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Souyhwest Pestel Analysis

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Essay title: Souyhwest Pestel Analysis

Environmental analysis:

Michael Porter s Five Forces:

Porter’s Five Forces model is a powerful analytical tool for overseeing the general business situation in one industry. As the name suggests, there are assumed to be five competitive forces: the threat of substitute products, the threat of the entry of new competitors, the intensity of competitive rivalry, the bargaining power of customers, and finally the bargaining power of suppliers.

As it was suggested in “threats” section above, air industry faces threats of various substitutes as trains, car trips, and more recently, videoconferencing. Airlines face greater challenges, as competition from substitute products grows from season to season. Apart from high emulation and saturation of the market within USA air industry, there is a reasonable threat of new entrants. Nevertheless air business requires much greater starting capital, than, for instance, sandwich shop chain, USA is still the World’s fourth country with easy accessibility of capital to entrepreneurs (Mikken Institute research, 2005). Moreover, with only 5-6 days required to legally start a business, USA is indeed “a country of opportunity”.

Air industry’s suppliers, as it is widely known, maintain an immense influence, simply because there are only few. Airlines rely very much on Concorde, Airbus and other few aircraft producers, which means airlines do not have a great choice and variety of business offers. As Reich (2007) suggested, the power today is in consumers’ hands. It is hard to imagine monopolistic air routes within USA: consumers are continuously exposed to a greater choice.

PESTEL

1. Political factors

Exploring political environment inside the country of USA, which is run by Republican Party at the moment, it is necessary to note the next 2008’s Presidential elections will signal certain outcomes for businesses depending on which party wins. In effect, it is assumed Democratic government is likely to increase taxes to widen health-insurance coverage, whereas Republican government has already cut taxes in the recent 2007. Hence Republicans in many aspects do favour business establishments more together with their special stress on fighting against terrorism issues. However, Iraqi war and Afghanistan crisis put voters’ preferences under doubt, as well as Hillary Clinton’s (Democratic Party) growing popularity.

2. Economical factors

USA’s economy is well-established and developed. For many years USA has maintained substantial economic growth, stability, and relatively low inflation. However, economists warn American economy will sooner or later face severe recession, which has already started (America’s Vulnerable Economy 2007, p.11). It is also predicted consumer spending will inevitably fall, due to tighter credit conditions and dearer oil prices resulting in the implosion of housing market. Conceivably, enfeebled economic conditions with lesser spending power of consumers will result in less travelling. Moreover, rising fuel prices do add to economical problems USA and their businesses are facing today.

3. Socio-cultural factors

The change in social views on environmental damages is the main issue within socio-cultural environment of air business. As it will be noted later in the Ecological factors, it is a reduced pollution people see as the main factor of social responsibility.

4. Technological factors

Technology plays important role within Southwest’s environment, as the company delivers its main service through machines known as aircrafts. Rapidly changing technological abilities of airplanes require innovative and proactive approach from any airlines in the World. Australian Qantas airways, for example, offer impressive in-flight entertainment with 300 audio and video programs on demand together with personal remote.

Moreover, it is not only the aircrafts that need constant technological advancement, but Southwest’s in-house operations as well. For instance, online flight booking system requires constant review and enhancement for anti-fraud, anti-viruses, and other efficiency matters.

5. Ecological factors

Nevertheless United States are not bound by Kyoto Protocol (1997) agreements on environmental pollution reduction, carbon

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