Everyone, please get onboard and fasten your seatbelts. You might be thinking, why am I talking like that? Well, since today’s article is about one of the most significant airlines in the US, it’s essential to set the right mood before we begin.
If I ask you to name one of the cheapest airlines in the US, you’ll probably name Southwest Airlines. If you live in the US, you can easily travel from one state to another and even to some international destinations such as Mexico, Central America, and the Caribbean without worrying about the money.
Besides being among the cheapest airlines in the US, Southwest Airlines holds great significance for travelers since it offers some amazing deals to its passengers. Other than offering low air tickets, the airlines have good service and offer WI-FI service to its passengers.
Moreover, it also gives away a free roundtrip flight to someone who has traveled through Southwest Airlines eight times. Due to these characteristics, Southwest Airlines is not only one of the cheapest airlines in the US, but it is also considered one of the best airlines in the US.
Some of you guys would have known the significance of Southwest Airlines already. However, all of you who are still reading know what makes Southwest Airlines such a unique airline.
Considering the significance of Southwest Airlines in the airline industry, let’s conduct Southwest Airlines PESTLE Analysis to see the external factors that affect the operations of Southwest Airlines.
However, before proceeding with the PESTLE analysis, let’s briefly discuss the history of Southwest Airlines so that you guys get an idea about the early days of Southwest Airlines.
Southwest Airlines were initially established in 1967. Although back then, it wasn’t called Southwest Airlines. Instead, it was called Airsouth west Co. Later, in 1971, its name changed to Southwest Airlines. At that time, Southwest Airlines was only operating in Texas.
However, with time the airline grew, and in 1979, it spread its operations in the entire US. After that, Southwest Airlines soon started international operations too. Currently, Southwest Airlines operates at 121 airports across 11 countries. Moreover, Southwest Airlines has built a solid customer base over the past 47 years.
Over the years, Southwest has built a fleet of 740 aircraft. Due to its extensive fleet, Southwest Airlines carries 130 million passengers to its destination each year.
The airline is doing very well in terms of finances. Due to low traffic when COVID-19 was at its peak in 2020, Southwest Airlines experienced losses. However, in 2021, the revenue grew and reached $15.79 billion.
Southwest Airlines also provide employment to thousands of people, not only in the US but also in other countries where it operates. In 2021, the airline had 55,100 employees working.
Now that we have discussed the history and operations of Southwest Airlines in detail let’s move ahead and carry out the airline’s PEST analysis. Before we start with the analysis, you guys should clearly understand what PESTLE analysis is.
PESTLE analysis analyzes the external factors that impact a business’s performance. While conducting a PESTLE analysis, the impact of different external factors such as Political, Economic, Social, Technological, Legal, and Environmental factors is discussed on the brand.
You may look at some examples of PESTLE analysis to better understand what’s happening in this article.
The first section of the PESTLE analysis highlights the political factors that influence a company’s performance. We will now look at how political factors affect the operations of Southwest Airlines.
Businesses require freedom to grow. Although regulation is essential for businesses, strict regulations stop businesses from operating freely. These restrictions often result in business losses since they cannot operate freely.
Regulations imposed by the government deeply impact the profitability and operations of airlines in the global airline industry. Due to political intervention and strict regulations imposed on the airlines, it gets difficult for them to choose suitable routes on their own.
The intervention of regulatory bodies of the US in the airline industry would cause difficulties for Southwest Airlines, and it could result in the loss of revenue for Southwest Airlines.
Besides regulatory policies, another factor that impacts a business the most is the taxation policies adopted by the government. Therefore, businesses search for countries where they have relaxed taxation policies so that maximum profit can be earned by the businesses.
Over the decades, the US government’s tax policies on the aviation sector were not satisfactory for airlines at all. For example, from 1990 to 2016, an increase of 400 percent tax was imposed on the airline industry.
In such conditions, it would be difficult for any airline to earn maximum profit. Similarly, Southwest Airlines also earns minimum profit since a large portion of revenue is given away through taxes.
Economic factors represent the economic variables that exist in the economy, such as interest rate, inflation, exchange rate, etc. Now, we will look at the economic factors that impact the operations of Southwest Airlines.
Income Per Capita
Businesses operate well in markets where people have high buying power. The buying power can also be linked with income per capita since income per capita tells how much money an individual possesses in a specific country on average.
Businesses like to operate in countries with high income per capita so that more people consume their products. Since the US has a high income per capita compared to developing countries, it is suitable for businesses, including Southwest Airlines, to operate in the US.
Southwest Airlines would prefer to operate in a country where people have the buying power to purchase air tickets and travel. Since the US has relatively better living conditions, people of the US can afford to travel on Southwest Airlines.
Inflation is an economic factor that makes businesses worry a little since, due to inflation, the cost of operations increases, which makes a business’s products expensive. Moreover, it also lowers the buying power of the people. Hence, the demand for products decreases due to high inflation.
Like any other business, high inflation would also impact Southwest Airlines adversely. High inflation would increase the cost of operations of Southwest Airlines, due to which it won’t be able to offer cheap air tickets to the passengers.
Moreover, high inflation would also lower the buying power of people, so the number of passengers using Southwest Airlines would fall, causing losses to the airline.
This section of the PESTLE analysis will highlight the social factors that will affect the performance of Southwest Airlines.
Southwest Airlines, being an airline, is closely connected with traveling. Hence, the airline must keep a close eye on the demography of its locations. According to the statistics, the youth of the US tend to travel more often than people of any age group.
Keeping these stats in mind, now we know how much importance the demography of an area holds and to what extent it can impact Southwest Airlines’ operations.
The things people do in their leisure time vary from person to person and place to place. For example, businesses conduct research and then choose the location to practice their businesses where people have similar interests to what the business has to offer.
In the case of Southwest Airlines, the leisure interests of the people of the US would really concern the airline since it would directly affect the operations of Southwest Airlines. The airline will benefit if potential customers’ leisure interest is traveling.
Technological factors hold great significance in impacting the operations of Southwest Airlines. So let’s look at what and how different technological factors impact Southwest Airlines.
Over the years, the number of internet users has increased worldwide. As internet usage has increased, awareness has also increased among people. As a result, people are now more intrigued to visit different places, and due to this, Southwest Airlines benefits since it leads to an increase in customers.
Moreover, businesses now use the internet for different purposes like marketing, sales, and purchase. For example, as internet usage increases, Southwest Airlines has started using it for marketing purposes. It has also made it convenient for customers to buy tickets online. As a result, more customers are attracted.
The impact of innovation on business operations varies from industry to industry. However, the airline industry responds very sensitively to innovation. As a result, Southwest Airlines can reduce operational costs by adopting innovation. This will attract more passengers and increase the profit of Southwest Airlines.
Businesses must abide by the laws of the society in which they operate. In this section, we will shed light on some of the legal factors that will affect the performance of Southwest Airlines.
Passenger Safety Laws
In the US, many laws affect airlines’ operations. Although the airline industry was deregulated in 1978, many laws and regulations have yet to be made. Passenger safety is one of the most significant legal concerns in the US airline industry.
Due to the strict laws concerning passenger safety, recently, Southwest Airlines had to ground all its flights of the Boeing 737 Max 8 after a deadly flaw was discovered in the plane. The fleet had 31 such airplanes at the time when it was grounded.
Southwest Airlines must abide by the laws, follow the guidelines set by the regulatory authorities, and avoid lawsuits.
Southwest Airlines need to follow the labor laws practiced in the US to avoid lawsuits. Recently, a case was filed against Southwest Airlines by a baggage-handling manager for not underpaying the workforce.
Not following the labor laws can have severe consequences for Southwest Airlines. Such lawsuits can result in heavy fines and a bad reputation for the airline. To avoid such problems, Southwest Airlines must abide by labor laws.
In this last section of the PESTLE analysis, we will discuss some environmental factors that impact Southwest Airlines.
Recently, governments and NGOs have been taking measures to prevent global warming. Since carbon emissions play a significant role in causing global warming, governments are taking strict actions to mitigate carbon emissions.
Laws are being made, and the government is also pushing the airline industry to take measures to mitigate carbon emissions. However, Southwest Airlines must quickly take measures to mitigate carbon emissions caused by its fleet, or else heavy fines can be imposed.
Over the years, many wildlife strikes have been observed. In 2018, around 16,000 wildlife strikes were reported in the US alone. NGOs have taken this matter into their own hands and are protesting to limit air traffic to save wildlife from airplanes.
The backlash from environmentalists against airlines can create problems for Southwest Airlines if the government decides to lower the air traffic. Moreover, people may start avoiding traveling by airplanes in the future. This can lead to financial losses for Southwest Airlines.
Today we discussed one of the cheapest airlines in the US, Southwest Airlines. Initially, we started off by discussing the history of the airline. Then, after getting a little background about Southwest Airlines, we discussed the current operations of the airline.
Then, we conducted the PESTLE analysis of Southwest Airlines to determine how various external factors affect the operations of Southwest Airlines. The PESTLE analysis framework helped us to have a detailed look at how Political, Economic, Social, Technological, Legal, and Environmental factors impact Southwest Airlines.
In this article, we learned about the external factors affecting the operations of Southwest Airlines. However, to analyze the internal factors impacting Southwest Airlines, look at the Southwest Airlines SWOT Analysis.