Benjamin Rank
BMGT370, Gardner
3/8/11
Transportation Profile Project
Southwest Airlines
1. Southwest Airlines is located at 2702 Love Field, Dr. in Dallas, TX. The
company is headed by Chief Executive Officer and President Gary Kelly, who
has been with the company for almost 25 years. He served as CFO before
being promoted to the company’s highest position. The company currently
employs nearly 35,000 people, with 34,901 employed. Southwest Airlines is
publicly traded under the stock symbol LUV, in respect for its main hub Love
Field Airport. The firm’s corporate website is www.southwest.com.
2. Southwest Airlines was founded in 1967 and placed its headquarters in
Dallas, Texas. The company was founded by Rollin King and Herb Kelleher as
Air Southwest Co. The young airline was immediately met with resistance
from other local airlines in the Southern United States. Air Southwest Co. was
brought to court and the Texas State Supreme Court upheld the case,
allowing Southwest to operate in 1970. On March 29, 1971, the company
changed its name to Southwest Airlines Co. According to the company’s
website, Southwest’s premier customer service began on June 18, 1971. The
company began with just three Boeing 737 aircrafts serving three Texas
cities: Houston, Dallas, and San Antonio. Today, Southwest Airlines sits as the
most successful airline of today. Southwest is the only major U.S airline to
remain profitable over a consistent period (38 years in a row) since the
1980’s. The company achieved this accomplishment through proper
leadership and a strong strategy following deregulation of the airline
industry in 1978. Southwest was instrumental in spreading deregulation
across the U.S so as to expand its market and continually crushed its
opponents. Into the late 1990’s and early 2000’s, Southwest made great
strides in buying engine fuel in bulk before oil prices sky rocketed. Southwest
is known for its leading customer service, low prices, and great operations.
The airline now operates 548 Boeing 737 aircrafts among 75 cities in the
United States, flying 3,200 flights per day. Southwest is the largest U.S carrier
based on domestic passengers carried and is traded publicly under the
symbol LUV.
3. Operating Statistics for Southwest Airlines includes a fleet of 548 Boeing 737
aircrafts among 75 cities within the U.S. These 75 cities cover 39 states.
Southwest operates 3,200 flights domestically per day, carrying 88 million
passengers per year, making it the largest domestic airline carrier of
passengers in the U.S. In 2010, Southwest moved 176 million pounds of cargo
in addition to its passenger-carrying primary objective.
4. Being a part of the airline industry, Southwest Airlines’ costs are majority
variable, even though some fixed costs do apply. Having mainly variable
costs, Southwest’s volume of services provided varies directly with its cost.
This fact is attributed to the extent to which the industry is responsible for
building and maintaining its rights-of-way. In the airline industry, the
government provides the airways and regulates the operation of all aircraft
within the airways. For this very reason, airlines do not have high fixed costs
to cover the construction or maintenance of their rights-of-way, so just need
to cover all short run costs, making them variable.
5. From Yahoo! Finance:
Trades at: 12.48
Market Cap: 9.32 B
EPS: .61
P/E: 20.46
Income Statement 2010:
Dec 31, 2010
Dec 31, 2009
Dec 31, 2008
Total Revenue
12,104,000
10,350,000
11,023,000
Cost of Revenue
5,358,000
4,667,000
8,590,000
Gross Profit
6,746,000
5,683,000
2,433,000
-
-
-
5,130,000
4,805,000
1,385,000
-
-
-
628,000
616,000
599,000
-
-
-
988,000
262,000
449,000
Period Ending
Operating Expenses
Research Development
Selling General and Administrative
Non Recurring
Others
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
(94,000)
67,000
(66,000)
Earnings Before Interest And Taxes
894,000
329,000
383,000
Interest Expense
149,000
165,000
105,000
Income Before Tax
745,000
164,000
278,000
Income Tax Expense
286,000
65,000
100,000
-
-
-
459,000
99,000
178,000
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect Of Accounting Changes
-
-
-
Minority Interest
Net Income From Continuing Ops
Non-recurring Events
Other Items
Net Income
-
-
-
459,000
99,000
178,000
-
-
-
459,000
99,000
178,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
Balance Sheet 2010:
Dec 31, 2010
Dec 31, 2009
Dec 31, 2008
Cash And Cash Equivalents
1,261,000
1,114,000
1,368,000
Short Term Investments
2,277,000
1,479,000
435,000
Net Receivables
409,000
460,000
574,000
Inventory
243,000
221,000
203,000
89,000
84,000
313,000
4,279,000
3,358,000
2,893,000
-
-
-
10,578,000
10,634,000
11,040,000
Goodwill
-
-
-
Intangible Assets
-
-
84,000
Accumulated Amortization
-
-
-
606,000
277,000
291,000
-
-
-
15,463,000
14,269,000
14,308,000
1,602,000
1,461,000
2,643,000
505,000
190,000
163,000
1,198,000
1,044,000
-
Total Current Liabilities
3,305,000
2,695,000
2,806,000
Long Term Debt
2,875,000
3,325,000
3,498,000
Other Liabilities
465,000
493,000
-
2,581,000
2,302,000
3,051,000
Minority Interest
-
-
-
Negative Goodwill
-
-
-
9,226,000
8,815,000
9,355,000
Period Ending
Assets
Current Assets
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant and Equipment
Other Assets
Deferred Long Term Asset Charges
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities
Deferred Long Term Liability Charges
Total Liabilities
Stockholders' Equity
Misc Stocks Options Warrants
-
-
-
Redeemable Preferred Stock
-
-
-
Preferred Stock
-
-
-
Common Stock
808,000
808,000
808,000
5,399,000
4,971,000
4,919,000
Retained Earnings
Treasury Stock
Capital Surplus
Other Stockholder Equity
(891,000)
1,183,000
(262,000)
(963,000)
1,216,000
(578,000)
(1,005,000)
1,215,000
(984,000)
Total Stockholder Equity
6,237,000
5,454,000
4,953,000
Net Tangible Assets
Currency in USD.
6,237,000
5,454,000
4,869,000
6. The airline industry is considered one massive network economy, which is
absolutely subject to economies of scale, economies of density, and
economies of scope. Airlines are subject to economies of scale, as airlines that
produce more flights and are located at more locations, should be able to
technically provide lower prices. Also, those airlines that are able to sell out
all flights, should be able to provide lower prices. In some cases, this doesn’t
apply due to outside forces. Economies of density also occur in the airline
industry, both when flying customers and when shipping cargo. Most flights
will not fly unless filled due to economies of density – those airlines that can
fill the flights the best make the most efficient use of the flight. For economies
of scope, the more flights to different locations, the better for each airline.
Southwest dominates in all of these areas, leading to their great success.
7. Southwest Airlines serves the entire U.S population as a premier passenger
airline carrier that prides itself in providing premier customer service to its
customers. Southwest covers 39 states in the U.S and 75 cities. Southwest’s
top ten hub cities include: Las Vegas, NV; Chicago, IL; Phoenix, AZ; Baltimore,
MD/Washington, D.C; Denver, CO; Houston, TX; Dallas, TX; Los Angeles, CA;
Oakland, CA; and Orlando, FL.
8. Southwest Airline’s primary competitors are all intramodal. Being primarily
a passenger-carrying airline, Southwest competes against other passenger
airlines. For the most part, those who demand Southwest’s services will only
be demanding airway transportation. Southwest’s direct competitors include
American Airlines, United Airways, Delta Air Lines, Continental Airlines, and
Jet Blue Airways.
9. Southwest Airlines, just like others in the airline industry, has an inherent
advantage of speed, especially over long distances. This inherent advantage
compares to the intermodal. Inside the airline industry, Southwest Airlines
has a comparative advantage in being able to provide the lowest prices with
the highest value of customer service. Southwest doesn’t charge for bags,
blankets, or other amenities on the airline and is still able to provide these
low fares. The successful airline giant is able to succeed in these areas by
having smaller aircrafts that are easier to fill, flying out of smaller U.S hub
airports, saving money on jet engine fuel, and providing such a high level of
service.
10. Considering Southwest Airlines has been able to survive throughout the
airline industry decline of the past decade, the issues that face Southwest are
far fewer than those that face other airlines in the industry. However,
Southwest has plenty of issues facing them. First and foremost, like any other
airline, Southwest needs to make sure that they remain on top of the
competition in the industry as it continues to struggle. More specifically to
Southwest, Southwest had issues with safety requirements in 2008 and
safety is a top priority among airline customers. Also, Southwest’s
commitment to their Corporate Social Responsibility and improving the
environment should be a primary concern.
11. The firm’s future prospects are extremely promising. Southwest has
solidified itself as a staple in the airline industry and one that will always be a
leader among its competitors. The company has been profitable for the past
38 years, while most airlines have struggled to even survive; the company
provides the lowest fares to its customers with the highest perks of flying
with them; the company delivers premier customer service that continues
bringing customers back time and time again; and the company has an
excellent reputation as a firm to work for. Its only weaknesses exist inside
the industry itself: airlines have massive issues with expense and
convenience, while being seen as a dangerous form of travel (although not
true at all) that pollutes the environment. Nonetheless, Southwest is beyond
competitively and financially viable and will only continue to march forth in
the industry. For now, the company has recently announced expanding into
South Carolina through Charleston and Greeneville and New Jersey through
Newark. This is a big move and one that will be very profitable. Another
opportunity for growth could exist in expanding nationally – Southwest is
profitable because they have managed to contain their expansion and stick to
what they do best, but expansion nationally could be in the near future.
12. In order to continue prospering, Southwest must maintain its low fares and
must expand on these low fares to other destinations. For a while, Southwest
held Florida deals only. Today, the company has expanded those deals to
cities all across the United States. If Southwest continues this expansion with
the prices, the company will capture a vast majority of the market share, as
more and more Americans across the nation will realize that Southwest is the
most successful airline around. The company will also need to maintain its
high value of customer service and its great company culture. Another
strategy for success would be to expand from the 39 states to at least 45
within the next ten years. In missing the market share from 11 states,
Southwest is missing out on a portion of the population. In succeeding with
all these initiatives, Southwest will only continue as the nation’s leading
airline carrier.
Sources:
Yahoo! Finance
Southwest Airlines Official Company Website
Leland Gardner BMGT370 Class Notes