Fly Southwest
Created By: Derek Miller
To become the world’s most loved, most flown, and most profitable airline.
Southwest Airlines operates in a highly competitive industry where there are a limited number of companies. Southwest is always at the risk of falling behind at any moment. New strategies must be implemented constantly. Mission Statement
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. This company’s mission statement is located on the website. With the mission and vision statements together it is very effective at getting the message across to customers, employees, and shareholders. According to the book, good judgement is required in evaluating mission statements. According to our lecture notes, different views among managers can be resolved and revealed About Southwest. (n.d.). Retrieved October 09, 2016, from https://www.southwest.com/html/about-southwest/index.html?int= Mission Statement Components
Southwest Airlines differentiates itself from other air carriers with exemplary customer service that is delivered to more than 52,000 employees and more than 100 million customers annually. Southwest is the nation’s largest carrier in terms of domestic passengers. From the first flight on June 18, 1971, Southwest launched an era of unprecedented affordability. The company has 43 consecutive years of profitability, performance, productivity, and commitment.
Industry Analysis: Porter’s Five Forces Mode
Competitive Rivalry – High Southwest’s direct competitors are the seven major low-carriers operating domestically with services that are similar. The competitors are Delta Air Lines, United Continental Holdings, American Airlines, US Airways Group, JetBlue Airways, Allegiant Travel, and AirTran Holdings. Delta Air Lines is offering their passengers access to numerous cities throughout the US. Threat of New Entrants – Moderate New low cost airline companies could enter the industry and attract passengers. There are high barriers to enter the industry and it becomes difficult to make profit in the industry. It is common for airlines to project losses in their financial statements. There is also a limited availability of landing slots at US airports. Bargaining Power of Supplier – High Boeing and Airbus are the main aircraft suppliers for large airlines. During the last few years, Southwest has renewed aircrafts for future use. The training costs of pilots and training engineers to adapt to Airbus aircraft, so the bargaining power of Boeing is high. Southwest is heavily dependent on the price of oil for its profit margins, which implies high bargaining power of oil suppliers. Southwest does not have airlines at international airports to avoid the cost. The bargaining power of these suppliers is high (Thompson and Gamble, 2012). Bargaining Power of Buyer – High Consumers have high bargaining power that is attributed to their price based preference. Consumers are likely to select the airline which offers them the best value for their money. There are information technology tools that consumers have the ability to compare flights and prices before making their final decision. Since switching costs for customers is very low, the bargaining power of buyers is high. Threat of Substitute Products – Low Other modes of transportation like a car, train, or ship cannot really compete with an airplane. Airplanes are quick, comfortable, and reliable. With an airplane, people do not have to worry about putting miles on their car or using a rental car. Trains are slow and can be crowded. Financial Analysis Where is the firm financially strong and weak as indicated by financial ratio analyses? The firm is financially strong with a total revenue of $19.82 billion. They havea net income of 2.1 billion and an enterprise value of 24.71. The debt to equity ratio is 0.29 in the company and 1.01 in the industry. The debt equity ratio is the company’s financial leverage, calculated by dividing the company’s total liabilities by its stockholder’s equity. This indicates the amount of debt a company uses to finance. The interest coverage ratio 45.81 in the company and 8.60 in the industry. This is used to calculate interest expenses on outstanding debt. The ratio is calculated by a company’s earnings before interest and taxes by the company’s interest expenses. Can the firm raise needed short-term capital? Southwest Airline Company’s weighted average cost of capital is 7.84%. Their return on invested capital is 33.31%. They generate higher returns on investment than it costs the company to raise the capital needed for that investment. Can the firm raise needed long-term capital through debt and/or equity? The firm’s position of long-term debt was $972 million. The company’s debt to equity ratio for the quarter that ended in September 2016 was 0.41. A high debt to equity ratio means that a company has been aggressive in financing its growth with debt. Does the firm have sufficient working capital? Southwest’s Airlines working capital had current assets and current liabilities that equal $2.98 billion. This is 1168.14% lower than the service’s sector and 456.2% higher than that of Regional Airlines industry. The working capital for all stocks is 137.02% higher than the company. Are capital budgeting procedures effective? Southwest Airlines was capable of attaining market prominence in the United States. They offer short-haul, frequent, low-priced, point-to-point air travel. Southwest was one of the first companies to adopt a new approach of rolling forecast to drive better results. Are dividend-payout policies reasonable? Southwest’s dividend payout ratio for the three months ending in September 2016 was 0.16. During the past 13 years, the highest dividend payout ratio was 0.50. The lowest was 0.01 and the median was 0.04. Does the firm have good relations with its investors and stockholders? Southwest has returned over $5.3 billion to stockholders through share repurchase and dividends. Southwest has 43 years of consecutive years of profitability and is one of the most honored airlines. The company operates the largest fleet of Boeing aircraft in the world and takes great care of their customers. Are the firm’s financial managers experienced and well trained? Southwest is very particular in its hiring process because they get a job application every two seconds. They try to hire for people’s values is very important and they look for people that already live the lifestyle they are looking for. They offer training for career advancement and a lot of upkeep to make sure the people they hired are consistently up to par. |
Team Jing Voice overs
1). Derek Miller-http://screencast.com/t/13nwYZV0T 2).Matthew Hummel-http://www.screencast.com/t/eZDISWemyb 3). Jason Parker-http://www.screencast.com/t/X0aAqF1f 4). Robert Kindred-http://www.screencast.com/t/0bRPAv4qo1dL 5). Eric K. Logan-www.screencast.com/t/KB1NL5C6ToM SWOT Analysis
Strengths
Weaknesses
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Southwest Airlines is located in Quadrant I because they are in an excellent strategic position. This firm can afford to take advantage of external opportunities in several areas and can take risks when necessary. This matching tool applies to Southwest airlines because there is a rapid market growth and they are in a strong competitive position. This company does a great job in their market and Southwest has a track record for being very forward in their thinking with a flexible business and support for rapid change.
Implementation Plan
In the airline industry, each company must outperform its competition through the maximization of profits using the same set of criteria, which rarely changes over time. These criteria may include choice of airplane, types of passenger meals, availability and style of seating preferences, customer service, and flight routes (Hallal, 2014). Southwest Airlines defied expectations and disrupted the airline industry through a technological innovation by implementing the Boeing 737–500 into their fleet. The Boeing 737–500’s cost efficiency became the backbone of the organization’s strategy, ethics, and business platform. My recommendation is that Southwest aquires another low-cost airline. WestJet Airlines is a Canadian airline that uses a great cost leadership strategy. The destinations that it does to include Canada, the United States, Mexico, Central America, and the Caribbean. The age of their airplanes is 6.7 years compared to Southwest’s 11.2. This will help to get Southwest’s planes the maintenance checks they need right away by top-notch maintenance crews. It would be relatively easy to integrate the two companies. The two companies have similar vision and mission statements (Hallal, 2014). With consistent operational efficiency and cost control, progressive HRM, upbeat marketing, service to understand markets, and a continued dedication to quality, Southwest will remain positive (Srinivasan, 2014).
Combining these two companies will take about two years and a total cost of around $80 million. I came up with this figure because in 1992, Southwest Airlines bought out Morris Airlines for $134 million. Since this situation does not involve buying out, I figured that they would work harder to save money (Munro, 2015). |
Pro - Forma Income Statement
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