Political and Legal Environment
The American airline industry is impacted by the legal restrictions and regulations related to competition, tax policy and international trade. The airline industry is also impacted by political factors such as terrorism, war and outbreak of diseases for example: Ebola (Cederholm, 2014). Southwest Airlines operates in a highly regulated American aviation industry with rules related to ethical competition, trade restrictions and tax policy. The U.S. government has strong regulations related to air travel and incoming passengers and require airlines to comply with their regulations. The political environment was heavily affected during the 9/11 terror attacks and economic recession as several airlines’ revenue decreased and were forced into cut jobs.
Barriers
The airline industry and players such as Southwest Airlines face continuous growth in the upcoming decade. But, they face barriers in the form of limited infrastructure, increasing fuel prices and talent retention. Southwest Airlines faces barrier towards growth in terms of limited infrastructure and needs to invest additionally in their infrastructure to upgrade their operations to manage increased business. Increased fuel prices also challenges the profits of the airliner, as increases fuel rates mean the airliner would need to pay higher expenses for every flight they operate. Finally, talent retention in the highly competitive industry remains another barrier for the business as other airliners from different parts of the world can poach their employees (PWC, 2015).
Limitations
Investor skittishness is one of the weaknesses that are seen in Southwest Airlines as profits are increasing due to low fuel rates, but it is expected the airlines are oversupplying their seating capacity (Stynes & Beilfuss, 2015). Southwest Airlines is not in a position to manage increasing competition as they remain geographically concentrated and many large airlines have started competing in their sector. Increased competition in the airline industry for consumer dollars is another limitation as they have started cutting off seats on their airlines. In addition, the Southwest Airlines strategy of capacity cuts will ensure their revenue is reduced in the coming quarters (Reed, 2015).
References
Cederholm., T. (3 September 2014). Why political and legal factors impact the airline industry. Retrieved 5 January 2015 from, http://marketrealist.com/2014/09/why-political-and-legal-factors-impact-airline-industry/
PWC. (8 June 2015). Global Airline Industry to Undertake Infrastructure, Fuel Price and Talent Challenges to Meet Growing Demand, According to PwC US. Retrieved 5 January 2015 from, http://www.prnewswire.com/news-releases/global-airline-industry-to-undertake-infrastructure-fuel-price-and-talent-challenges-to-meet-growing-demand-according-to-pwc-us-300095155.html
Reed., T. (9 June 2015). Southwest Starts Capacity Cuts as American and United See Second-Quarter Weakness. Retrieved 5 January 2015 from, http://www.thestreet.com/story/13180046/1/southwest-starts-capacity-cuts-as-american-and-united-see-second-quarter-weakness.html
Stynes., T & Beilfuss., L. (9 June 2015). American, Southwest Are Latest Airlines to Show Signs of Weakness. Retrieved 5 January 2015 from, http://www.wsj.com/articles/american-airlines-cuts-forecast-1433853902
