Macroeconomic Impact On Business Operations

MACROECONOMIC IMPACT ON BUSINESS OPERATIONS

MACROECONOMIC IMPACT ON BUSINESS OPERATIONS: AIRLINE INDUSTRY

Team A

University of Phoenix

MACROECONOMIC IMPACT ON BUSINESS OPERATIONS: AIRLINE INDUSTRY

Introduction

The macroeconomic impact on business operations has many variables. Among the more significant of these variables include the gross domestic product (GDP), unemployment, inflation, and interest rates. In an effort to analyze the interrelationship between these variables and the resulting impact on business and the economy, the authors of this paper employed several methods of collecting data. The first method took advantage of the world-wide-web to gather information. The second method utilized the content of the University of phoenix eRsource material. The third method involved the research of "best practices" for organizations in the Airline Retail, Defense and Automobile industries.

The information contained hereafter seeks to address and examine the macroeconomic impact on business operations. This research will labor to analyze the interaction between fiscal and monetary policy and its effect on macroeconomic factors such as GDP, unemployment, inflation and interest rates, identify a list of best practices being used by the Airline industry to respond to changes in macroeconomic factors, identify three external best practices being used by organizations in the Retail, Defense and Automobile industries to respond to changes in macroeconomic factors, identify how the three external best practices could be applied to problem-solving in the Airline industry, examine how the consumer price index (CPI) changes in relation to the Airline industry and a conclusive summary of findings. In an effort to facilitate this discussion, an analysis of the interaction between fiscal and monetary policy and its effect on macroeconomic factors is appropriate.

Fiscal, Monetary Interaction- Macroeconomic impact

According to the University of Phoenix simulation (2006), the Discount rate (DR) and the Federal Funds Rate (FFR) has an inverse relation to each other and impact on the money supply circulating in the economy. Banks are inclined to borrow from the Feds if the DR charged by the Fed is lower than the FFR charged by other banks. As the DR is decreased, banks shift their source of borrowing from other banks to the Feds, which increases the amount of money in circulation. The inverse of this relationship holds true as well. The Required Reserve Ratio (RRR) represent the percentage of deposits that any bank holds as reserves in vaults or with the Feds. The Feds mandate this ratio. If the ratio is decreased, banks are required to hold lesser amounts in reserve which increases the amount of money in circulation. The inverse of this relationship also holds true. Open market operations are comprised of T-bills, bonds and other federal instruments that are sold to investors. Sales of these instruments typically drain money out of the system. Similarly, buying these instruments releases money into the system.

"The money supply has affects the macro-economic indicators. Three of the leading economic indicators are the Real Gross-Domestic Product (GDP), the inflation rate and the Unemployment rate. The GDP increases with an increase in the money supply. Higher levels of money in the system act as a spur for investment and consumer/industrial demand. This, in turn increases the nation's real GDP. Increasing the money supply will increase the rate of inflation. When the amount of money in the system is increased, the nominal value of money remains the same. However, as more money chases the same quantity of goods and services, the real value of money is decreased. As a result, prices go up, thereby signaling greater inflation rates. The unemployment rate is inversely related to GDP. Due to increased investment and spending, the demand and employment opportunities for the workforce go up, since labor is required for the production of goods and services. As the GDP goes up, the unemployment rate tends to go down. Similarly as money is drained out of the system, GDP tends to fall, the demand and employment opportunities fall, thus putting pressure on the unemployment rate to increase. In an effort to analyze the macro-economic impact on an organization within a specific industry, the information noted immediately below list the best practices being used by the Airline industry to respond to changes in macroeconomic factors.

Team Chosen Industry Analysis - Best Practices

Southwest Airlines is known as an innovator in the field of commercial aviation, a company that has managed to successfully navigate the stormy water of the airline industry. Over the past half a decade, Southwest Airlines has shown profitability and growth in an industry plagued with losses and bankruptcy.

Southwest Airlines began operations in 1971, serving Dallas, Houston, and San Antonio. Over the years Southwest has developed an approach to operations that has separated them from their competitors. This industry has grown at an average rate of 5% over the past 20 years. Of course several economic and environmental factors, such as the events of September 11th and the current war on Iraq, have caused this growth to fluctuate. But, as market competition keeps increasing, airline management is trying to improve productivity, using different methods to reduce unit costs, and increase total network revenues without raising fares.

What helps keep Southwest so successful is its company's well-organized, efficient management and superior attitude. They do a very good job of concentrating on keeping their customers happy. They do this through treating their employees how they would want their customers to be treated, and committing themselves to constantly cut-down on costs. Southwest Airlines is very good at recognizing how to cut down cost, which makes them a very efficient company. The only type of airplanes that Southwest Airlines uses is Boeing 737. By standardizing the airplanes, it cuts down on the cost of maintenance. It also offers passengers to travel without tickets, which saves on cost in the office. They operate their own reservation system so they don't have to pay travel agencies and they also provide the purchase of tickets online.

Customers can fly to over sixty cities in 30 states and they also get to choose where they sit because