Southwest Airlines Company's Progress

Southwest Airlines commenced service on June 18, 1971 with only three Boeing 737 aircrafts. They only serviced three cities in Texas: Dallas, Houston, and San Antonio. As of December 31, 2017 they have 706 Boeing 737 aircrafts and serve 100 destinations in 40 states, Puerto Rico, and ten international countries. Their stock-exchange symbol “LUV” is fitting due to their headquarters being located at Dallas Love Field in Texas, it is also their theme of their customer relationship. As September 30, 2018 they have 58,559 active fulltime employees. Southwest Airlines is a major passenger airline that provides scheduled air transportation in the United States and near-international markets.

For the 45th consecutive year, the Company was profitable, earning $3.5 billion in net income. On January 19, 2018 Southwest Airlines was ranked number eight on FORTUNE’s Top 10 World’s Most Admired Companies. This makes them the only commercial airlines among the top 10 marking Southwest’s 24th consecutive year on the list.

Financial Analysis

Southwest Airlines is on an upward trend. As shown in Table 1, the Financial Numbers has shown steady increase in the positive directions.

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Assets and revenue are up from 2016. While total debt is up a little more the $550,000 from last year. In 2017 Southwest closed out with a $64.93 price per share which is up from 2016’s price of $49.94. Earnings per share is $5.79 up from $3.55. Southwest has a slightly higher current ratio that American Airlines and an extremely higher ratio than Delta. From a shareholder view, the higher current ratio is not necessarily viewed the same way as creditors. It could mean that they have a lot of money tied in nonproductive assets or high inventory holdings.

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The total asset turnover ratio is above both American and Detla. This means that Southwest is generating more business compared to American and Delta given its total asset investments. Southwest’s inventory turnover is higher than their competitors. This suggest that they are holding too much inventory. The return of total assets smashes their competitors. Southwest has a high basic earning power and low interest cost. Southwest’s interest cost is $65,000 is down from $75,000 in 2016. The Price/Earning ratio is lower that American but higher than Delta. Which means that Southwest has a higher growth prospect than Delta.

Strengths. Southwest Airlines has a strong fleet across the United States and it has one on the largest Bowing aircraft fleets in the world. They have a low turnaround time. The average time for Southwest is around 25 minutes, when the airlines industry average is around 55 minutes. This allows them to efficiently utilize the aircraft’s in more flights per day. Southwest offer low priced flights. They are allowed to make these prices due to their turnaround time and fuel efficacy. Southwest Airlines is one of the few airlines to be profitable in the world.

Weakness. When purchase a ticket for Southwest, you will have to use their website or call their reservations number. This makes it difficult for customers to compare their prices to other airlines. They are over depend on passenger revenues. Passenger revenues contributes over 93% of its revenue, while freight is only around 1%. Southwest Airlines only uses Boeing aircrafts. This allows Boeing to have bargaining power over them. If this can cause a situation if there is ever a disagreement between the two companies.

Competitors

Southwest Airlines is a major airline and competes with all the airlines servicing the same locations as them as well as reward programs. While Southwest Airlines does service some international countries, they do not service them all nor do they service Hawaii. While their true competitors American and Delta Airlines service multiple countries and Hawaii. Southwest Airlines does not offer a First Class Cabin, assigned seating, or baggage fees and tend to be a cheaper and more affordable flight.

American Airlines. They are a major airline headquartered in Fort Worth, Texas. American Airlines is the world’s largest airline when measuring by fleet size, revenue, and number of destinations served. As of 2017, they employed over 122,000 people. They are a publicly traded company under NASDAQ: AAL with a market capitalization of around $25 billion. American Airlines has a verity of aircrafts that include a mix of Airbus and Boeing planes and Embraer and McDonnell Douglas aircrafts. American Airlines offers assigned seating and has a First Class Cabin on most aircrafts.

Delta Airlines. Delta actually began as a crop dusting operation. They are a major airline headquartered in Atlanta, Georgia. As of 2017, they employee over 80,000 people. They are a publicly traded company under NASDAQ: DAL. They have a fleet includes Boeing, Airbus, McDonnell Douglas aircraft. Currently Delta is the on U.S. airline that flies to Accra, Copenhagen, Dakar, Düsseldorf, Johannesburg, Lagos, Nice, Ponta Delgada, and Stuttgart. It is also the only U.S airline that has scheduled service to Africa. This will make them the only U.S. carrier to serve six of the seven continents.

Industry Trends

The effect of e-commerce with the promise of same-day or even next-day delivery, has caused a boost in air freight. This is one of the reasons the airlines revenue rose last year. Jet kerosene averaged $65.60/ barrel in 2017, compared to $52.10/ barrel in 2016. The industry’s overall fuel costs actually dropped to $130 billion in 2017 from $132 billion in 2016. This was made possible by more efficient aircraft. Non-fuel costs surged nearly to $561 billion last year. Labor costs are rising especially quickly. Most major airlines have three big advantages when they seek to grow their direct bookings: a pool of loyal customers, often members of frequent flyer programs; infrastructure such as call centers to provide post-sales care; and a brand that inspires trust, especially in carriers’ home markets. An effective direct booking strategy starts with identifying these loyal customers, who trust the airline brand. Airlines should also consider strengthening their digital brands in a privacy-wary world. The companies in the news for aggressively marketing user data are almost all digital natives, not legacy organizations such as airlines. Carriers that effectively establish robust data privacy standards for their direct booking environments, and publicize these standards in language easy for customers to understand, may find a competitive edge.

Future

Last year Southwest completed its deployment of a new single reservation system. This was the largest technology project in the their history. The new reservation system was designed to improve flight scheduling and inventory management, enable revenue enhancements, support additional international growth, and enable other foundational and operational capabilities. They have become the first airline in North America to offer scheduled service utilizing Boeing’s new, 737 MAX 8 aircraft. They also retired its remaining Boeing 737-300 aircraft. By using the Boeing 737 MAX 8 aircraft this will reduces fuel use and CO2 emissions. Southwest Airlines is looking to expand their reach to Hawaii in 2018.

Recommendations

Southwest Airlines has it figured out. They need to continue to expand their reach around the world. When they use fuel efficient aircraft, their profits will increase due to the decrease in fuel cost. With their direct reservation systems, they should add a feature that shows the lowest price of the other airline, or do a price matching of the lowest price ticket. I believe that Southwest has a loyal customer base, but I assume a lot of customers end up with them because of their price. When conducting a questionnaire at my office, 90% of my co-workers check multiple travel sites in order to find the lowest ticket. There could be times that customers do not ever check Southwest for prices due to an convenience of the travel sites. As far as Customer service goes, they have got that down. Southwest Airlines delivers the best customer experience in the airline industry, according to the 2018 Temkin Experience Ratings, an annual customer experience benchmark of companies based on a survey of 10,000 U.S. consumers (Christoff, 2018).

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Southwest Airlines Company's Progress. (2021, Sep 13). Retrieved from https://studymoose.com/southwest-airlines-company-s-progress-essay

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