviation industry is no different from this. Emission regulations demand that companies remain environmentally responsible. The company is also regulated by several laws related to the environment and its preservation. There are numerous acts like the Clean Air Act, the Resource Conservation and Recovery Act, etc., besides state and local laws. These regulations control the emissions and disposal of chemicals, jet fuels, hazardous waste, and deicing fluids of aircraft. Moreover, the key areas of focus to ensure environmental responsibility include aircraft noise and climate change. Although many new Acts are under consideration, the company voluntarily examines the adverse impacts of its activities on the environment and the possible ways to prevent or mitigate these effects.
The company has a solid image in terms of environment and socially responsible company. Southwest has invested in social responsibility and CSR to hold its image as a responsible company in the community or society where it operates. Southwest has significantly improved its fuel-consumption ratios. From 2005 to 2018, 32.8% more improvement has been recorded in all of its fleets. Besides this, Southwest has rigorously invested in processes to control greenhouse emissions and in the recycling of materials to reduce its sinking impacts. The company has been improving CO2 emissions for the consecutive 8 years. It has started purchasing sustainable biofuels. In 2018, the company recycled around 3,757 tons consisting of disposal material to reduce environmental impacts.
Therefore, environmental responsibility helps the company to achieve two advantages. It can stay compliant with the environment, and it can help the company to sustain a reputable brand image. The company and its employees are contributing to environmental projects as well.
Legal Factors Prevalent in the Business Environment
The aviation industry is subject to complex laws and regulations in the US. Although the laws somehow became flexible after the deregulation in 1978, still laws related to the aviation business are immense and complicated. DoT and FAA, as discussed above, are the primary regulatory agencies. These bodies are responsible for overseeing airline operations. Passenger safety is the main concern of these regulatory bodies, but they also oversee labor, operations, customer services, and environmental concerns; therefore, these airlines are cautious as they risk losing billions in terms of fines.
The Max 8 model of Boeing was found to have a deadly flaw, and the company terminated all the flights with that aircraft model. No less than 31 Max 8 planes were grounded at that time. Southwest faced an investigation against discrepancies related to baggage.
Nevertheless, these legal complications are not penetrating the US alone. Aviation regulations are strictly observed across the globe, and the companies do not afford to pay billions in fines if they lose compliance. Although Southwest has paid many fines, the company still managed to maintain its repute and compliance with these laws. As the laws in the aviation industry are growing each day, the company must be obedient to these laws to foster growth in the short term and long term. Nonetheless, the company has won a top position in projecting compliance with legal regulations in the US. This is necessary to avoid fines and avoid a loss of reputation.
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