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Paper Topic:

Economics- Environmental Analysis

Running head : Economics- Environmental Analysis

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Macro economic factors affecting the U .S airline industry

The airline industry is hostage of many factors that are beyond its control and are rather felt across the whole economy . These factors include changes in labor costs , fuel prices , food prices , insurance utilities , and GDP growth and interest rates . The airline industry is both capital and labor intensive and therefore rising labor costs has a very huge burden on the industry . Fuel costs forms the second biggest

component of the airline operating cost . The industry is also subject to the volatility of the interest rates in the economy impacting on financing costs . Food forms part of the frills offered and variations in food prices has an effect on the industry as a whole . A growth in GDP boosts the airline industry just as a growth in the airline industry is raises growth of the GDP ( HYPERLINK "http /www .airline .org ,2007 www .airline .org ,2007

This studies the effect of labor and fuel costs have on the airline industry analyzing data from the last five years . It focuses on two macroeconomic that affect the airline industry in general and South Western Airlines in particular

Southwest Airlines Company is an air carrier founded in 1967 with its headquarters in Dallas Texas . It started as a small airline in Texas took advantage of the deregulation of the airline industry to grow to be among the top airlines with a young fleet . It transports over 100 million passengers per annum with a fleet of 481 Boeing 737 aircraft and serving 63 cities ( HYPERLINK "http /www .swabiz .com " www .swabiz .com , 2007 . Among the risk factors it included in its latest 10-K report it noted the fuel prices to be a real threat to its business . The table below shows that cost and proportion of fuel expenses for the company Year (Millions ) Per Gallon Operating Expenses 2002 762 .68 14 .7

2003 830 .72 14 .9

2004 1 ,000 .83 16 .3

2005 1 ,341 1 .03 19 .6

2006 2 ,138 1 .53 26 .2 (investing .businessweek .com , 2007

The company also noted that it is vulnerable to escalating labor costs having it in mind , the intensiveness of labor of the airline industry The two factors are largely beyond the control of the company as they are reflected all over the economy

Effects or rising oil prices on air industry

Oil prices have been spiraling upwards globally due to supply constraints and increased demand . The airline industry has been one of the worst hit worlds over by the high jet fuel prices . U .S airlines consumed 19 .6 billion gallons of jet fuel in 2006 . High oil prices have been brought about by the escalating of the Middle East crisis coupled by west invasion of Iraq . Further tensions in the Nigerian oil Delta also affected the supply factor . Another factor that affected supply chronically was the hurricane Katrina in 2005 . It hit...

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