Bryan Brown
John Bynum
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Southwest is experiencing financial
difficulties following the expiration of their oil
hedging contracts
Make a recommendation for the companies
strategy for the next 5 years


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Volatile fuel prices
Inconsistent culture
High cost of labor
 Heavily unionized

No longer the low cost provider


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Point to Point strategy
2 free bags
No seating chart/ class
737 sole airframe
Put the employee first, everything else will
follow
12.00%
10.00%
8.00%
6.00%
4.00%
Southwest Operating Profit
Margin
2.00%
Delta Operating Profit Margin
0.00%
2010
-2.00%
-4.00%
2011
2012
2013
through Q2 2014
American Operating Profit
Margin
United Operating Profit
Margin
-6.00%
-8.00%
-10.00%
*see Fig. 1
1000
900
800
700
600
Raleigh - San
Antonio
500
Raleigh - New York
400
Raleigh - Jacksonville
300
200
100
0
Southwest
American
US Airways
•
•
•
•
Abandoned humorous advertising campaign
Emphasizing that they care
Messages on carts and napkins
Positioning themselves as more professional

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A warrior spirit
A servant’s heart
A “fun-luving” attitude
Employee recognition program



Shift in culture
Employees first, the rest will follow
Kelleher to Kelley
 2007
Strategy,
Structure,
Rivalry
Factor
conditions
National
Comparative
Advantage
Related and
Supporting
Industry
Demand
Conditions





Be a best cost provider
Reduce Fuel Consumption
Expand to Alaska/ Hawaii
Hedge fuel
Labor Relations



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Fuel saving policy- top down
Practice maintaining a higher cruise altitude 40,000 ft.
Glide down to airport
6,875 gal. * .01 = 68.75 gal.
68.75 * 3,400 Daily flights = 233,750 gal.
233,750 * 365 = 85,318,750 gallons
85,318,750 gal. * $3 = $255,956,250
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
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Alaska/ Hawaii only serviced by one major
carrier- Alaska Airlines
Fleet consists of exclusively Boeing 737’s
Higher profit margins on longer flights, more
time in air, less time in terminals/ fewer
terminal fees
*See Fig. 2

Push for increased presence in Western US
Seattle- Alaska headquarters
Spokane
Los Angeles
Chip away at Alaska’s market share

*See figure 3


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Shares: 132,631,936
Current Price: $55.42
Premium: $57.00
Total Cost: $7,560,020,352.00




Have more transparency within the ranks
Satisfy the internal customer
Go back to employee first, everything else
will follow
See Fig. 4
Implement
fuel saving
practices
Today
Dec 29
Airtran
dissolves
Hedge
fuel
2015
Expand
national
operations in
western US
Buy Alaska
Airlines
2016
2017
2018
2019
Alaska Airline
fully integrated
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Southwest Airlines- Fuel Hedging Case
Analysis by Vishal Prabhakar
NASDAQ finance- Income Statements
Southwest 2013 Annual Report
Delta 2013 Annual Report
COB Case packet
Frank Miner- personal interview
Boeing.com
Ogj.com