Discussion Question 1: Use the model of the general environment (Chapter 2, Table 2.1) to evaluate the opportunities and threats facing the U.S. airline industry and Southwest Airlines in particular. What are the key opportunities and threats?
The health of the overall U.S airline industry is still tenuous in-spite of the passenger traffic volumes returning to pre-9/11 levels. A survey estimated that from 2001 through 2003, the US airline industry reported to have lost $23.2 billion dollars, compounded by an additional $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period 1995-2000
Drastic changes in the Economic, Political/legal and technological segment of airline 's external environment contributed to some of the major looses seen by the industry. The key factors that heavily contributed to the loses include
Economic slow down in the country
Massive decline in business travel
Increase in competition
Availability of substitutes for air travel
soaring fuel prices
In response to the industry 's financial crisis, Congress made available several forms of relief that amounted to over $20billion. This relief includes the payment of upto $5billion in pretax cash assistance to reimburse air careers for losses incurred as a direct result of the 4-day government shut-down of air traffic after 9/11. However, relief measures were not enough to bring the airline industry out of hot water.
Most of the airlines have accumulated vast amounts of debt which brought them on the verge of bankruptcy. The list includes Atlas/Polar Cargo, Midway, National, Sun Country, TWA, United and US Airways. American and Delta airlines narrowly avoided bankruptcy but have warned about such possibility. "An average carrier is now well over 90% leveraged (net debt to equity ratio) compared to 60-70 percent