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Southwest Airlines

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Nikolay Venev

on 8 December 2012

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Transcript of Southwest Airlines

Company and Industry Overview Company History Industry Overview External Analysis 1967 - Incorporated in Texas as Air Southwest Southwest Airlines Today 1971 - Southwest Airlines "Go Slow" approach for expansion Entering a market only if conditions are favorable - First Flight - serving Texas Cities - Dallas, Houston and San Antonio 42 year of service
Offers a reliable product
Continues to differentiate itself from other low-fare carriers by providing great Customer Service.
Serves 97 destinations:
41 states
The District of Columbia
The Commonwealth of Puerto Rico
Six near - international countries,
Employs approximately 46,000 People. AIRLINE INDUSTRY - Transport passengers and cargo regionally, domestically, and internationally. 100 certificated passenger airlines operate - over 11million flight departures per year
Carry over one-third of the world’s total air traffic$160 billion in total revenues545,000 employees and over over 8,000 aircrafts operating 31,000 flights per day
Commercial aviation contributes 8% of the U.S. GDP U.S. Market General Environment PEST Analysis Deregulation by government
Ownership rules relaxed POLITICAL FORCES Very competitive and mostly global market
Various airlines with very similar product offers
High fixed costs, low variable costs
Low operating margins compared to other industries Reluctance to fly due to security issues
Many loyal and frequent flyers
Generally poor labor relations SOCIAL FORCES TECHNOLOGICAL FORCES ECONOMIC FORCES High Threat of
New Entrants Medium Threat of Substitutes Low / Medium
Supplier Power Porter's Five Forces E-ticket sales - reduction in overhead costs
Investments in new aircrafts
Advances in aircraft safety Competitors Strengths and Weaknesses Southwest Airlines Yifeng Li
John Sullivan
Nikolay Venev Second largest airline in the world based on available seat miles and revenue passenger miles
On a daily average: 3,400 flights between 250 countries
The company has been recording net losses for many years and has experiences very weak demand for air travel driven, particularly during significant economic downturns American Airlines: Merger between United Airlines and Continental Airlines took place on October 1st, 2010.
United Continental Holdings is the largest airline in the world.
Approximately 5,800 flights a day to more than 375 U.S. domestic and international destinations.
The company's hub and spoke system allows it to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. United Airlines and Continental Airlines: 2nd largest passenger airline in the world by available seat miles.
Financial difficulties due to price competition from discount airlines like JetBlue and Southwest.
Delta was forced into bankruptcy in September of 2005.
Since exiting bankruptcy on April 30, 2007, the company has followed a revised operating strategy Delta Air Lines: Internal Analysis Southwest Airlines Mission "The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit." Mission to Southwest's Employees "We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer." Key Events in the Airline Industry 1978 - The Airline Deregulation Act
Easier entry into market
Cheaper/more options for travelers
Safety Concerns

2001- Air Transportation Safety and Stabilization Act
-Result of 9/11 attacks Industry Issues Price Wars
Airport Slotting
Safety Recommendations Strategies
and Issues Agenda: Company and Industry Overview
External Analysis
Internal Analysis
Recommendations VRIN Analysis Brand Name Valuable Y Rear Y Costly to
Imitate Y Non-
Substitutable Y S Sustainable
Advantage Low Fares Valuable Rear Costly to
Imitate Non-
Substitutable Y Y Y N S Temporary
Advantage Customer Service Valuable Rear Costly to
Imitate Non-
Substitutable Y Y Y Y Sustainable
Advantage S Employees Valuable Rear Costly to
Imitate Non-
Substitutable Y Y Y Y S Sustainable
Advantage Strengths Weaknesses Top class service
Great employee relationships
Best low-fare carrier
Dependent on a single type of aircraft - the Boeing 737
Profitable No flights to international destinations
Does not offer segmented seating options
Dependent on a single type of aircraft - the Boeing 737 Opportunities and Threats Threats: Increase of fuel price
Decline of leisure travel due to terrorism or a depressed economy
Being copied by competitors Opportunities: International market
Long distance flight market
Expanding services including business class
New technology Financial Trends and Ratios Liquidity Current Ration - 0.96
Quick Ratio - 0.82
Inventory Turnover Rate - 39.05
Altman Z Score - 1.61
Accounts Receivable - 6.97 Solvency Operations is generating cash in satisfactory conditions
Investing activities are consuming cash but the cash flow from investing is in a satisfactory conditions
Financing activities are consuming cash for paying off debt
Net cash flow is in a satisfactory conditions but it is not sustainable ROA - 1% - way bellow industry average of 12.7%
ROS - 2.4% with Industry Average 26.7
Southwest is efficient in producing sales
Overall assessment of capital Structure : The financial Leverage is not in a safe level.
Breakeven point - not good Additional Information Cost Efficiency and Price 15 minute turnaround
Low price on tickets
Now hidden / added costs Customer Service and Experience Since 1987, when the Department of Transportation began tracking Customer Satisfaction statistics, Southwest has consistently led the entire airline industry with the lowest ratio of complaints per passengers boarded. Many airlines have tried to copy Southwest’s business model, and the Culture of Southwest is admired and emulated by corporations and organizations in all walks of life. Corporate Culture Great Work Environment
"The Golden Rule"
Living the "Southwest Way" Great Employee loyalty
"Our people are our single greatest strength and most enduring longterm competitive advantage.“ -Gary Kelly, CEO Southwest Airlines Marketing Target Market
Cost –and value-conscious consumers
Small business executives
Travel short distances
Prefer low cost fares
Frequent schedules
Senior citizens Four Ps
Promotion Acquisitions ATA Airlines
2006- Southwest enters into first code sharing agreement with ATA.
2008- ATA goes bankrupt and Southwest purchases their assets.
Allowed Southwest to gain LaGuardia Airport gate space.
Less competition in Chicago. AirTran
September 2010- Southwest purchases AirTran for $1.7 billion.
Gives Southwest hubs in Atlanta and Milwaukee.
Complete assimilation expected in 2015 Limited Amenities Expectations of customers may not be met by what Southwest has to offer Economy Uncertainty in the Economy may affect the company in the long run Low Profit Margin Low profit margin is hurting the overall performance of the company Player only in the Local Market Slow growth does not match the fast paced world we live in. Technology Who was Southwest Airlines Major Competitor? "We've always seen our competition as the car. We've got to offer better, more convenient service at a price that makes it worthwhile to leave your car at home and fly with us"

(Colleen Barrett) QUESTIONS? Keep the great work environment and customer service! Speed up expansion! Get into more international markets! Market to Higher class Businesses!!! Introducing New Aircraft for long and/or international flights.
Entertainment systems
Games High Buyer Power
Full transcript