Situational Analysis
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- Date Submitted: 03/03/2016 03:41 PM
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IV. Situation Analysis
A. Environment: Many outside factors affect Southwest’s ability to reduce expenses. Southwest and AirTran deal with an element of seasonality. The second and third quarters usually show higher travel volumes than the first and fourth quarters of the year as tourism and travel tends to increase during the spring and summer months (Southwest Airlines Co., 2012). Nineteen different unions represented about 83% of Southwest’s employees in 2012, which can affect Southwest’s ability to lower prices due to labor compensation requirements (Southwest Airlines Co., 2012). Another significant economic factor that has a large effect on profit is the price of fuel. In 2012, approximately 37% of Southwest’s operating expenses were attributed to oil. In an effort to mitigate the volatility of fuel prices, they entered into hedging agreements with several crude oil companies (Southwest Airlines Co., 2012). These economic conditions, among others, had led Southwest to constrict capacity growth through the economic recovery.
B. Industry: In 2012, during the merger between AirTran and Southwest, there were fifteen major airlines as defined by the Department of Transportation (DOT). According to the DOT, major airlines are defined as those with at least $1 billion dollars in annual revenue (Southwest Airlines Co., 2012). All of the major airlines Southwest and AirTran competed with offered scheduled passenger service. In addition to other airlines, Air Tran and Southwest also competed with other means of passenger transportation (Southwest Airlines Co., 2012). The prevalence of online booking services such as Kayak and Orbitz, that allow consumers to compare many airlines’ real-time ticket fares instantly poses a new dimension to the competition between the airlines. Pricing is a major decision factor when buying an airline ticket, and therefore a very important competitive factor as well (Southwest Airlines Co., 2012). Southwest has a competitive edge...
A. Environment: Many outside factors affect Southwest’s ability to reduce expenses. Southwest and AirTran deal with an element of seasonality. The second and third quarters usually show higher travel volumes than the first and fourth quarters of the year as tourism and travel tends to increase during the spring and summer months (Southwest Airlines Co., 2012). Nineteen different unions represented about 83% of Southwest’s employees in 2012, which can affect Southwest’s ability to lower prices due to labor compensation requirements (Southwest Airlines Co., 2012). Another significant economic factor that has a large effect on profit is the price of fuel. In 2012, approximately 37% of Southwest’s operating expenses were attributed to oil. In an effort to mitigate the volatility of fuel prices, they entered into hedging agreements with several crude oil companies (Southwest Airlines Co., 2012). These economic conditions, among others, had led Southwest to constrict capacity growth through the economic recovery.
B. Industry: In 2012, during the merger between AirTran and Southwest, there were fifteen major airlines as defined by the Department of Transportation (DOT). According to the DOT, major airlines are defined as those with at least $1 billion dollars in annual revenue (Southwest Airlines Co., 2012). All of the major airlines Southwest and AirTran competed with offered scheduled passenger service. In addition to other airlines, Air Tran and Southwest also competed with other means of passenger transportation (Southwest Airlines Co., 2012). The prevalence of online booking services such as Kayak and Orbitz, that allow consumers to compare many airlines’ real-time ticket fares instantly poses a new dimension to the competition between the airlines. Pricing is a major decision factor when buying an airline ticket, and therefore a very important competitive factor as well (Southwest Airlines Co., 2012). Southwest has a competitive edge...