Southwest Airlines

Shashank Rai Shruti Goyal Siddhi Shruti Shivika Shruti

Table of Contents
Tyler Facts & Flight Method Porters 5 Forces Looking Into The Future Nicole Mission Statement & Timeline Industry Life Cycle Financial Stability Emily In The Beginning Value Chain RBV Resources & capabilities Competitive advantage VRIO Keigha Leadership & SW cities P.E.S.T.E.L

In The Beginning
As company legend goes, the very first route map was drawn on a cocktail napkin between Kelleher and Rollin King. during a meeting Herb

Timeline
June 18, 1971 Began airline service Flights to Houston, Dallas, and San Antonio 1977 SW stock listed on NYSE as "LUV" 1982 Appointed Herbert D. Kelleher President, CEO, & Chairman of the Board 1984 #1 in customer satisfaction (4th year in a row) 1990 announce billion dollar revenue mark Officially declared a "Major" airline! May 2003 Top ranked domestic passenger airliner 2006 Southwests 34th consecutive year of profitability

Facts / Milestones
Low-fare, high frequency Point-to-point carrier Largest domestic U.S. carrier 4th largest major airline in America More than 34,000 Employees Fly more than 64 mil. passengers a year 58 destination cities (59 airports) More than 3,200 flights a day Top competitors: AMR Corp. Continental Airlines JetBlue

Flight Method

Few amenities / no frills

No assigned seats No meals Only snacks: peanuts No electronic entertainment No fees to change same-fare tickets "point to point" (city to city) NOT hub-and-spoke model Domestic flights only Quantity focused Flies only Boeing-737 aircrafts

Leadership / Structure:
Herbert D. Kelleher Gary Kelly Colleen Barrett
Executive Chairman of the Board Vice Chairman of the Board and Chief Executive Officer President, Secretary, and Director

Map: SW Cities / Destinations

POLITICAL - Deregulation in 1978 - 1st big political win for airlines - Post 9/11: - Gov. helped 2 major airlines get out of financial trouble

ECONOMIC When economic conditions are unfavorable: - Airliners very susceptible / vulnerable - Discount airlines see profits - People look for cheaper travel options

P.E.S.T.E.L
SOCIAL Flying on planes to get to where you need to be has been the norm for the last 30 years and will continue to be the norm in to the foreseeable future. As more and more Spanish speakers come to live and travel in the US there is more need for airlines to be bi-lingual.

TECHNOLOGICAL Some airlines have converted to e-tickets, and have a self checking machine. Many people use the internet to compare prices to find the best option for their trip.

P.E.S.T.E.L
ENVIRONMENTAL: Airlines have cut prices and offered expensive frequent flyer programs just to grab customers away from other airlines. The regular airlines are starting to get away from the hub system and switch to the point to point system that SW uses. LEGAL: Legal issues have hindered airlines from making a full 9/11 recovery. According to the Air Transportation Association:
Airlines constitute about 2/3 of FAA-controlled flights but pay more than 90% of the bill. In return, the airlines are stuck using a 1950s ground-based, radardependent navigation system with legacy facilities and processes.

Porters 5 Forces
High cost of entry High competition Many other forms of transportation Many other airlines Suppliers Food and drink Coke products Fuel Sources
Entry Industry Focal Firm Threat Suppliers Substitutes

Buyers

Rivalry

Industry Life Cycle

Customer Knowledge Increasingly sophisticated Over 50% ticket price in 25 years Expenses Drastic compression of airline yield premium Exploring new ways to revenue Labor and fuel (largest costs) The first mover effect Security Carriers assets, personnel assets and customers interest Regulations enforced by government Anticipating, managing, paying Innovation will be key!

Resources & Capabilities

TANGIBLE: Financial Physical Technological Organizational INTANGIBLE: Human Innovation Reputation

http://www.mdcegypt.com/Pages/Management%20Approaches/Strategy,%20Business%20Plan/Develop%20or%20validate%20the%20Strategic %20Plan.asp#ii._Value_Chain_Analysis_

Value Chain Model

www.web.hec.gov.pk/.../0/chp_value_chain.jpg

V.R.I.O.

Financial Ratios
Short Term Liquidity Financial Ratio Current Ratio Quick Ratio Average collection period in days Numerator Current Assets Denominator Current Liabilities Cash + Cash Equivalents + Accounts Current Liabilities Receivable Average Accounts Receivable x 365 Sales

Long Term Solvency Financial Ratio Debt-to-Total Assets Debt-to-Equity Numerator Total Liabilities Total Liabilities Denominator Total Assets Total Shareholders Equity Total Shareholders Equity + Total Long-Term Debt

Long-Term-Debt-to-Total- Total Long-Term Debt Capital

Financial Ratios Cont.

Profitability Financial Ratio Return on Sales Return on Stockholders Equity Asset Turnover Numerator Net Income Net Income Sales Denominator Sales Revenue Average Stockholders Equity Average Total Assets Available Average Total Assets Available Average Common Shares Outstanding

Pretax Return on Operating Operating Income Assets Earnings Per Share Net Income Dividends on preferred stock, if any Dividend & Market Price Numerator

Financial Ratios Price-Earnings Dividend-Yield Dividend-Payout

Denominator

Market price of common share Earnings per Share Dividends per common share Dividends per common share Market price of common share Earnings per share

Financial Stability
Short Term Liquidity Ratios Current ratio Quick ratio Average collection period in days Long Term Solvency Ratios Debt-to-total assets Debt-to-equity Long-term-debt-to-total-capital Profitability Ratios Return on sales Return on stockholder's equity Asset turnover Pretax return on operating assets Earnings per share Market Price and Dividend Ratios Price earnings Dividend yield Dividend payout 163.9 0.02% 3.0% 5.5% 7.7% 0.65 6.9% (1.28) NOPAT Operating Income WACC EVA Air Transport Industry Average EVA Southwest above average by 21% 45% 20% (EVA) Economic Value Added (in millions) 857 725 8.6% 53,306 15,032 38,275 0.90 0.56 10.05

In The News

Airlines are constantly in search of new revenue sources. Travelers have gotten used to paying for food on board. But it's going to be harder to adjust to fees for services that used to be free.
~ Chris McGinnis
The Ticket editor (travel newsletter)
http://biz.yahoo.com/hmoney/070430/043007_airline_fees_moneymag.html?.v=4

Future Plan
Follow-up system Entire meal served Seat classes Differentiate strategies Other services (shuttle) Consider amenity change Expand internationally? Penetrate more domestically

GO GREEN!