SOUTHWEST AIRLINES

Julie Han John Michael Chacko Kuan-Ying Chen Tobin Abraham

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.

Vision Statement
Southwests vision for a sustainable future is one where there will be a balance in our business model between Employees and Community, the Environment, and our Financial Viability. In order to protect our world for future generations, while meeting our commitments to our Customers, Employees, and Stakeholders, we will strive to lead our industry in innovative efficiency that conserves natural resources, maintains a creative and innovative workforce, and gives back to the communities in which we live and work.

Primary & Support Activities

Financial Data 2006-2010

Operating Revenues Operating Expenses Operating Income Other expenses (income), net Income before taxes provision for income taxes Net income Net income per share, basic Net income per share, diluted
Cash dividends per common share

Total assets at period-end

Long-term obligations at periodend Stockholders' equity at period-end

2010 12,104 11,116 988 243 745 286 459 0.62 0.61 0.02 15,463

2009 10,350 10,088 262 98 164 65 99 0.13 0.13 18.00 14,269

2008 11,023 10,574 449 171 278 100 178 0.24 0.24 0.02 14,308

2007 9,861 9,070 791 (267) 1,058 413 645 0.85 0.84 0.02 16,772

2006 9,086 8,152 934 144 790 291 499 0.63 0.61 0.02 13,460

2,875 6,237

3,325 5,454

3,498 4,953

2,050 6,941

1,567 6,449

Comparing Key Competitors and the Industry

Measures of Comparison Southwest AMR Corp. Market cap Employees 8.72B 34,901 2.17B 78,250 JetBlue 1.63B 11,121 Industry (regional UAL Airlines) 7.65B N.A. 986.31M 11.12K

Quarterly revenue growth Revenue Gross margin EBITDA Operating margins Net income EPS P/E
P/S

14.80% 12.10B 25.13% 1.62B 8.16% 459M 0.61 19.20

0.72

10.40% 13.00% 101.10% 22.17B 3.78B 23.23B 23.03% 33.00% 29.44% 1.40B 563.67M 2.60B 1.39% 8.81% 7.22% -471 97M 252M -1.41 0.31 1.08 N/A 17.87 21.57
0.10 0.43 0.33

20.30% 2.62B 27.92% 348.98M 8.49% N/A 0.69 12.38

0.45

Financial Trend
2009- Net income of $99 million was the lowest recorded Compound Annual Growth Rate began to increase from 2005 Healthy Capital Structure: Debt total capitalization ratio was 28% LUV outperformed industry in profitability and maintained strong balance sheet

Legal Environment
Southwest fought long drawn out legal battles, primarily engineered by major airlines. They had to work around a regulation that penalized Southwests decision to operate out of Love Field instead of moving to DFW airport. Struggle for existence in the beginning made airlines well known.

Economic Environment
Pioneer of the low-cost strategy Advanced hedging program Price of fuel oil remained above $60 per barrel which caused problems for Southwest

Political Environment
Obama administration is effecting the ways fares and baggage fees apply Governments help stabilize and strengthen the industry

Technological Environment
First airline to introduce ticketless traveling Online book No reserved seating First airline to test satellite technology Wi-Fi Training is minimal because only one type of plane is used

Porters 5 Forces
Substitutes Threat Low-Med
Alternative includes: road, rail, and water transportation slow, less convenient

Suppliers Power
High
- Aircraft Supplier only Boeing strong dependency - Fuel Suppliers Inconsistent fuel price

Rivalry
High
Domestic airline industry is highly competitive

Buyers Power
High
Switching to another low cost carrier which offer similar services

Threat of New Entrants

Low
Many entry barriers such as: high capital requirement, high competition, etc

Key Rivals:
Delta Air Lines American Airlines JetBlue Airways

SWOT analysis

Strengths
Strong Employee Culture Strong Customer Service Reputation - Best Low Cost Carrier Point to Point Scheduling

SWOT analysis

Weaknesses
No International Flights Limited Cities No Assigned Seating Heavy Dependence on Single Supplier - Boeing

SWOT analysis

Opportunities
Expansion to Other Cities International Flights New Technologies : New Services / Products

SWOT analysis

Threats
Price of Fuel Intense Competition Terrorist Activity Weather Uncertainty

VRIO Analysis Chart of Southwest

Resource Valuable Rare Inimitable Organized to Exploit

1. Bags Fly Free

Yes

Yes
Yes

No
Yes

Realized
Realized

2. Yes International Presence Acquisition of AirTran 3. Low Cost Strategy Yes

Yes

No

Realized

VRIO Analysis of Southwest (cont.)

First and second checked bags fly for free (others charge bags to gain revenue). International presence of AirTran increased flying locations to places such as Mexico, United States, and the Caribbean. AirTran cannot be used by any other companyowned entirely by Southwest.

VRIO Analysis of Southwest (cont.)

Southwest is known for being the cheapest airline. Other airlines do not have the same low costs. However, other airlines could cut costs to compete with Southwest. Temporary Competitive Advantage.

Southwest Company Strategies

Aims to provide fastest and lowest cost airfare possible domestically. Promotes customer service based employees culture. Makes employees feel like they are being treated with the same treatment as customers. They have few planes which means lower costs for them and customers (domestic flying). Southwest approach is to keep it simple. Usually try to attract business people and others flying domestically.

Southwest Competitors Strategies

Began to have lower costs to compete with Southwest. Extra incentives such as flight entertainment. Flies to mid and major cities to compete with destination. Less stops when going further. Competitors could give out free drinks and snacks.

Recommendation
Reemphasize the employee culture Southwest has began to move away from its original framework and culture, which is one of its strongest assets and one of the main reasons why it still stands today. While trying to maintain a low cost strategy despite the growing size of the company , it has become difficult to maintain the same relationship with their employees that keeps them loyal. In pursuit of this, Southwest should make endeavors to reinvigorate its corporate culture.
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Recommendations
Increased focus on Customer experience Southwest has made their brand using low cost and customer service as their main objectives. With growing competition for lower prices by airlines with enhanced luxury features, Southwest must look to exceed their competition while still maintaining their cost advantage.
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Recommendations
Expansion of Destination Southwest must endeavor to expand its flights to more and more destinations in order to create a value that corresponds to the passengers it pursues. By offering more destinations, Southwest can provide value as the trusted experience frequent flyers can count on, no matter where they are destined to fly.
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Recommendations
Pursue innovation Southwest was a pioneer in the airline industry when it moved away from the normal hub and spoke model and focused everything it does on pursuing the lowest cost while maintaining their identity. Southwest must continue this pursuit of innovation and their ability to pursue innovation where others are lacking. The value that lies in their unique ingenuity and kinship is the greatest addition to their continued value.
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