MGT 590 Southwest MBA Research Report

Southwest Airlines

Miguel Pavon (MP) Kyrsten Muentnich (KM)

Renee Reed (RR) Monica Rudolph (MR)

November 18, 2014

TABLE OF CONTENTS

EXECUTIVE SUMMARY (MP)............................................................................................................

INTRODUCTION....................................................................................................................................

Background / History of the Company (RR)..........................................................................................6

Mission Statement (RR)...........................................................................................................................6Business..................................................................................................................................................6Major Goals............................................................................................................................................7Corporate Philosophy.............................................................................................................................7

Strategic Evolution (KP)..........................................................................................................................7Intended Strategies.................................................................................................................................7Emergent Strategies................................................................................................................................8

Stakeholders (MP)....................................................................................................................................8Internal....................................................................................................................................................9External...........................................................................................................................................10-15

Company’s Organization and Structure (MP)....................................................................................16

Purpose of the Report (MP)...................................................................................................................16

EXTERNAL ANALYSIS.......................................................................................................................

Basic Industry Information (MR).........................................................................................................16Industry Growth:..................................................................................................................................17Industry Profits:....................................................................................................................................18Industry Segments:..........................................................................................................................19-23

External/ General Environment............................................................................................................24General Economic Conditions (RR).....................................................................................................24Political, legal, and Regulatory (RR)...................................................................................................24Technological (RR)).............................................................................................................................24Sociocultural {also demographics] (RR)..............................................................................................25Natural environment (RR)....................................................................................................................25Technological (RR)..............................................................................................................................25Summary of Analyses and Impact (RR)...............................................................................................25

Industry Analysis/Porter’s Five Forces...........................................................................................26-27

Industry Analysis/Porter’s Five Forces..................................................................................................5Potential Entrants (WC).......................................................................................................................28Economies of scale:.............................................................................................................................28Cost disadvantages from other than scale............................................................................................28Product differentiation (strong brand preferences)..............................................................................28

MGT 590 Southwest Airlines Report

Capital requirements............................................................................................................................28Switching cost......................................................................................................................................28Access to distribution channels............................................................................................................28Government Policy..............................................................................................................................28Current Rivalry among Existing Firms (MP).......................................................................................28Bargaining Power of Suppliers (MP)..............................................................................................29-30Bargaining Power of Buyers (MP).......................................................................................................30Substitute Products (MP)......................................................................................................................31Industry Attractiveness/Profitability (MP)...........................................................................................31Summary (Results) of Five Forces (MP).............................................................................................32

Strategic Group (KM)............................................................................................................................32Competitors’ Objectives.......................................................................................................................32Assumptions.........................................................................................................................................32Capabilities...........................................................................................................................................33Market Share........................................................................................................................................33Competitive Advantages:.....................................................................................................................34Current Strategies.................................................................................................................................34

Opportunities and Threats (MP).....................................................................................................34-35

INTERNAL ANALYSIS........................................................................................................................

Value Chain Analysis (MP,RR).............................................................................................................35Primary Activities(MP)........................................................................................................................36

Supply Chain Management (Inbound Logistics).........................................................................Strengths:.............................................................................................................................................37Weaknesses:.........................................................................................................................................38

Operations (Production) (MP).....................................................................................................Strengths:.............................................................................................................................................39Weaknesses:.........................................................................................................................................40

Distribution (Outbound Logistics) (MP).....................................................................................Strengths:.............................................................................................................................................41Weaknesses:.........................................................................................................................................42

Sales and Marketing (MP)...........................................................................................................Strengths:.............................................................................................................................................43Weaknesses:.........................................................................................................................................44

Service (Customer Service) (MP)...............................................................................................Strengths:.............................................................................................................................................44Weaknesses:.........................................................................................................................................45Support Activities.................................................................................................................................47

Product R&D, Technology and Systems Development (RR)................................................47-48Strengths:.............................................................................................................................................49Weaknesses:.........................................................................................................................................49

Human Resources Management (RR).........................................................................................Strengths:.............................................................................................................................................51Weaknesses:.........................................................................................................................................51

General Administration (Firm Infrastructure) (RR)....................................................................Strengths:.............................................................................................................................................53Weaknesses:.........................................................................................................................................53


Summary of Value Adding Activities.............................................................................................53-54

Financial Ratio Analysis(MP,KM,MR)...........................................................................................54-55Liquidity Ratios....................................................................................................................................56

Current Ratio..........................................................................................................................57-58Quick Ratio..................................................................................................................................

Leverage Ratios(MP,KM,MR)............................................................................................................60Total Debt-to-Assets Ratio.....................................................................................................60-61Debt-to-Equity Ratio..............................................................................................................62-63

Activity Ratio(MP,KM,MR)..........................................................................................................63-64Inventory Turnover.................................................................................................................64-65Days of Inventory...................................................................................................................65-66

Profitability Ratio (MP,KM,MR)........................................................................................................66Total Return on Assets.................................................................................................................Return on Equity (MP,KM,MR)...........................................................................................68-69

Results of Financial Analysis...............................................................................................................70

Interpretation/Evaluation (MP).......................................................................................................70-71Summary of SWOT Analyses.........................................................................................................71-72

BUSINESS LEVEL STRATEGY....................................................................................................72-73

Generic Business Level Strategy(MR)..................................................................................................73Supporting Evidence for Selected Business Level Strategy.................................................................74Advantages and Disadvantages of Business-Level Strategy................................................................75

Advantages..................................................................................................................................Disadvantages..............................................................................................................................

TOWS Analysis (MP)........................................................................................................................78-81

STRATEGY IMPLEMENTATION (RR)............................................................................................Strategy Element # 1- – Write-out element # 1- :...........................................................................82-84

STRATEGY EVALUATION (MR)......................................................................................................Evaluation of Strategy Element # 1 – #13 -Write-out the element:#1- #13....................................84-90

CORPORATE SOCIAL RESPONSIBILITY AND ETHICS (KM).................................................

Corporate Social Responsibility.......................................................................................................91-94

Ethical Implication............................................................................................................................94-95

CONCLUSION (RR).........................................................................................................................95-96

APPENDICES (MR)...............................................................................................................................

BIBLIOGRAPHY / WORK CITED(MP,KM,MR,RR)..............................................................98-102Table of Contents (MP)


Executive Summary (MP)

Southwest was founded and established by Herb Kelleher in 1976. Southwest holds the

most market share in their intense industry. Southwest's current Porter five forces shows that

Southwest has a high potential entrants, High Current Rivalry among Existing Firms, Low

Bargaining Power of Suppliers, Low Bargaining Power of Buyers, Moderate/Medium

Substitute Products. Southwest's current value chain is Value Adding Supply Chain

Management, Value Adding Operations, Neutral Distribution, Value Adding Sales and

Marketing, Value Adding Service, Neutral Product R&D, Value Adding Human Resources

General Administration. All of these value chain activities contribute to Southwest's success

and the loyalty they have from their customers. Southwest Financial analysis indentifies that

Southwest has the highest Debt to Equity Ratio than any other competitor in their industry.

Southwest works to lower their debt buy purchasing Boeing planes in bulk. Now that

Southwest acquired Airtran, they have airbus planes which will be a cost effective way to hold

on purchasing more Boeing planes for awhile. Southwest's SWOT analysis identifies their

Supply chain as a strength since that have a close business relationship with Boeing. Another

Southwest strength is their main distribution since Boeing uses the e ticket . Southwest's fourth

strength is their service since their employees are always friendly and love to be integrated into

Southwest's culture. Southwest's weakness is their financial ratio since they have the second

highest days of inventory in their industry. Southwest's distribution is a weakness because the e

ticket process creates less jobs for Southwest counter employees. Southwest's opportunities is

technology since Southwest supplier Boeing is always adding new features to the planes like

free wifi for travelers. Southwest's threat is that new airline entries have the ability to access

funds to pay for the start up of their airline company in the airline industry.


Introduction (RR)

Need to get away? Want to take a trip? Well most people do especially now when the

temperature in Chicago is getting colder. However, anywhere worth going to is farther than a

car ride away. One of the most popular sites to book a flight is Southwest Airlines. They are

notorious for emailing deals and advertisings low cost flights. “Southwest is the nation's largest

carrier in terms of originating domestic passengers boarded and operates the largest fleet of

Boeing aircraft in the world to serve 96 destinations in 41 states, the District of Columbia, the

Commonwealth of Puerto Rico, and five near-international countries via wholly owned

subsidiary, AirTran Airways,” (About Southwest). With so many choices to choose from with

low prices Southwest Airlines seems like a first stop choice for most consumers. Low prices

are extremely helpful to consumers but what really keep patrons returning is the wonderful

customer services they are known for. “

Mission Statement (RR)

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”

(About Southwest). From personal experience, I know that my experience on Southwest

Airlines is always enjoyable. I do not feel that I am being nickeled and dimed for everything.

The flight attendants are always smiling with a genuine pleasantry that makes me and other

consumers wanting to come back. This airline is based out of Dallas, Texas and employs over

45,000 employees and services over 100 million frequent flyers yearly. Southwest Airlines

does an excellent job making customers feel comfortable by offering snacks and beverages

with no additional costs. Other airlines charge for storage of bags, carry-ons, and drinks. The


flight might be cheaper then Southwest Airlines but after all the additional charges one usually

ends up paying more because all this commodities is included with Southwest Airlines. With

nearly 4000 flights a day and everyday common clichés Southwest still does their best to

accommodate patrons. Just like Southwest Airlines says “You are now free to move about the

Country. – (Southwest Airlines)

Strategic Evolution (KP)

The strategic evolution of Southwest Airlines is the product of intended strategies,

providing customers in the airline industry with low cost fairs. Southwest began over 38 years

ago as an airline dedicated to getting their passengers to their destination, on time, at the

customers desired time of arrival; while providing them low prices and a enjoyable time. To

this day, they have done so to the best of their ability. They have been able to provide

outstanding customer service and low prices by designing a simple process from flying to


boarding. However, Southwest’s faire prices may be comparable to others, yet they are still

able to provide a price advantage by not charging baggage fees for the first and second bag and

they keep their fleet simple to reduce other costs.

Stakeholders ( MP)

Southwest company has a very close relationship with their internal and external

stakeholders. Southwest's commitment to a low cost strategy rather than a low fair strategy

has brought their brand recognition to an all time high. Southwest stakeholders are interested

and invest in an American built company, HQ in Dallas, Texas, because of their loyalty to

customers, as well as, employees which differentiates themselves from their competitors. In

order for stakeholders to show interest for Southwest, there are many commonalities that both

internal and external stakeholders share. To name a few of the most important interest are

capital growth, net profit margins, company stability, and price per earnings ratio. These and

many more commonalities weigh in for a stakeholder to invest or not or to take their

investment and leave if they don't see company growth. (Southwest) (Heath Knowledge)

Internal (MP)

Southwest's internal stakeholder contributors/investors consist of 3 major categories of

investors. The first category is the executive employees of Southwest. Southwest CEO, Gary

C. Kelly, has 686,279 shares of Southwest which was reported on August 21, 2014. Ron Ricks,

Executive Vice President—Chief Legal & Regulatory Officer, has 226,066 shares of

Southwest which was reported on August 1, 2014. Jeff Lamb, Senior Vice President of


Administration & Chief People Officer, has 194,272 shares of Southwest which was reported

on August 25, 2014. Michael G. Van De Ven, Chief Operating Officer and Executive Vice

President, has 181,102 in shares which was reported on August 20, 2014. Robert E Jordan,

Executive Vicem President and Chief Commercial Officer, and President Air Tran Airways.

These top executives contribute their own money and invest it back for the company they work

so hard for. These executives are passionate about their work and not only make their

customers and internal/external stakeholders happy, but they want to make themselves happy

since they are investors.(Yahoo Finance)

Southwest has 10 financial institutions that own a great deal of shares of Southwest.

The diagrams below identify both financial institutions and mutual funds. Vanguard Group

Inc. has the most shares and owns majority of the company shares. Vanguard Group Inc. owns

50,305,640 shares which values at 1,351,209,490 which was reported on June 30, 2014.

Southwest is not limited to resources because they have many investors who buy a large

amount of shares and help Southwest invest into their R&D and other expenses to improve

Southwest so they can be more efficient and increase revenue. Southwest's Top 10 Mutual

Funds all help with their contribution to Southwest in order for Southwest to grow and have a

competitive advantage over their competitors. The top mutual fund holder for Southwest is

Vanguard/Primecap Fund with 34,559,300 in shares with a value of $928,262,798.(Yahoo

Finance)


Breakdown

% of Shares Held by All Insider and 5% Owners: 0%

% of Shares Held by Institutional & Mutual Fund Owners: 82%

% of Float Held by Institutional & Mutual Fund Owners: 82%

Number of Institutions Holding Shares: 500

Major Direct Holders (Forms 3 & 4)

Holder Shares Reported

KELLY GARY C 686,279 Aug 21, 2014

RICKS RON 226,066 Aug 1, 2014

LAMB JEFF 194,272 Aug 25, 2014

VAN DE VEN MICHAEL G 181,102 Aug 20, 2014

JORDAN ROBERT E 167,575 Aug 21, 2014

Top Institutional Holders

Holder Shares % Out Value*Report

ed

Vanguard Group, Inc. (The) 50,305,640 7.34 1,351,209,490

Jun

30,

2014

State Street Corporation 26,622,943 3.89 715,092,248

Jun

30,

2014

FMR, LLC 26,220,122 3.83 704,272,476

Jun

30,

2014

Price (T. Rowe) Associates Inc 24,906,185 3.64 668,980,129

Jun

30,

2014

Black Rock Institutional Trust Company,

N.A.18,273,684 2.67 490,831,152

Jun

30,

2014

Bank of New York Mellon Corporation 15,143,208 2.21 406,746,566

Jun

30,

2014

Primecap Management Company 78,488,794 11.46 2,108,209,006

Jun

30,

2014


http://biz.yahoo.com/t/89/7269.html





Bank of Montreal/Can/ 12,485,781 1.82 335,368,077

Jun

30,

2014

Acadian Asset Management 11,118,294 1.62 298,637,376

Jun

30,

2014

Black Rock Fund Advisors 9,797,465 1.43 263,159,909

Jun

30,

2014

Top Mutual Fund Holders

Holder Shares % Out Value* Reported

Vanguard/Primecap Fund 34,559,300 5.04928,262,

798

Jun 30,

2014

Vanguard Mid-Cap Index Fund 11,499,188 1.68308,868,

189

Jun 30,

2014

Price (T. Rowe) Mid-Cap Value Fund 11,492,700 1.68271,342,

647

Mar 31,

2014

Vanguard Horizon Fund-Capital Opportunity Portfolio 10,935,100 1.60293,716,

786

Jun 30,

2014

Vanguard Total Stock Market Index Fund 10,824,173 1.58255,558,

724

Mar 31,

2014

Vanguard Fenway Fds-Primecap Core Fund 8,926,525 1.30239,766,

461

Jun 30,

2014

Fidelity Growth Company Fund 7,645,515 1.12205,358,

532

Jun 30,

2014

Vanguard 500 Index Fund 7,117,746 1.04191,182,

657

Jun 30,

2014

Vanguard Institutional Index Fund-Institutional Index

Fund6,949,897 1.01

186,674,

233

Jun 30,

2014

SPDR S&P 500 ETF Trust 6,563,893 0.96173,614,

969

May 31,

2014

External (MP)


Southwest has external stakeholders as well. One of their key stakeholders is their

union employees. According to Southwest's Annual Report 2013, it states that on December

31, 2013, "The Company had 44,831 active fulltime equivalent employees, consisting of

19,003 flight crew, 2,689 maintenance, 15,464 ground, customer, and fleet service, and 7,675

management, finance, marketing and clerical personnel (associated with non-operational

departments). Approximately 83 percent of these employees were represented by labor

unions." This quote is informative on the breakdown of 44,831 employees at Southwest. The

most important statistic to gain from this quote is that 83 percent of Southwest employees are

represented by labor unions. Southwest has 11 Unions they work with. These unions work

together with Southwest to ensure that their employees are receiving all their benefits and are

being paid cordially. (Southwest Annual Report 2013)

Aircraft Mechanics Fraternal Association (AMFA)

Appearance Technicians 2/16/2009-2/16/2017

2 Aircraft Mechanics Fraternal Association (AMFA) Facilities Maintenance Technicians (New) In

negotiations

3 Aircraft Mechanics Fraternal Association (AMFA)

Mechanics, Inspectors, Controllers (New), Training Instructors (New)

8/16/2008-8/16/2012In negotiations

4International Association of Machinists and Aerospace Workers, AFL-CIO (IAM) – District 142

Customer Service Agents, Ground Operations And Customer Representatives, Customer Support and Services


5 International Brotherhood of Teamsters (IBT) - Local 19 Material Specialists

8/16/2008 – 8/16/2013In negotiations


6 International Brotherhood of Teamsters Airline Division (IBT) Flight Simulator Technicians 11/1/2013-

10/31/2015

7 Southwest Airlines Pilots Association (SWAPA) Pilots

9/1/2006 – 8/31/2012In negotiations

8 Transport Workers Union (TWU) - Local 550 Dispatchers 6/15/2012-

11/30/2015

9 Transport Workers Union (TWU) - Local 555

Ramp, Operations, Provisioning and Freight Agents

7/1/2008-6/30/2011In mediation

10 Transport Workers Union (TWU) - Local 556 Flight Attendants


11 Transport Workers Union (TWU) - Local 557 Flight Instructors 4/1/1999 –

12/31/2015

There are 18 top suppliers of Southwest. Southwest's top 18 suppliers are listed in the

diagram below. All of these suppliers have contributed to Southwest's success in so many

different ways. Southwest's major customers are passengers that travel using Southwest in

cities like Chicago, Las Vegas, Baltimore, Denver, Houston, Phoenix, Atlanta, Dallas, Orlando

and Los Angeles. Throughout these cities, major customers contribute to the $45,232 daily

reservations which on a weekly basis is $313,497. On a monthly basis it is 1.4 million. If that is

not surprising enough, a year of reservations from customers is 16.5 million. This show how

loyal Southwest customers are, and how many when they want to travel choose Southwest.

According to swamedia.com Southwest has served 1.5 billion Customer since their first flight


in America for customers. Southwest local communities along with Southwest stakeholders

contribute to being named number one for Fortune 500 Green Power Partners by

Environmental Protection Agency. Southwest is all about staying green and take part in keep

Earth cleaner and greener. According to Southwest One Report, Southwest works closely with

communities to offer volunteer work at their airports. (Spiderbook.com)

Top Southwest Airlines Suppliers

NintendoNintendo's Partnership With Southwest Airlines Takes Off ... 18 documents

BoeingSouthwest Airlines upgrades 20 Boeing orders 11 documents

SeaWorld... performances at the marine park and its sister parks and advocates have pressured SeaWorld

7 documents

Volaris4:47 pm Southwest offering flights to Mexico zoom Southwest Airlines is partnering with Mexican

7 documents

GoodrichAviation Today :: Southwest Airlines Chooses Goodrich ... 6 documents

Clarity Technologies

April 26th, 2007 No Comments Southwest Airlines has selected Clarity 6 software as a single

5 documents

Eaton Eaton wins service contract from Southwest Airlines by MBJ Staff Tags: 5 documents


http://spiderbook.com/company/18526/details?rel=240918


























http://spiderbook.com/company/18526/?relationship=supplier&relationship=partner

air travel , airlines ,

Dish Network

DISH has partnered with Southwest Airlines to make your TV and traveling options even sweeter.

4 documents

Wunderman

Southwest to work with Wunderman for its FFP Feb 6, 2009 Southwest Airlines has chosen Wunderman as

4 documents

SwissportSwissport Fueling Services to Supply Southwest Airlines at ... 3 documents

BAEBAE Systems Selected by Southwest Airlines for Repair ... 3 documents

SpigitSouthwest Airlines Selects Spigit to Drive Innovation ... 3 documents

InterContinental Hotels

InterContinental Hotels Group Partners with Southwest Airlines 2 documents

nuTravel Technology

nuTravel Signs Content Agreement with Southwest Airlines Southwest Airlines Partnership Improves

2 documents

SiemensSouthwest Airlines has contracted with Siemens for a turnkey baggage handling system at McCarran

2 documents

ATA Airlines

ATA's code-share deal with Southwest aids both By Ted Evanoff, The Indianapolis Star ATA Airlines'

2 documents

MasterCard

MasterCard Teams with Southwest Airlines and Starwood ... 2 documents












































ChaseChase Partners with Southwest Airlines to Enhance Ultimate ...

Company's Organization and Structure (MR)

(SWA Media)

Purpose of the Report (MR)

The purpose of this report is to show that our group has learned to analyze a real

company and the industry it is in from an executive management perspective. The report is

broken up into five modules. The first module will address the history of Southwest and

includes information about the mission, company objectives, and the company’s present

situation. It will also include an organizational chart.




External Analysis (MR)

In module 2 our group will analyze the general environment and industry environment

in which our company is based. It will include an analysis will of the opportunities and threats

of the airline industry. An evaluation of the airline industry using Porter’s five forces model

will also be included. We will also discuss if we find evidence of changes taking place or

reasonably anticipated in the macro environment.

Industry Growth/Industry Profits/ Industry Segments (MR)

The travel industry is at risk with everything which is going on in the world. The

slowly improving economy has stressed the industry. The Ebola scare, the war in the Middle

East and the conflict in the Ukraine causes more issues for the travel agencies. Particular the

airline industry will mostly be affected. The rise in gas prices directly affects the rise in prices

for the ticket prices. With everything which is occurring to raise prices for travelers the airline

industry is in the forefront of the challenges which are being presented.

The international airline industry is improving has been improving for the last few

years. For instance, “IATA this week raised its net post-tax profit for the global airline

industry in 2011 to USD 6.9 billion, after downgrading the prediction from USD 8.6 to USD

$4 billion in June 2011.” (CAPA, 2011) Nevertheless, the global industry is still going to have

difficulties with the continued economic issues which exist today. For instances, “The U.S.

airline industry is expected to remain profitable over the next two decades given the improving


worldwide trends in air travel. However, growth may be held back until 2015 due to the

increase in fuel costs and ongoing economic turmoil in the U.S. and Europe.” (Zacks Equity

Research, 2012) Among these issues are the many continues internal cost which the airlines.

One of the major concerns within the airlines is with the workforce they have to employ to

maintain their operation. “Most of the employees are unionized and depend on various U.S.

labor organizations. The relation between airlines and labor unions are governed by the

Railway Labor Act, which states that a collective bargaining agreement between an airline and

a labor union does not expire – instead it becomes amendable as of a stated date. Failure to

amend terms and conditions suitably may lead to work stoppages or strikes, and thereby

hamper operations.” (Zacks Equity Research, 2012) Despite the risk involved with the global

airline industry there is strategies to increase profitably in the coming future. For example,

“International traffic is expected to grow 4.2% per year, in contrast to domestic travel that will

grow at a more modest clit of 2.7% annually through 2032…the 20-year airline growth is

expected to stem from the implementation of a NextGen, the satellite-based navigation system

that aims to make air travel more efficient.” (Zacks Equity Research, 2012) Another method to

increasing the appeal of airline travel is offering a better experience while traveling. For

instance, “..A top notch carrier, is expected to incur a spending of more than $350 million for

the installation of superior in-flight entertainment and communications system.” (Zacks Equity

Research, 2012) The airline industry has been improving and various strategies are being

implemented to assist with the demand internally. However, the external concerns are what

may inhibit the growth of the industry.


The air travel SIC code is 4512. The travel industry faces many obstacles in keeping

and gaining profits; due to the sloe global economic recovery, and increased possibilities of

war between nations. In particular the global health scares, the war in the Middle East and the

conflicts in the Europe, causes great stress for the airline industry as a whole.. The rise in gas

prices directly affects the rise in prices for the ticket prices. With everything that is occurring

to raise prices for travelers, the airline industry is in the forefront of the challenges that are

being presented.

The international airline industry is improving has been improving for the last few

years. For instance, “IATA this week raised its net post-tax profit for the global airline

industry in 2011 to USD 6.9 billion, after downgrading the prediction from USD 8.6 to USD

$4 billion in June 2011.” (CAPA, 2011) Nevertheless, the global industry is still going to have

difficulties with the continued economic issues which exist today. For instances, “The U.S.

airline industry is expected to remain profitable over the next two decades given the improving

worldwide trends in air travel. However, growth may be held back until 2015 due to the

increase in fuel costs and ongoing economic turmoil in the U.S. and Europe.” (Zachs Equity

Research, 2012) Among these issues are the many continues internal cost which the airlines.

One of the major concerns within the airlines is with the workforce they have to employ to

maintain their operation. “Most of the employees are unionized and depend on various U.S.

labor organizations. The relation between airlines and labor unions are governed by the

Railway Labor Act, which states that a collective bargaining agreement between an airline and

a labor union does not expire – instead it becomes amendable as of a stated date. Failure to

amend terms and conditions suitably may lead to work stoppages or strikes, and thereby

hamper operations.” (Zacks Equity Research, 2012) Despite the risk involved with the global


airline industry there is strategies to increase profitably in the coming future. For example,

“International traffic is expected to grow 4.2% per year, in contrast to domestic travel that will

grow at a more modest clit of 2.7% annually through 2032…the 20-year airline growth is

expected to stem from the implementation of a NextGen, the satellite-based navigation system

that aims to make air travel more efficient.” (Zacks Equity Research, 2012) Another method to

increasing the appeal of airline travel is offering a better experience while traveling. For

instance, “..A top notch carrier, is expected to incur a spending of more than $350 million for

the installation of superior in-flight entertainment and communications system.” (Zacks Equity

Research, 2012) The airline industry has been improving and various strategies are being

implemented to assist with the demand internally. However, the external concerns are what

may inhibit the growth of the industry.

Over the last 17 years, aviation has been the first contributor to international tourist

arrival growth with a 5.5% yearly average growth of tourists arriving by air (compared with

4.1% for road transport, 2.3% for sea transport and 1.5% for rail transport) (Airbus, 2014).

According to “Tourism 2020 Vision”, the World Tourism Organization’s long term forecast,

the number of tourists is expected to grow from 1.1 billion tourists currently up to 1.6 billion

by 2020 (Airbus, 2014). This corresponds to an impressive 5.7% compound annual growth rate

over the next 7 years (Airbus, 2014).

The financial crisis in 2008-2009 greatly effected passenger traffic, but the recovery

over the period 2009-2013 has proven its resilience (Airbus, 2014). Airbus latest traffic

forecast suggests that World RPKs will again double over the next 15 years (Airbus, 2014).

This represents a 4.7% yearly average growth over the next twenty years, 5.2% over 2013-

2023 and 4.2% over 2023-2033 (Airbus, 2014).


Source: file:///Users/monica/Downloads/Airbus_GMF_book_2014-2033.pdf

U.S. scheduled passenger airlines reported a net profit of $3.6 billion in the

second quarter of 2014, up from $507 million in the first quarter of 2014 and $2.2

billion in the second quarter of 2013, the U.S. Department of Transportation’s Bureau

of Transportation Statistics (BTS) reported today (Table 1) (U.S. Department of

Transportation, 2014).


The 27 U.S. scheduled service airlines reported an after-tax net profit as a

group for the fifth consecutive quarter. The scheduled service passenger airlines

reported a $5.5 billion pre-tax operating profit in the second quarter of 2014, up from

$1.7 billion in the first quarter of 2014 and up from $3.7 billion in the second quarter of

2013. The airlines reported a pre-tax operating profit - as a group - for the 14th

consecutive quarter (U.S. Department of Transportation, 2014).


External/General Environment (RR)

For over 30 years the airlines industry has had to deal with restriction of flights out of

one of the busiest cities in the United States…Dallas, Texas. In the 1960’s the Federal Aviation

Administration (FAA) decided that Love Field in Dallas and the Greater Southwest

International Airport in Fort Worth would not be able to maintain future air traffic. As a result

the FAA decided that they would continue to federally fund the airports until the situation was

resolved. It was decided that both airports would combine and relocate to create the

Dallas/Fort Worth International Airport. However, in order for DFW to be successful the other

former airports had to agree that they would move their carriers into the new airport. Southwest

Airlines was not created until after the agreement was signed and had their flights entering and

leaving Love Field. The Supreme Court ruled that since Southwest Airlines came after the

agreement was signed and was operating in an airport that was still open that they could fly out

of Love Field. At the time Southwest Airlines was only doing flights within the state. When all

the other airlines left to DFW Southwest Airlines stated at Love Field. When Southwest

decided to expand their destinations that is when the city of Fort Worth became upset because

it was interfering with DFW and the purpose it was built. In February of 1980, former

President Jimmy Carter enacted the Wright Amendment, which restricted the number of flights

out of Dallas. The reasoning behind this law was to promote the Dallas/Fort Worth

International airport (DFW). The law stated, “ That passenger airlines could not fly airplanes of

more than 56 seats out of Love Field beyond a certain point to protect Dallas/Fort Worth

International Airport from unlimited competition from Love Field,” (The Points Guy, 2014).

This law has restricted many Airlines and keeping flights at a constant price in Texas.


On Monday Oct. 13, 2014 the Wright Amendment will be repealed and airlines will be

able to return back to Love Field to increase their flights. How is this going to impact the

airline industry? With more flights now airlines go back into competition with each other,

which allows for the consumers to shop around for the best prices. It is anticipated that flights

leaving and entering Dallas will drop significantly because one airline will be in competition

with each other. Major cities like Chicago, New York, Los Angeles, Orlando, and Las Vegas

will definitely see an increase in their flights departing and arriving. Rick Seaney, CEO and

Founder of Fare Compare states,” You should be ready to shop. You should be manning your

computer, especially on Monday when they launch," said Seaney with a big smile. "There's

going to be something,"(Dewberry, 2014). Seaney analyzed airfare over the last decade and

concluded that lack of competition causes prices to stay stagnant. According to Seaney in 2004

Delta withdrew from DFW Airport and prices went up. However in 2014, when Virgin

America came to DFW prices dropped for most airlines within DFW that flew the same routes.

Seaney explains the reasoning behind this is because Virgin America charges half compared to

other airlines and now other airlines need to adjust their prices to be able to compete. So come

Monday October 13, 2014 there should be significant price reduction for most Airlines

traveling in and out of Texas. The question at hand will be will these low fares sustain or will

they vanish soon and all will be forgotten only time will tell.


Industry Analysis/Porter’s Five Forces (MP)

Currently the Airline Industry is growing at a fast rate each year. Airline Industry,

according to Investopedia and Google's Airline Industry Analysis comprises of four

categories. The four categories are International, National, Regional and Cargo. The

macro environment plays a huge factor on any airline company’s strategic action. Porter

Five forces are used in companies to view the airline industry to see where they stand and

how they can improve. The threat of new entrants in the airline industry can be high

depending on the how the economy is doing. The Airlines industry is analyzed by the

potential entrants and what barriers coincide with entry. The current rivalry among existing

firms determines how airline companies may pay more to have a competitive advantage.


Bargaining power of supplies and how airlines companies who have a more recognizable

brand and loyal customers have power over suppliers. Bargaining power of buyers allows

customers to pick and choose the most inexpensive or convenient airline company which

affects the airline companies drastically loosing loyal customers. Substitute Product in the

airline industry is high since not only can customers take another airline but take another

means of transportation like Amtrak to get to a destination.(Investopedia) (Google Airline

Industry Analysis)


Potential Entrants/Current Rivalry among Existing Firms (MP)

Currently the airline industry is medium. Even though many people may disagree that it

is medium you have to look at all aspects that affect the entry barriers and the threat of new

entrants. The airlines industry market share is controlled by the airline company with the

brand loyalty. New entrants may or may not get in the airline industry, but will struggle

financially to gain more and more of the current market share. The airlines industry’s

economies of scale varies. According the Stocks 100 article, airline economy is never

steady because it fluctuates depending on how the economy is and what customers are

willing to pay. Even the most loyal customer may switch airline companies if they are

trying to save money. This is why the airline companies try to have the best deals to attract

customers as much as possible. Cost disadvantages for new airline companies and current

airline companies in the industry is that more money is needed to be able to give certain

incentives to customers and increase customer experience. Product differentiation in the

airline industry is viewed as all airline companies offering programs and first seating

privileges to differentiate themselves. The airline industry capital requirements for new

entry can be high but is accessible with startup companies borrowing money. The airline

industry and the access to distribution allows all airline companies to follow their own

distribution channel or feed off of one another. Government policy depending on where

the airline companies are, affects the industry since all airline companies have to make sure

they follow all rules and regulations different governments have. The entry of barriers is


medium because new entries can borrow money to provide the foundation to start up in the

airline industry. The threat of new entrants is also medium because if new entrants

successfully come into the industry, they now have to deal with all their competitors who

have a huge chunk of the market. This causes new entries to spend more and borrow more

in order to keep their company in business. (Stocks 100)

Current Rivalry among Existing Firms (MP)

According to a report by Google and Investopedia on the airlines industry, Current

Rivalry among Existing Firms, the stage of the business cycle is in the mature stage. I

agree with this because the airline industry is very intense because the competitors don’t

come and go that are involved in the industry for the long run. All the current rivalry

among existing firms is high because they are in long contract agreements just so they can

stay in business. In addition, current rivalry is high because every competitor has high

complex products in their company which increase competitiveness in the industry. Since

the industry is now growing rapidly, the rivalry is higher. Rivalry in the industry isn’t so

strong for airline companies that have more loyalty and more effective and efficiency

business strategies.(Investopedia) (Google Airline Industry Analysis)


Bargaining Power of Suppliers (MP)

And article by Investopedia and Google Airline Industry Analysis stated the airline

industry bargaining power of suppliers are both Boeing and Airbus that manufacture to all

airline companies in the industry. Since the airline industry companies really don’t differentiate

their planes, it is the incentives and amenities that offer customers to go to them and become

loyal to the company. Since plane manufacture industry is high there needs to be a lot of

capital available for there to be more suppliers. According to the Google article on the airline

industry, to make one plane it cost 200 million dollars. This is why airline companies don’t

have much of a say on the prices of the planes except for the airline companies who have the

most market share in the industry. Because of all these reasons, bargaining power of suppliers

has a lower threat. (Investopedia) (Airline Industry Analysis)

Bargaining Power of Buyers (MP)

According to the article by Google on the airline industry, there are two groups of

buyers. Airline industries have concluded that one group is an individual buyer, who is

traveling for personal or business related reasons, which contributes to the airline industry

overall growth profit. The second group is more diverse since travel agents and online portals

offer customers to purchase bundle packs where plane transportation, hotel, rental car, and

food expenses are taken care of in an all-inclusive deal. This gives customers the advantage to

choose either way they want to travel. Buyers choose airlines based on safety, amenities like

food, if it’s a direct or non-direct flight. Bargaining power of buyer are low because

customers/travelers have such more room to choose on how they want to fly. (Google Airline

Industry Analysis)


Substitute Products (MP)

According to Investopedia Airline Industry Analysis the airline industry, substitutes are

moderate and depend on whether the customers or travelers are looking for a regional

airline or an international carrier. This is because regional airlines will stay in the same

country. For this reason, customers have the option to take Amtrak that will take them

from one destination to another. Travelers can also substitute airline companies for a road

trip by driving to their destination in the country. For international customers/travelers the

only substitute is airlines unless they take a cruise ship. Most travelers go with airlines

because of all the cruise ship problems and malfunctions. The airlines industry substitutes

are moderate. (Investopedia)

Industry Attractiveness/Profitability (AR)

According to an article by Investopedia Airline Industry Analysis, the airline industry is

an attractive industry the firm is in, as well as, all other airline companies only if they have

enough resourcing and capital to pay off their suppliers and keep their market share. If

airlines companies cannot meet this expectation from their customers, then their customer

will leave and become loyal to another airline. Any new entries that want to become a part

of this industry need to have lots of resources and funds to start up the company and gain

awareness especially when the market share is so tight with major competitors and

competition that customers are too loyal to switch to another airline. (Investopedia)

(Airline Industry Analysis)


Summary (Results) of Five Forces (MP)

Force Intensity of Force (high, moderate or low)Threat of Potential Entrants ModerateCurrent Rivalry among Existing Firms HighBargaining Power of Suppliers HighBargaining Power of Buyers LowSubstitute Products Moderate

Industry Strategic Groups (KM)

The airline industry is a made up strategic groups of low cost carriers and high cost

carriers. Low cost carriers provide the cheapest flights possible by keeping things simple.

While high cost carriers are more expensive but offer different amenities such as first class,

meals, more legroom, and other luxuries. In the discount airline group, Southwest has recently

been beat by Spirit Airlines and Allegiant Travel, as the lowest cost providers. However,

JetBlue Airlines is the closest major competitor in the discount airline business

(Southwest.com). JetBlue began their venture of brining humanity back to the sky in 2000.

They felt that airlines were missing kindness in the sky, so they strove to bring back the

missing passion and kindheartedness to both the ground and the sky. Not only does this

company strive to impact customers lives while traveling, they do their best to influence the

lives of those in need. Whether it is raising awareness for a cause or volunteering with an

organization. Corporate and social responsibility makes up JetBlue, and is their business

model. Their website states:


“It's the nonstop dedication to align our efforts to reflect the diverse interests and core

values of our company. It’s constantly striving to enrich the lives of others every day.

It's sustaining our environment for future generations. And it's inspiring our customers

and crewmembers to do the same.”(Southwest.com)

Southwest and JetBlue are both dedicated to providing the best customer service and

travel experience to their customers and a stable work environment for their employees. Jet

Blue has created a ‘Customer Bill of Rights’ which states their commitment to their employees

and expectations of staff to carry out their customer commitment. However, the bill of rights

also acknowledges that the unexpected happens and customers may become occasionally

inconvenienced however, JetBlue will always strive to provide a safe and convenient

experience. JetBlue is not only committed to satisfying individual passengers and families,

they offer corporate fares and amenities to corporations of all sizes. They too, collaborate with

over 30 airlines internationally. (Southwest.com)

The company’s dedication to sustainability, they have created a strategy to better the

environment. Their sustainability strategy states: “We depend on our natural resources and a

healthy environment to keep business running smoothly. Natural resources are essential for us

to fly, and tourism relies on having beautiful, natural, and preserved destinations for our

customers to visit.” JetBlue has worked successfully created strategies to try to reduce

emissions in daily operations, recycle, and run efficiently to help the environment. They are

proud to share their efforts throughout their website. (Southwest.com)

JetBlue’s market share for August 2013- July 2014 is 5.1%, based on revenue

passenger mileage of $29.5 billion. Southwest’s market share of 16.3% for the same period


based on revenue passenger mileage of $95.67 billion. The recent overall increases of the

airline industry have helped JetBlue, increasing value by 40%. Increased airline travel during

the summer and lower fuel costs have benefited company profits. Based on industry

projections the airline should continue to increase profits through year-end. (Southwest.com)

JetBlue may have strong customer service, and low cost fares yet they are having

troubles maximizing profits, resulting in leadership changes. Therefore, come 2015, to

continue increasing profits the company has plans for success come 2015, along with plans to

bring in a new CEO. The focus on maintaining past strategies and values has resulted in a loss

for the airline. New strategies have been developed and implemented in 2015. The new

strategies are said to include baggage and wifi fees along with squeezing more seats into

planes. The strategy is projected to increase earnings per share by as much as 50 cents. These

changes may bring the revenues the airline is looking for but may have a negative impact on

their image. Similar to when Southwest decided to compete with fares of other airlines, they

lost the title of low cost carrier. The new CEO must go about implementing these changes

carefully to be sure they airline will still be maintaining its visions and values.

(Southwest.com)

Opportunities and Threats (MP)

Opportunities ThreatsTechnological – Technology increases airline industry’s innovation and help airline industries and suppliers work closely to provide more fuel efficient planes and safer rides for passengers.

Economic – When the economy is struggling there will be less travelers and more loyalty to airlines that have the best low cost strategy for their travelers

Demographics – Airline companies are worldwide so they meet all demographic

Political/Legal – Government may or may not bail an airline company that is going into


necessities bankruptcy. Economic – when the economy is booming the airline companies can raise prices and expect customers to pay more.

Low Entry Barriers - Start up airline companies can borrower money to get into the firm

Socio-cultural – Airlines Industry is diverse and encourage all ages and ethnicity and sex.

High Bargaining Power of Buyers- Customers can choose if they want to take an airline or drive, or take a train

Low Bargaining Power of SuppliersAirlines have a choice to use Boeing or Airbus and their suppliers. They are also limited to them too and may not have so much say on decisions.

Intense Internal Rivalry- Rivalries use low cost strategies and amenities to have a competitive advantage and market share

INTERNAL ANALYSIS (MP)

When looking at the internal analysis of a company, essentially it is the internal

working of the day to day basis of the company. Companies understand that analysis of their

company will separate their strengths form their weakness in which they can have a better

understand on what they can improve on. In order for a company to become successful and

have a competitive advantage, company executive managers will do an internal analysis which

in return gives them an competitive advantage when the weaknesses are diminished and

shareholders are pleased. In this case, the internal analysis is able to identify what Southwest

is capable of doing and what they can improve on. Utilizing Southwest Airlines Value Chain

and Financial Ratio Analysis aids to identify and the current strengths and weakness within the

company. The value chain analysis will detail the Supply Chain Management (Inbound

Logistics), Operations, Human Resources Management, and General Administration (Southwest

Infrastructure). Part one of this, will evaluate the company’s value added activities. This

analysis of the Value Chain will enable our group to determine Southwest’s strengths and

weaknesses. The value chain analysis will detail the Supply Chain Management (Inbound


Logistics), Operations, Human Resources Management, and General Administration (Southwest

Infrastructure). Part two will analyze, give meaning, and relevance for the Southwest’s financial

metrics. Specifically detailing what the leverage ratios, what the activity ratios, and what the

profitability ratios tell us about Southwest airlines.

The Value Chain Analysis (MP)

The value chain analysis conducted on Southwest Airlines consist of the Primary

Activity which includes: Supply Chain Management (Inbound Logistics), Operations

(Production), Distribution (Outbound Logistics), Sales and Marketing, Service (Customer

Service). The value chain analysis also consists of the support activities that are, Product R&D,

Technology and Systems Development, Human Resources Management, General

Administration (Firm Infrastructure). Both Primary and supportive activities help companies

like Southwest Airlines to identify what activities create value and what activities don’t create

value. For the activity that doesn’t create value companies like Southwest will do what they

can to limit the risk to better improve their activities both primary and supportive.

Supply Chain Management (MP)

Southwest inbound logistics are activities that Southwest uses like warehousing,

materials, inventory control. According to a Seattle Times article by Dominic Gates Southwest

purchases materials/products from Boeing while they warehouse their planes at airports.


Southwest manages their inventory. Southwest Supply Chain management consists of

purchasing Boeing planes and training their pilots to fly them. Since Southwest doesn’t

produce the planes but purchases only one brand, pilots of southwest can fill in for one another

when it comes to covering shifts. Southwest distributes their planes to all airports in America

they’re currently based. Southwest keeps in touch with Boeing for new and updated technology

to have more fuel efficient planes and also purchases jet bio fuel so that planes can have a

higher turnover and get more passengers on and off planes to keep revenue flowing. (Seattle

Times)

Strengths

Southwest works close to stay green and does that with purchasing 3 million gallons of

jet bio fuel from forest residue

Southwest has a close relationship with Boeing unlike other competitors


Southwest pilots can operate any plane that is in air because they are all Boeing planes.

Weakness

Since Southwest only buys Boeing planes which gives the Boeing the ability to raise

the prices of the planes they sell you Southwest

Southwest can’t fill more passengers on their planes if Boeing only offers planes that fit

170 passengers and Airbus fits 300 passengers

Southwest buys Boeing planes that end up having battery defects and cost a loss on

Southwest

Operations (MP)

Southwest operation activities take all inbound logistics and are able to get their planes up

and running and travelers flying form one destinations to another. Southwest daily operations

are never fixed and stable. Southwest deals with unexpected delays in weather along with

what the current demand the travels want like free Wi-Fi, movies to watch, a blanket and

pillow. Companies like Southwest in the airline industry have to deal with delays when it

comes to meeting travelers expectations. According to an article, Inc. Turnaround Strategy:

What You Can Learn from Southwest Airlines, by ILan Mochari, Southwest Airlines tries

their best to meet customer’s needs. According to an article by Boeing called southwest

airlines launches the 737max Southwest is aware that seating 175 seats on a 737-800 takes

longer than seating 143 seats on a 737. Since Southwest and other airlines have to wait when


there is a winter storm, this is a disadvantage that affects delay of airlines and why only two-

thirds of Southwest flights land on time. (INC.) (Boeing)

Strengths

everyone equally can sit where they please

Southwest uses Boeing 737 planes because it’s a quick turnout and low cost compared

to competitors

10 minute turnaround

Train pilots to fly one plane Boeing 737

no charge for carry on because it cost


Weakness

no first class seating

Southwest is losing money by not charging for carry on

Southwest can purchase bigger planes that Airbus offers because their own plane

supplier is Airbus

Having first class seat gives a meaning for customers that want to spend more feel more

important and get more amenities than an average customer.

Score card of where Southwest stands with operations

2013 Airline Scorecard

Rankings of major carriers in key operational areas, best to worst.

Airline

On-Time Arrivals Rank

Delays > 45 minutes

Canceled Flights

Mishandled Bags

Passenger Bumping

Passenger Complaints

2-Hour Tarmac Delays

Total Score

Alaska 1 1 4 6 3 2 1 18Delta 2 2 1 3 6 3 6 23Virgin America

3 6 3 1 2 5 4 24

Southwest 7 4 5 9 8 1 2 36JetBlue 8 9 6 2 1 4 7 37US Airways 4 3 7 5 5 6 9 39Frontier 9 8 2 4 7 9 3 42American 6 7 9 7 4 7 8 48United 5 5 8 8 9 8 5 48


http://online.wsj.com/public/resources/documents/yui-dt0-href-col_8



















Distribution (MP)

Southwest distribution process consists of their customers and suppliers. Southwest use

to distribute tickets in person and at the ticket counter. Now the e tickets allows customers to

print out tickets at home and go on their way to their destitution. Southwest donates money

and distributes it throughout different charities. Southwest has no marketing distribution for

flights to other countries internationally. Southwest distributes there planes to their airports so

they have enough plans to meet how many customers are flying. Improper repairs that

Southwest does on their planes with no help and guidance from Boeing doesn’t always go right

and Southwest is sued for improper repairs. (Southwest.com)

Strengths

purchases 737 planes from Boeing and sends them to all airports that Southwest flies to

free vouchers to customers willing to give up their seat


gives back to charities

works alongside with stakeholders to prove a greener earth

Ticketless tickets which gives customers the convenience to print tickets at home

Weakness

FAA lawsuit against Southwest improper aircraft repairs article by Terry Maxon

Southwest doesn’t distribute tickets or flight to international destination

E Tickets decreases the amount of southwest ticket employees to have jobs

Sales and Marketing (MP)

Sales and Marketing from Southwest is advertising and making sure they have a great

distribution channels. Southwest Airlines has a lot of different sales and marketing strategies

that their competitors lack to accomplish. According to Southwest website they ads that stated

low fares which Southwest competitors could not do because they didn’t have low fares.

(Southwest) Now this is the opposite since southwest knows that they have loyal customers

and higher their prices knowing people will still purchase tickets. Southwest marketing

strategy to save money was to give customers peanuts which saved the company lots of money

compared to Southwest competitors that spend $5 on each meal per customer. Southwest raised

their sales by having flight turnover and getting more passengers on and of the planes to make

sure their supply meet the demands of the customers. Competitor’s planes wait an hour or more

and not having their passengers get on until they want to have them get from A to B.

Southwest has gained more customers with their rewards card marketing strategy which has


customers earning flight miles so they can go on a flight for free even if they never flew

before. (Southwest.com)

Strengths

Marketing ad states The only low fare

Peanuts to customers when their competitors purchase meals for their customers

Cost of meal for passengers on competitor airlines $5- Southwest spends only 20 cents

on each of their customers.

Southwest planes are turned fast so their can be more flights in the air. Other airlines

planes just sit and wait

Airfares go down and tourist traffic increase when southwest enters a certain market.

frequent flyer rewards cards for avid customers- Other airlines don’t have rewards like

Southwest

Weakness

Southwest airlines raised their prices now matching with Delta and American airlines


Customer's baggage are being lost because of allowing late bags from customers which

other airlines don’t have such a big problem like this

Customers prefer a meal on a plane rather than peanuts on Southwest

Southwest rewards cards are limited to customer who have to chose Chase.

Southwest current marketing ads don't state low fares anymore

Service (MP)

Southwest has a different way of servicing to their customers. Southwest treats their

customers and employees the same way. Southwest cargo service has a process that the

diagram below goes into detail the procedure customer cargo is processed and handled. They

pick the best and most happiest employees ever to move the cargo and the service the

customer service hotline. This keeps customer's moral high. Southwest's great service increases

customers to return because they love the service. According to Southwest website a service

incentive is Southwest doesn’t charge for carryon's like Delta airlines does. Customers enjoy

the service of first come first serve seating basis. This allows customers to feel equally

important and not one passenger in higher class is being pampered more than the rest.

Southwest does train their employees but their competitors are doing the same which is the

service competitiveness between rivalry companies. Southwest customer service is a

phenomenon and is why when Americans thinks of Airlines they think of Southwest before

they consider a competitors name. (Southwest.com)


Strengths

Southwest allows customers to pick their seats on a first come first serve basis unlike

Delta where there is assigned seats

Southwest doesn't charge for carry on like Delta does

Southwest has their corporate office send personal letters to customers apologizing for

delays?

Southwest has a great cargo service process that meets and exceeds customers

expectations


Weakness

Southwest luggage’s were lost or delayed more than United Airlines and Delta Airlines

United Airlines had 43,000 front line employees take new customer service training

which Southwest didn't do in 2013.

Southwest is too kind to their customers with late baggage which affects mishandling

of bags. Delta and American Airlines are more strict with their customers and don’t

have this problem

Not allowing customers to extend their vouchers like Lauren from TN when she found

out she had cancer.


Support Activities (RR)

Southwest Airlines is a very successful airline because it takes its customers into consideration.

It also knows that without the support of their employees that it would be very hard to follow

through on their vision. However, there are other components that help make Southwest

Airlines successful that are called supporting activities. Supporting Activities is everything on

the side that helps run a business but actually is not related to your product.

Winglets- save on fuel consumption

RNP- Required Navigational Performance allows for safer, quicker, and less fuel

consumption of aircrafts.

Location- Dallas is a metropolitan area where there is a lot of business so it benefits

having that as the headquarters for SWA.

Advertising-The color schemes and slogans make SWA very identifiable.

Strengths

Advertising

RNP

Fuel

Weakness

Location- there is another international airport also located in Dallas. .


Product R&D, Technology and Systems Development (RR)

Southwest Airlines is always trying to stay one step ahead of its competition. In this

day in age technology is an integral part of the success of a company. In 2013 Southwest

Airlines hired Craig Maccubbin as the Chief Technologies Officer (CTO) and Vice President

of Technology Operations. Maccubbin has years of experience working for Fortune 500

companies in their technology department. One of technological developments that Southwest

Airlines is incorporating is the use of big data to help improve on their customer service. For

example, “Front-line personnel will receive real-time KPI dashboards related to operational

and strategic goals. They will use speech analytics to extract deep and meaningful information

out of live-recorded interactions between customers and personnel. This will deliver Southwest

Airlines more information in what the customers are looking for and how their experience with

Southwest Airlines is. Different metrics will guide the personnel in their objective to deliver

high-quality service,”( McCartney, 2010). The analysis of big data is crucial to the airline as a

whole. They use social media outlets to better understand their customers and to find out how

they can improve flights. Southwest has also buddied up with NASA on a text data-mining

project. What it entails is the collection of sensor data from pilots and anyone else that deals

with air traffic. What is being collected is used to improve airline safety. Another technological

advance is the change in cockpit software to its fleet. The new software means that pilots will

need to be accustomed to different instruments and displays. “Using more-precise approaches

to airports called Required Navigation Performance (RNP) routes, airplanes can shorten their

flights. The paths laid out in the sky that planes use into and out of airports will be much

narrower, removing overlap between different airports in congested cities,”(McCartney, 2010).

Lastly with the deterioration of our ecosystem most companies are going “Green.” Southwest


has also decided that they should also by introducing plans for the “Green Plane.” They will

take the old Boeing 737-700 and transform it into an eco-friendly plane where the cabin

materials will be “…recyclable and lighter weight, saving up to five pounds per seat”

(Airlinetrends.com, 2014). The lighter flight should allow for prices to decrease on flights,

which would benefit the consumer.


Strengths

The CTO has a lot of experience in this field

Data is being brought in by every possible source (e.g. Social media, texts, sensors)

Innovations are to help our ecosystem and to improve safety.

Weaknesses

Analysis takes time and some of the projects have taken 3-4 years to accomplish

Data Analysis can be expensive

Human Resources Management (RR)

Southwest Airlines always ranks high on the Fortunes magazine’s “100 best places to

work.” The way they view their employees and the other companies with such high regard is

why they are such a popular and successful airline. For example, Julie Weber is the Vice

President of Human Resources but that is not her title. Instead she is known as Vice President

of People because that is whom she is dealing with…People. They focus on respect and

building relationships with one another rather than isolating themselves within their

department. According to MIT. “Southwest has excelled by focusing management attention on

building relationships with front-line employees, among front-line employees, and with

external parties including suppliers and labor unions.” Not only does Southwest have mission

statement to their customers but they also do to their employees that states, “We are committed

to provide our Employees a stable work environment with equal opportunity for learning and

personal growth. Creativity and innovation are encouraged for improving the effectiveness of

Southwest Airlines. Above all, Employees will be provided the same concern, respect, and


caring attitude within the organization that they are expected to share externally with every

Southwest Customer.”

Strengths

There is a good work environment

There is a strong sense of support from within the company for every employee

Higher managerial staff lead by example

Weakness

Leadership infrastructure can be unclear.

Thinking freely is wanted

Those higher in command appreciate their employees

General Administration (RR)

Southwest Airlines does not focus their success solely on profit margin but even though

every year they stay out of the red and have productive and profitable years. Since the

beginning, their co-founder Herb Kelleher, has wanted this company to think outside of the

box. Most companies are run where those at the top are the ones that make the decisions and

those that are below are just to follow and obey. However, Southwest Airlines does not operate

like that, “The organization of Southwest Airlines is best described as an upside-down pyramid


– an organization very much in line with the way they want to do business. The upper

management is at the bottom and supports the front line employees, who are the experts. Front

line employees play a major role in the yearly business planning and operational budgeting

which for a great part is done bottom-up rather than top-down,” (The Rise of Southwest

Airlines, 2009). As a company they do not put much emphasis on titles and chain of command.

They encourage their employees to think freely and independently without worry. The

President and Chief Executive Officer, Gary Kelly has held his position for 10 years. He has

worked for Southwest Airlines for 28 years and began as an air traffic controller and has

moved his way up. He has received many awards while working for Southwest Airlines. Most

notably he received the award of CEO of the year twice while holding his current position

(Kelly, 2014)

Strengths

Being different is applauded

Thinking freely is wanted

Those higher in command appreciate their employees

Weaknesses

Chain of command can be skewed


Summary of Value Adding Activities (MP)

Value Chain Analysis Findings

Value Chain Activity Value Adding, Neutral or Negative Impact on Value1

Supply Chain Management Value Adding: Southwest purchases Boeing planes in Bulks and only flies Boeing. This allows Southwest pilots to be able to fly all planes at any airport.

Operations Value Adding: Southwest has high turnaround unlike their competitors and get more travels to their destination faster while competitors have their planes staling at the airport gates.

Distribution Neutral: Southwest had an added value for E Tickets until their competitors followed and many airline Companies use E Tickets .

Sales and Marketing Value Adding: Southwest uses low cost strategy while competitors throughout they are using a low fare strategy

Service Value Adding Southwest competitors strive to compete with happy customers with creates the customers happy experience. However customers tend to be a repeat customer and stay loyal to Southwest due to their fire experience.

Product R&D, etc. Neutral: Southwest uses Big data analytics to see what the customers’ needs and wants are but competitors are also seeing what their customers want or why customer choose southwest and not Delta Airlines for example

Human Resources Management

Value Adding: Southwest hires the best employees and the results are noticed with positive customer service that still say competitors still have meet up to part if Southwest

General Administration (infrastructure)

Value Adding: Southwest has a horizontal decentralized organization structure that allows employees to think outside the box and have say on what southwest can implement to become more effective and efficient. Competitors don’t allows employees to have much say at all on the company current and future strategy.


Financial Ratio Analysis (MP,KM,MR)

The financial ratio analysis consists of four parts. The four parts is Liquidity Ratios;

which is Ratios that consists of Current Ratios and Quick Ratio. Both of these ratios help

define what the debt is for assets of the company and what the debt is for the equity the

company ended with Lever ratio, Activity ratio, and Probability ratio. In these sections there is

a total of eight financial ratios from 2010-2013 that is evaluated, compared, and analyzed. In

the section below, it goes into great detail who was ranked one for each ratio, and their ratios

for that section from all 4 years had any similarity or where not constant and had great or bad

changes. Southwest Airlines, Delta, American Airlines, and United are the top competitors in

the industry and the next section go into detail the ratios even if they have great brand loyalty

and in the public eye is the best airline company to fly.

Southwest Airlines Co. (LUV) -NYSE Watchlist


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Bid: 39.07 x 200Volume: 6,282,670

Ask: 39.32 x 200Avg Vol (3m): 8,773,890

1y Target Est: 43.28Market Cap: 26.52B

Beta: 0.59P/E (ttm): 23.56

Next Earnings Date: 22-Jan-15 EPS (ttm): 1.66

Div & Yield: 0.24 (0.60%)

Ratios Southwest Delta American Airlines United

2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010Liquidity RatiosCurrent Ratio 0.79 0.91 0.96 1.29 0.68 0.62 0.61 0.64 1.04 0.76 0.78 0.78 0.72 0.78 0.97 0.95

Quick Ratio 0.63 0.71 0.76 1.13 0.38 0.38 0.41 0.45 0.78 0.54 0.57 0.6 0.55 0.61 0.8 0.81Leverage RatiosTotal Debt to Assets Ratio 38.44

14.57 35.64

32.66 16.06 19.71 25.1 2.83 10.12

20.08 22.49

27.49 17.13 19.2 11.91

22.07

Debt to Equity Ratio 0.34 0.47 0.45 0.46 0.84 -8.49 -5.2 14.69 -5.62 -0.84 -0.94 -2.22 3.66

23.35 6.33 7.22

Activity RatiosInventory Turnover 14.62

16.67 20.49

18.84 18.55 28.85 61.04 43.85 11.43 16.9 15.83

14.28 24.35

26.52 30.57 29.0

Days of Inventory 24.96

21.89 17.81

19.37 19.68 12.65 5.98 8.32 31.93

21.59 23.05

25.56 14.99

13.77 11.94

12.59

Profitability RatiosTotal Return on Assets (%) 3.97 2.3 1.06 3.09 21.78 2.29 1.97 1.37 -5.58 -7.92 -8.09 -1.86 1.53 -1.91 2.17 0.87

Return on Equity (%) 10.52 6.07 2.71 7.84

103.85

-47.35

-61.1

7221.6

4 67.1523.4

9 27.8311.9

4 32.96

-63.2

3 47.5549.4

5


Liquidity Ratios (MP,KM,MR)

Liquidity Ratios consist of Current Ratios and Quick Ratio. Both of these ratios help

define what the debt is for assets of the company and what the debt is for the equity the

company ended with. Current ratio which is discuss in the section below, if calculated, with the

function current assets and current liabilities.

All assets to the company in one way or another is a reason for the success of the

company wealth and profit is a set and all liabilities, such as, what the company owe or is

leasing a liability. Quick ratio which is also discussed in the section below goes into detail out

the Airlines industry and how each company are ranked and where they stand throughout the 4

years from 2010-2013. Quick ratios, is the ability to meet its short term obligations with its

most liquid assets. (Investopedia)

Quick ratio = (current assets – inventories) / current liabilities, or = (cash and

equivalents + marketable securities + accounts receivable) / current liabilities.


Current Ratio (MP,KM,MR)

Southwest is very competitive to the public eye and has a low cost strategy approach.

When looking at the financial analysis 2010 was their peak at 1.29 and they steadily decrease

to 0.96 in 2011 to 0.91 in 2012 then to 0.79 in 2013. Southwest has man liabilities which their

assets couldn’t cover but took this biggest drop from 2012 to 2013 with a 12% difference.

Southwest airlines would not be able to pay off their short term debt with these kind of

financial results. While looking at the big picture Delta airlines in 2010 had a 0.64 current ratio

it wasn’t as good as southwest but was able to get their current ratio to 0.68 despite the drop in

20111 at 0.61. American airlines in 2010 current ratio was steady in 2010 and 2011 at .078 and

dropped in 2010 to 0.76 but recovered in 2013 to 1.04. United Airlines current ratio wasn’t up

to par with Delta and American Airlines however it was on the same track as southwest.

United Airline’s had a 0.95 in 2010 and raised in 2011 to 0.97 it then dropped in 2012 19% to

0.78 and in 2013 dropped to 0.72. Analyzing the current ratio Southwest couldn’t compete

with their competitors on the current ratio since Delta, American, and United Airlines

recovered from their loss or had a point where they did better than the year prior. Southwest

did not improve one year it was a down slope which is something that southwest hopefully

change for the 2014 current ratio. (Investopedia)

Southwest United American Delta

2010 1.29 0.95 0.78 0.642011 0.96 0.97 0.78 0.612012 0.91 0.78 0.76 0.622013 0.79 0.72 1.04 0.68


Quick Ratio (MP,KM,MR)

Southwest airlines to a major downturn just like their current ratios. Southwest quick

ratio is the current assets of southwest minus inventory/current liabilities. This equation give

the dollar amount of liquid assets for each dollar of liabilities. In 2010 southwest quick ratio

was 1.13 and plummeted downward at 0.76 in 2011 and 0.71 in 2012 and 0.63 in 2013.

Southwest competitors Delta airlines 2010 quick ratio is 0.45 and in 2011 it was 0.41. Delta

however in 2012 and 2013 went down but staid constant at 0.38. American airline did fairly

well and did the best out of the industry despite their slow start at 0.6 in 2010 to an increase to

0.57 in 2011 and a decrease in 2012 at 0.54. They finished strong with a quick ratio at 0.78.

United Airlines quick ratio started out strong at 0.81 but plummeted downward to 0.8 and

improve in 2012 at 0.61 but wasn’t able to maintain the 0.61 and ended with a 0.55 in 2013.

The industry struggles to have their liquid assets that are available to cover each $1 of

liabilities. In 2010 and 2011, competitor rates were roughly 0.2 percent apart across the board


2010 2011 2012 20130

0.2

0.4

0.6

0.8

1

1.2

1.4

Current Ratio

SouthwestUnitedAmerican DeltaAxis Title

decreasing in 2012 and 2013. Southwest’s dollar amount has decreased dramatically over the

four years. (Investopedia)


2010 1.13 0.81 0.6 0.452011 0.76 0.8 0.57 0.412012 0.71 0.61 0.54 0.382013 0.63 0.55 0.78 0.38

Leverage Ratios: (MP,KM,MR)

Leverage ratios look at debt, equity, assets and interest expenses. Leverage ratios

comprise of total debt to asset ratio and debt to equity ratio. Total debt to asset ratio means

that the higher degree of ratio the higher degree of leverage. Debt to equity ratio is a

measurement of how much suppliers, lenders, creditors and obligors have committed to the

company versus what the shareholders have committed. (Investopedia). Total debt to asset

ratio and Debt to equity ratio are both analyzed and evaluated in detail below and how

Southwest, Delta, American, United Airlines did form 2010-2013. (Investopedia)


2010 2011 2012 20130

0.2

0.4

0.6

0.8

1

1.2

Quick Ratio

SouthwestUnitedAmerican Delta

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Total Debt-to-Assets Ratio (MP,KM,MR)

Southwest total debt to asset ratio is founded by using the short term debt plus long

term debt and then dividing it by total assets. Southwest total debt to assets ratio in 2010 was

32.66 which increased to 35.64 in 2011. In 2012 southwest total Debt to asset ratio was 14.57

which not only are they back in the 30's but end of with the most debt to equity ratio from all 4

years. 38.44. Southwest best year was in 2012 but more than double their debt to equity ratio

and the end of year 4.Southwest competitors delta in 2010 had a great start at 2.83 and

increased dramatically in 2011 to 25.1. In 2012 delta was able to lower their debt to asset ratio

form the year prior with 19.71 which carried over in 2013 to 16.06. Deltas best year was in 201

at 2.83 but had no significant similarities in the next 3 years. American Airlines total debt to

asset ratio did very well since in 2012 their highs was 27.49 and was able to lower their debt

to 22.49 in 2011 then to 20.08 in 2012 and finally 10.12 in 2013. American Airlines best year

was in 2013 and had the best results throughout the 4 years. United Airlines debt to equity

ratio did fairly well since in 2010 they had a 22.07 which was their peak and went down to

11.91 in 2011 and in 2013 went back up to 19.2 but in 2013 was able to bring their total debt to

equity to 17.13. United Airlines best year was in 2011 but wasn't able to match that in 2013 or

have a lower number. (Investopedia)


2010 32.66 22.07 27.49 2.832011 35.64 11.91 22.49 25.12012 14.57 19.2 20.08 19.712013 38.44 17.13 10.12 16.06


2010Total Assets $ 15,460,000,000.00 Total Debt $ 505,000,000.00

Debt to Assets Ratio 0.032664942 3.27

2011

Total Assets $ 18,070,000,000.00

Total Debt $ 644,000,000.00


2012

Total Assets $ 18,600,000,000.00

Total Debt $ 271,000,000.00



2010 2011 2012 20130

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35

40

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Total Debt to Assets Ratio


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Debt to Equity Ratio (MP)

Southwest Debt to Equity Ratio is total assets divided by shareholder equity this is how

the debt to equity ratio is determined. Southwest Debt to Equity Ratio in 2010 was 0.46 which

decreased in 2011 to 0.45. Southwest had an all time high Debt to Equity Ratio in 2012 at 0.47.

In 2013, Southwest had the lowest ratio in the 4th year at 0.34. Delta Airlines' Debt to Equity

Ratio in 2010 was 14.68 and in 2011 it was the second lowest at -5.2. In 2012, Delta had the

lowest Debt to Equity Ratio at -8.49 which increased in 2013 to finish their last year at 0.84 but

still wasn't close to their 2010 Debt to Equity at 14.68. American Airlines' Debt to Equity in

2010 was -2.22. American Airlines were able to improve the Debt to Equity in 2011 to-.094

and in 2012 it went down to -0.84. In 2013, American Airlines ended with the most

unsuccessful year at a Debt to Equity at -5.62. United Airlines was the most successful in the

industry. In 2014, United Airlines' Debt to Equity was 7.22 which decreased in 2012 to 6.33. In

2012, United had an all time high at 23.35 but ended with their lowest debt to equity at 3.66

which was still higher than anyone else in the industry.


2010 0.46 22.07 -2.22 14.692011 0.45 11.91 -0.94 -5.22012 0.47 19.2 -0.84 -8.492013 0.34 17.13 -5.62 0.84


Activity Ratios (MP,KM,MR)

Activity ratio are used to measure the efficiency of a firm. Activity ratio is broken into to

part which is inventory turnover and days Inventory. Inventory turnover is how many time a

company’s inventory is sold and replaced over a period. The picture below is the formula for

inventory turnover. The days of inventory is the amount of days the item is held as inventory

before it is sold. (Investopedia). The formula of days of inventory is below. (Investopedia).

Two ratios, inventory turnover ratio and total asset turnover ratio reevaluated and analyzed for

the airline industry which included Southwest, Delta, American, and United Airlines.

(Investopedia)

.


2010 2011 2012 2013

-15

-10

-5

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15

20

25

Debt to Equity Ratio


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Inventory Turnover (MP,KM,MR)

The industry all did very well with their inventory turnover. United Airlines inventory

turnover was 24.35 and came in 1st in for overall industry. . Delta came in 2nd with an 18.55

inventory turnover in 2013. Southwest came in third in the industry with a 14.62 inventory

turnover in 2013. . American airlines had the worst ending 4th years result with a 11.43

inventory turnover in 2013 Southwest in 2010 had a 18.84 inventory turnover and in 2011 had

the highest inventory turnover of their 4 years at 20.49. In 2012 southwest invests was 16.67

and decreases to 14.82 in 2013. Southwest is unable to lower their turnover and our group

would like to see the changes improve for southwest in 2014. Delta came in 2nd out of the

whole industry even though in 2010 their inventory turnover was 43.85 and in 2011 their

inventory turnover is 61.04. From there on in 2012 their inventory turnover was 28.85 and

went down to 18.55 in 2013 but still had the second highs 2013 4 years results from their

industry. American airlines came in last this is because for all 3 out of the 4 years their

inventory turnover was decreasing. In 2010 they had a 14.28 inventory turnover in 2011 they

had a 15.83 inventory turnover and highs peak was in 2012 at 16.9 and ended with 11.43 in

2013. United Airlines did the best in the industry. In 2010 united had an inventory turnover of

29.0 and their best peak year was 2011 at 30.57. In 2012their inventory turnover was 26.52.

United may have not meet their peak at 30.57 in 2011 but they still had the highest inventory in

2013 with 24.35. (Investopedia)


2010 18.84 24.35 14.28 43.852011 20.49 26.52 15.83 61.042012 16.67 30.57 16.9 28.282013 14.62 29 11.43 18.55


Days of Inventory (MP,KM,MR)

Analyzing the whole industry United Airlines day of inventory were the lowest and

came in first at 14.99. Delta came in second ending their fourth year at 19.68. Southwest

came in third at 24.96. American Airlines came in fourth with an inventory turnover of 31.93.

Southwest day of inventory had an improvement when it went from 19.37 in 2010 to 12.81 in

2011. However they increased their days of inventory from 21.89 in 2012 to 24.86 in 2013

which results in Southwest ranking 3rd in their industry. Delta had a really good start in 2010

at 8.32 and had the best lowest results at 5.988 but in 2012 raised it to 12.65 and in 2013 had

their highest peak at 19.68. American airlines came in last since in 2010 had a 25.56 days of

inventory and in 2011 had a 23.05 days of inventory which was an improvement which lead to

their 21.59 days of inventory in 2012. In 2013 they had the highest days of inventory at 31.93.

United airlines kept days of inventory somewhat consistent. In 2010 their days inventory was

12.59 and was able to decrease it 10 11.94 they took a hit in 2012 with 13.77 and to a smaller

hit at 14.99 but they kept the lowest days of inventory at 14.99. (Investopedia)


2010 2011 2012 20130

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50

60

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2010 19.37 12.59 25.56 8.322011 17.81 11.94 23.05 5.982012 21.89 13.77 21.59 12.652013 24.96 14.99 31.93 19.68

Profitability Ratios (MP,KM,MR)

According to Education Portal profitability ratios is a ratio that allows a company or

competitors to measure a company’s performance. The two ways two do this is Total

Return on Assets and Return on Equity. Total Return on Assets is shows how effective a

company is using their assets to generate earning before contractual obligations must be

paid. (Investopedia). Formula for ROA is below. Return on Equity is the amount of net

income returned as a percentage of shareholders equity. ROE formula is below.

(Educational Portal) (Investopedia) (Morningstar)


2010 2011 2012 201305

101520253035

Days of Inventory SouthwestUnitedAmerican DeltaAxis Title

Total Return on Assets (MP,KM,MR)

Analyzing the industry in total return on assets Delta came in first with the highest

ROA at 21.78 and southwest came in second with a ROA of 3.97. United came in third at 1.53

while American airlines ROA came in last at -5.58. Southwest came in second because that

had a high ROA in 2010 at 3.09 which decreased to 1.06 in 2011 and in 2012 rose to 2.3 and

their 4 years end result in 2013 was 3.97. With the ups and downs Southwest did very well in

their industry and own their own. Delta came in first with extremely well ROA financial

results. In 2010 Deltas ROA was 1.37 and was higher in 2011 at 1.97 and in 2012 was 2.29.

The biggest success which no other competitors in their industry was that they had a 21.78

ROA which was highest in the industry and Delta was very proud of that. American Airlines

ROA were all negative. Not only were they negative but in 201 there ROA was -1.86 and in

2011 their ROA was -8.09 and in 2012 their ROA was -7.92 and in 2013 their ROA was -5.58.

United airlines came in third and hand some improvements like their 2010 ROA was a 0.87

and they increased it to 2.17 but failed to maintain that 2.17 and had a -1.91 in 2012. In 2013

they were able to have a positive 1.53. (Investopedia)


2010 3.09 1.53 -1.86 1.372011 1.06 -1.91 -8.09 1.972012 2.3 2.17 -7.92 2.292013 3.97 0.87 -5.58 21.78


Return on Equity (MP,KM,MR)

After analyzing the industry all 4 companies in the industry did very well some better

than other but were able to finish strong with better number in 2013. Deltas ROE came in first

with an astonishing ROE 103.85. American Airlines came in second with a strong 67.15 ROE

in 2013. United came in third with a 32.96 ROE and Southwest Airlines came in last with a

10.52 ROE in 2013. Southwest ROE in 2010 was 7.84 a decreased to 2.71 but Southwest was

able to kickback and raise their roe to 6.07 and in 2013 10.52. Delta did phenomena they had

such a high ROE in 2010 at 221.64 but in 2011 dropped to -61.2 and in 2012 went worse for

them since there was 47.4. Delta had a recovery that took them 4 years and ended with an ROE

of 103.85 which doesn’t compare to their 201 221.64 ROE but at least finished strong.

American Airlines did very well they had an 11.94 ROE and in 2011 had a 27.83 ROE. In

2012 they took a dip at their ROE was 23.49 but were able to recover and ended with a trip

percentage at 67.15 United Airlines didn’t do so well they had their peak ROE in 2010 at

49.45 and went down little in 2011 to 47.55 and drastically declined in 2012 to -63.23.


2010 2011 2012 2013

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-5

0

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10

15

20

25

Total Return on Assets


However despite the horrible let down United was able to finish with a 32.96 ROE which

didn’t meet or exceeded their original 49.45 in 2010 3 years ago but hand a higher ROE than

southwest. (Investopedia)


2010 7.84 32.96 11.94 221.642011 2.71 -63.23 27.83 -61.172012 6.07 47.55 23.49 -47.352013 10.52 49.45 67.15 103.85

Results of Financial Analysis (MP,KM,MR)

After analyzing the airlines industry financially ratios Southwest Airlines didn’t have the

best financial results for equity ratios, Leverage Ratios, Activity ratios, and probability ratios.

For liquidity ratio American Airlines had both the highest Current and Quick Ratios. For the


2010 2011 2012 2013

-100

-50

0

50

100

150

200

250

Return on Equity


Leverage Ratios the total debt to equity ratio best result were form American Airlines while

the debt to equity ratio was Southwest as 0.34. For the activity ratio United had the best

inventory turnover at 24.35 and the lows days of inventory as 14.99. For profitability ratios

Delta has the highest ROA at 21.78 and had the highest ROE at 103.85. These results

concluded that all airlines had at least one upper competitive advantage or more against their

competitors. Southwest did not provide the best results out of all ratios but definitely has the

highest customer loyalty disregarding the finical results. (Investopedia)

Interpretation/Evaluation (MP)

Southwest Airlines had the lowest debt to equity ratio in the industry in their 4th year

2013 at 0.34. Southwest's main strengths for their supply chain management is that they have a

very close relationship to their supplier Boeing, which allows Southwest pilots to take each

other's shifts when needed since every pilot will know how to fly the same plane Southwest

purchases. Southwest's main operations strength is that all southwest planes have a high

turnaround which has more passengers flying and more revenue for Southwest while their

competitor planes sit around and have less passengers in and out of planes. Southwest's main

distribution strength is that e tickets in which customers are able to purchase tickets online and

print them and save the wait at the airport. Sales and Marketing's main strength is that they use

reward cards to lure customer to fly because they get points from using their credit card that

allows them to have free flights. Southwest service main strengths is that employees are always

friendly at the airports and that customers don't have to pay for carryon luggage's. Product

R&D, Technology and Systems Development's main strengths are Innovations that help our

ecosystem and improve safety. Human resource management's main strength is a good work


environment . General Administration's strength is those higher in command appreciate their

employees.

Summary of SWOT Analysis

Strengths:

S1.Supply Chain

Southwest's main strength for their supply chain management is that they have a very close relationship to their supplier Boeing which allows Southwest pilots to take each other's shifts in need since every pilot will know how to fly the same plane Southwest purchases.

S2. Southwest's main operation strength is that all Southwest planes have a high turnaround which has more passengers flying and more revenue for Southwest while their competitor's planes sit around and have less passengers flying. S3. Southwest's main distribution strengths are e tickets which customers are able to purchase tickets online and print them to save the wait at the airport. Sales and Marketing's main strength is that they use reward cards to lure customers to fly because they get points from using their credit card that allows them to have free flights. S4. Southwest's service main strength is that employees are always friendly at the airports and customers don't have to pay for carryon luggage.

Opportunités:

O2. Technological – Technology increases airline industry’s innovation and helps airline industries and suppliers work closely to provide more fuel efficient planes and safer rides for passengers.

O2. Socio-cultural – Airline Industry is diverse and encourage all ages, ethnicity and sex.

.

Weaknesses:

W1 Southwest Financial Ratio

Southwest has the second highest days of inventory in the airline industry. Southwest ROE in 2013 was 10.52% while Deltas was 103.85.

Threats:

T1. Economic – When the economy is struggling there will be less travelers and more loyalty to airlines that have the best low cost strategy for their travelers


W2 Supply Chain Management

Southwest only buys Boeing planes which give Boeing the ability to raise the prices of the planes they sell to Southwest

W3 Southwest Operations

Southwest can't purchase bigger planes that Airbus offers because their only plane supplier is Boeing.

W4 Southwest Distribution

e tickets decrease the amount of jobs for Southwest ticket employees

T2.

Low Entry Barriers - Start up airline companies can borrow money to get into the industry. High Bargaining Power of Buyers- Customers can choose if they want to take an airline flight, drive or take a train

Business Level Strategy-(MR)

In module four we will examine the advantages and disadvantages of Southwest’s

business level strategy. As a group we will also recommend a generic business level strategy,

supporting evidence of why we chose the strategy, and detail how we would implement the

strategy. Module five will describe a few metrics that we will use for evaluating the

effectiveness of the implemented business strategy. We will also discuss Southwest efforts and

initiatives to address corporate social responsibility and ethics; such as what are ethical

implications of our chosen strategy, and how does Southwest intend to meet its social

responsibility obligations.


Generic Business Level Strategy-(MR)

“Strategy is about making choices, trade-offs; it's about deliberately choosing to be different.” - Michael Porter

The class text describes the business-level strategy goals as; attracting new customers

while at the same time pleasing existing ones, make the best use of opportunities to grow the

organization, figure out the best way to counter the negative effects of changing market

conditions, conduct operations, and achieve all of the financial and market performance goals.

In order to be successful, the organizations must combine its obligations and planned actions in

a way that will allow a competitive advantage by maximizing its core competencies. Selecting

a business level strategy is very important to any organization because it shows that they have

a chosen direction, and are not just making decisions on the fly. There will be lots of internal

and external factors that will constantly prove to be a challenge for an organization; having a

business level strategy in place will keep them focused(Thompson). It shows that of all of the

options they had, they have chosen to incorporate this specific combination of competitive and

operating approaches, to build a foundation of the direction the company wants to go in, and

the expectations they have set for themselves. This also includes strengthening its market

position, competitiveness (specifically competitive advantages that are difficult for their

competitors to reproduce), and meeting or beating their performance objectives(Thompson).

There are five generic business strategies an organization can choose from. The biggest

two factors a organization needs to keep in mind when they are choosing their generic business

strategy are 1) whether a organization’s target market is broad or narrow, 2) whether they are

pursuing a competitive advantage that is linked to lower cost or differentiation. The five

generic strategies are: Low-cost strategy, Broad differentiation strategy seeks to differentiate

the company's product offerings from rivals in ways that will appeal to a broad spectrum of


buyers, Focused low-cost strategy concentrates on a narrow buyer segment or market niche and

strive to meet the specific needs and requirements of niche members at a lower cost than rivals,

Focus differentiation strategy concentrate on narrowing a buyer segment (or market niche) and

striving to outcompete rivals with a different product offering that does a better job as

satisfying the specific taste and requirements of niche members then the product offerings of

rivals, The best-cost provider strategy strives to incorporate upscale product after being at a

lower cost than rivals. This basically means that they want to offer the best upscale product or

service at the best value for the customers. (Thompson)

Generic Business Level Strategy- (MR)

The generic business level strategy that is most appropriate for Southwest is the low-

cost strategy. The low-cost strategy strives to provide a product or service at the lower overall

cost then rivals, then using that low cost advantage to attract broad spectrum of buyers with a

lower price product offering(Thompson). When Southwest first entered in airline market they

had to compete with well-established airlines that offered many “perks”, and had a large

market share. Southwest decided to compete with them by appealing to a broad target market;

their market is people who want to spend the least amount of money on airline travel. They do

not offer benefits such as member’s only lounge/clubs at the airport, magazines, dining

benefits, or class upgrades to name a few.

Instead, Southwest offers one free checked bag, rapid rewards points that do not expire

(as long as you travel at least once every 24 months)(Airlines, 2014), slimmer seats; so that

each seat is worth less per flight, retire less efficient airplanes, add more fuel efficient planes,

and added winglets on its wingtips(Team, 2014). Winglets are very important because they


produce a performance boost for jets by reducing drag, and that reduction can translate into

marginally higher cruise speed(Larson, 2001). Operators can take advantage of the drag

reduction, by throttling back to normal speed and pocketing the fuel savings(Larson, 2001).

Southwest also has already implemented product offerings that significantly affect its

ability to keep cost low. Some of these offerings are early bird check-in, this allows customers

to check in online which saves Southwest money on hiring additional staff and cost for printing

boarding passes(Bhaskara, 2014). This is also a perk for the customer because they get priority

boarding. Another factor is that when Southwest first started and up until 2008 they had a fuel

hedge contract, which allowed them to pay lower per-gallon fuel prices than all the other

airlines; but since their contract expired in 2008 they have been paying market

prices(Bhaskara, 2014). Labor management relations are another aspect to consider. Southwest

has a strategy in place that minimizes labor conflict, but this strategy also pushed their labor

coat up and employees now expect raises every time new contracts are negotiated(Bhaskara,

2014).

The human resources department and top level management need to work together to

create new policies regarding how contract negotiations will be performed. It may entail that

they become more transparent with all levels of employees so that if there is not room in the

budget for raises or for the amount the employees want they will understand why they are

being denied. Another consideration Southwest has is the American and global economy. At

times when the economy is doing poorly and people are traveling less often, it is important that

Southwest has measures in place that will make them a top choice for travelers. This mostly

includes keeping existing customers loyal to their airline, by implementing policies/programs


that other airlines are least likely or will not copy. These programs need to be seen by the

customers as having a very high value.

Advantages and Disadvantages (RR)

Southwest Airlines is known for its low cost flights, which is its strategy that it uses to

stay ahead of its competition. A low cost strategy is when a company offers low prices to

create demand and gain market share. There are many positives and negatives that are

associated with using a low cost strategy. Low cost strategy has been around for a very long

time and it can start off by having a very appealing notion to it, but it can also tend to lose

interest and popularity very quickly.

The advantages of low cost strategy are competitive edge, developing economies of

scale, and positive effects of low cost strategy. Having a low cost strategy allows for

businesses to have a competitive edge over its competitors. In today's economy people are

looking to save money and Southwest Airlines provides this. Southwest Airlines prices for

tickets are significantly lower than its competition that is why low prices are associated with

Southwest Airlines. Regarding developing economies of scale a company is able to focus on

creating greater efficacy by optimizing profits by scaling up their operations. In other words if

there is a base price the more that is sold the more money is made. Currently Southwest

Airlines pays rent in one airport and might eventually move to the International airport. Their

rent is the same whether they have 10 flights or 100 flights a day. That is why Southwest

Airlines have a high volume of flights because with them being low they increased their

productivity. Lastly, positive effects can occur from having a low cost strategy because the

pressure is off money. Now a company or a business can focus on another aspect of their

company that can entice people to choose them over their competition. That is what Southwest


Airlines does with its customer service. They do not focus on having the lowest prices because

they know they do but so do others. However, what gives them the competitive edge is their

hospitality that keeps frequent fliers returning.

The disadvantages of a low cost strategy are price wars, perception of poor quality, and

the inability to have sales. Price wars are when competitors lower their prices and a company

has to decide whether to accept it or to lower their prices too. At a certain point a company can

only go so low in order to make a profit. Websites like Hotwire and Orbitz focus on finding the

lowest price for airlines and this is where Southwest Airlines deals with most of the

competition. Certain airlines do have lower prices but it is the other things that Southwest

Airlines offers that makes patrons return. People will always see low prices as a less quality

product when that doesn’t have to be the case. There are some people that will prefer to fly on

Delta and American Airlines, which are two airlines that have higher priced flights because

they feel that their product is better. Lastly the inability to have a sale can happen because if

prices are normally low then having a sale can hurt profit margins. Southwest Airlines has low

flights 365 days of the year and normally they will not put their flights on sale because they

promote low prices regularly.


TOWS Analysis (MP)

Summary of TOWS Analysis

Strengths:

S1.Supply Chain

Southwest's main strength for their supply chain management is that they have a very close relationship to their supplier Boeing which allows Southwest pilots to take each other's shifts in need since every pilot will know how to fly the same plane Southwest purchases.

S2. Southwest's main operation strength is that all Southwest planes have a high turnaround which has more passengers flying and more revenue for Southwest while their competitor's planes sit around

Opportunités:

O2. Technological – Technology increases airline industry’s innovation and helps airline industries and suppliers work closely to provide more fuel efficient planes and safer rides for passengers.

O2. Socio-cultural – Airline Industry is diverse and encourage all ages, ethnicity and sex.

.


and have less passengers flying. S3. Southwest's main distribution strengths are e tickets which customers are able to purchase tickets online and print them to save the wait at the airport. S4. Southwest's service main strength is that employees are always friendly at the airports and customers don't have to pay for carryon luggage.

Weaknesses:

W1 Southwest Financial Ratio

Southwest has the second highest days of inventory in the airline industry.

W2 Supply Chain Management

Southwest only buys Boeing planes which gives Boeing the ability to raise the prices of the planes they sell to Southwest

W3 Southwest Operations

Southwest can't purchase bigger planes that Airbus offers because their only plane supplier is Boeing.

W4 Southwest Distribution

e tickets decrease the amount of jobs for Southwest ticket employees

Threats:

T1. Economic – When the economy is struggling there will be less travelers and more loyalty to airlines that have the best low cost strategy for their travelers

T2.

Low Entry Barriers - Start up airline companies can borrow money to get into the industry. High Bargaining Power of Buyers- Customers can choose if they want to take an airline flight, drive or take a train

Strategy Elements or Components: (MP)

S1 and S2 leverage O1 first because S1 Supply Chain is the relationship Southwest has

with Boeing. Southwest buys planes from Boeing in bulks at a cheaper price and with more

technology added to them. Since the opportunity is technology and we have a low cost

strategy, keeping this relationship with Boeing allows Southwest to continue to provide new

and improve Boeing planes with more advance technology like free wifi that increases

customer expectations and experience. S2 Southwest main operation of having a high

turnaround rate leverage and exploits O1 technology because every year and quarter Southwest

improves on their turnaround rate. New technological planes are being implement by Boeing


and sold to southwest with better gas mileage and fuel economy for the planes to last longer

without having to fill up. This allows Southwest to benefit for saving fuel gas costs and be able

to have fly customers to their destination faster than their competitors. S3 and S4 leverage and

exploits O2 first because S3 Southwest main distribution gathers many surveys from all

ethnicity, ages and sex to devise a strategic way to get customers on planes faster which

increases their high turnaround rate. S4 Southwest service leverages and exploits Q2 because

Southwest hires a diverse number of employees and works along side with charities from all

different ethnicities. Southwest understands their customers since Southwest is diverse and has

feedback by customers and employees on how to better market towards a certain race. USHLI

is an Hispanic organization and every year there is a conference in Chicago where a key

speaker from each sponsor talks about their company and how they help out in the Hispanic

community. Southwest has been a sponsor for many years with USLHI and has donated lots of

money to the foundations and many organizations worldwide.

W1 and W2 exploits O2 because W1 Southwest inventory turnover was second highest

in the industry. Technology and the low cost strategy enables Southwest to lower the high

turnover because Southwest can have Just in time system (JIT) which would allow Southwest

to keep their inventory only when its being built and then when it is complete, it is delivered to

the customer. This is how Southwest can lower the high turnover rate they had in the 2013

year. W2 Southwest only aircraft supplier is Boeing. This is a problem since technology is key

to the success of a airline company like Southwest and Boeing can charge a higher price for

planes when selling to Southwest. If Southwest keeps its current strategy of buying in bulk,

Boeing will give discounts to Southwest so Southwest can be able to use their low cost


strategy. W3 Southwest can buy bigger planes that will be able to accommodate this growing

population of people in America. This is a problem since America population is booming and

tourist who come to visit different states increase air travel and the majority of planes

Southwest purchases from Boeing is 737. Turnaround time for Southwest is high for the airline

industry. However, Southwest's competitor Airbus offers a variety of larger planes that hold

more passengers allowing to compensate to their slower turnaround rate. W4 exploits O2 since

Southwest is a diverse workforce of employees but the introduction of the e ticket has cut jobs

for all ethnicities and age groups. Technology and the innovation of the e ticket takes the place

for ethnicity employees to work and feed their families.

S1 and S2 minimize the impact of T1 since S1 is Southwest's relationship with Boeing

and how Southwest has all the technology and the advancements in the planes to lure loyal

customers to come back even if the economy is not doing so well. Customers that have Chase

Southwest reward cards can earn miles with each purchase which allows more customers to

take trips for free when the economy is not doing well and the unemployment rate is high. S2

Southwest turnover is high which allows customers to use their money even if the economy

isn't doing so well. Southwest offers more flights because they have a non-stop constant flow

of passengers. S3 Southwest e tickets minimize the impact it has on start up airline company

because those companies don't have the resources to innovate an e ticket process which makes

it harder to gain more market share. Southwest e ticket is more efficient and minimizes the

threat of customers choosing another airline because Southwest invests in the e ticket which

has been successful while other airlines are now starting to implement it to satisfy their

customers. S4 Southwest service with happy employees will always be a huge factor on why


Southwest has majority of the market share even if their ratios aren't as high as their

competitors. Southwest employees have a happy atmosphere which minimizes the impact less

customer retention. This allow for customers who had really bad experiences with other

airlines to resort back to Southwest and become a Southwest frequent flyer.

Strategy Elements (RR)

What

In order for Southwest Airlines to maintain its reputation as a quality low cost airline it

needs to be able to differentiate itself from the rest. They do a great job with their hospitality.

However, that is something that can easily be replicated. They need to promote air travel to

destinations that commonly are not available at the low rate that Southwest is accustomed to.

The more international flights they promote the better they will do against their competition

because most of the competition stays local or does not do international flights except for

Canada and Mexico. Also, Southwest needs to continue not to “nickel and dime” their

costumers by allowing people to bring store baggage on the plain without additional charge

and continuing to give complimentary drinks and snacks.

How

Southwest needs to look at areas that are priority vacation spots that will be worth

flying to such as Costa Rica, Brazil, and England. There is a high demand to travel to these

places whether it is for work or pleasure that Southwest could increase their profit margin by

including this in their areas of destination. This would also break them in the international

market. Once they become acclimated with international flights they need to pursue flights to


China and India where flights normally run in the thousands for a round trip. Being able to

establish a presence as a carrier of international destination at a low cost would allow

Southwest to maintain its dominance in this business.

Who

Increasing their efficacy allows Southwest too create a higher volume of flights, which

in turn creates more revenue. With the Wright Bill no longer holding Southwest Airlines back

they can increase their volume of flights drastically. Management needs to take a gamble on

expanding since now they have the ability to maneuver more in Dallas regarding how and

where they can travel.

When

Southwest Airlines needs to keep looking forward towards expanding and keeping their

competitive edge. With the opportunity they are given in Dallas with the removal of the Wright

Bill, Southwest needs to look into focusing their expansion within the next 15-18 months. With

internet sites pinning Southwest against other low cost airlines it will be difficult to stay ahead

but by including international flights that would give them the competitive edge.


Where

Dallas would be the first place to introduce international flights especially if they

decide to go to Central or South America. Next aiming towards high volume travel cities to

incorporate new destinations such as Chicago, Los Angeles, New York, and Orlando. These

airports have a high volume of travel so including their new international flights at these

airports would be the most advantageous for the company.

Strategy evaluation- (MR,KM)

Strategy evaluation is strategically managing an organizations strategy by analyzing

and giving value to each strategy listed on the TOWS analysis. Thoroughly reviewing and

categorizing each of these strategies allows a company to rate the effectiveness and efficiency

of each tactic discussed. The following is our groups suggested strategy for Southwest airlines.


Performance Measurement Category

Typical Organizational Level Performance Measures

Typical Operational-Level Performance Measures

Financial Current Ratio, Quick Ratio, Total Debt to Assets Ratio, Debt to Equity Ratio, Inventory Turnover, Days of Inventory, Total Return on Assets, Return on Equity

1. Reduce difference between planned and actual expenses for airplane maintenance.

2. Increase revenue per passenger per mile.

3. Increase profits per seat.

Operations Increase number of customers checking bags

Thorough employee training in customer service and on computers

Implement better turnaround plan

4. Reduce the amount of lost or damaged luggage.

5. Reduce percentage of errors for reservation, ticketing, and boarding complaints.

6. Reduce number of flights canceled or delayed not due to external forces by.

Human Resources Increased employee engagement.Increased employee morale and retention.

7. Implement new training or update training based on customer feedback.


8. Reduce employee turnover.

Innovation Acquire technologically advanced resources.

9. Create more efficient data management.

10. Invest money into Research and development to help increase plane capacity.

Customer Customer satisfaction.Customer retention.

11. Create more individualized product offerings.

Sustainability Environmental and regulatory complaints with stakeholders.

12.Sustainability of Planes.

13.Southwest's relationship with TSA.

14.More fuel efficient planes.

Evaluation of strategy Element 1 (MR)

Reduce difference between planned and actual expenses for airplane maintenance by

40%. Each quarter an audit will be performed to see if the difference between planed and

actual expenses was reduced by 10%. If it was not, then a meeting will take place to determine

if the actual expenses could have been predicted better; and if so, how? If the reasons or

reasons could not be predicted, then management will determine if they need to have a bigger

budget for unexpected expenses, and if so, by how much?



Increase revenue per passenger per mile. A percentage goal will be set, and then an

evaluation will be performed after each quarter to see if the goal was not reached, reached, or

exceeded expectations. If the goal was not reached, new idea will be tried to see if the

percentage goal can be met, and if not, then a more realistic goal will be set for the following

quarters.


Increase profits per seat. A percentage goal will be set, and then an evaluation will be

performed after each quarter to see if the goal was not reached, reached, or exceeded

expectations. If the goal was not reached new idea will be tried to see if the percentage goal

can be met, and if not, then a more realistic goal will be set for the following quarters.


Reduce by the amount of lost or damaged luggage. A yearly goal of 80% reduction will

be set, and a written plan of action will be put in place. After each quarter and audit will be

performed to see if the goal was met, if it was not, or if it was exceeded; then a discussion will

take place to see what needs to be added, taken away, or stay the same for the next quarter.



Have less error for reservation, ticketing, and boarding complaints. A yearly goal of

60% reduction in error for reservation, ticketing, and boarding complaints will be set. Each

quarter an audit will be performed to see if the 15% reduction goal was met, if it was not, or if

it was exceeded; then a discussion will take place to see what needs to be added, taken away,

or stay the same for the next quarter. Also customer survey’s that ask what the exact issue was,

and how the customer thinks and/or wants the issue to be resolved will be sent out. The

information gained from these surveys will be used to improve the plan of action, and to set

better percentage goal for each quarters.


Reduce number of flights canceled or delayed not due to external forces for the year. A

yearly goal of 60% will be set. Then an evaluation will be performed after each quarter to see

if the 15% reduction goal was reached, or exceeded expectations. If the goal was not reached

new idea will be put tried to see if the percentage goal can be met and if not then a more

realistic goal will be set for the following quarter.


Implement new training or update training based on customer feedback. Customer

satisfaction surveys will be given to 5% of customers randomly throughout each quarter of the

year. Based on these results, the airline will determine how to adjust and implement new or

current plans. Each selected participant who completes the survey will receive a free drink


voucher as an incentive to participate in the survey. This strategy will be addressed at the end

of two quarters to be sure customer feedback is being utilized accurately.


Reduce employee turnover by 40% for the year. Continue to stay true to the employee

commitment. Offer top-notch benefit plans and create an employee appreciation program with

benefits throughout the year (paid day off, contests). Maintain enough crewmembers so

employees are not over worked. Evaluate employee incentives and feedback throughout the

year and re-evaluate fully at the end of each year.


Create more efficient data management system. Analysis will either be hired as full-

time employees or hired as consultant to find the most efficient and effective way to use the

customer data that is collected. This data will be used to improve the customer experience,

make offers they will be more likely to use, finds ways to get them to spend more money per

flight, and way to get them to purchase more flights per year.


Invest money into Research and development to help increase plane capacity.

Southwest will save and set aside money that will be used for research and development to

create a more cost effective plane that will also increase per seat, per mile per seat, and per

mile profits.



Create more individualized product offerings. Set up family waiting areas for customers

to occupy children and prepare for flights. This will make the airline more family friendly.

After booking a flight, give frequent customers the option to request a special reasonable

accommodation (pillow, blanket, special drink). Satisfaction will be reflected in customer

satisfaction surveys.


Sustainability of Planes. Work closely with Boeing to ensure all planes used by

Southwest meet and try to exceed any government EPA standards.


To improve Southwest's relationship with TSA and make traveling more secure by

developing a program that allows Southwest and TSA checkpoints to as a customer checks in it

will send their information to compare with their ticket and ID for increased security.


More fuel efficient planes. Instead of a flat fee for the third bag, charge per pound.

Budget and keep up with innovative technology. Maintain a rigorous maintenance schedule so

engines can perform at a maximum.


Corporate Social Responsibility (KM)

Southwest Airlines corporate social responsibility is more than just winning awards and

being named in magazines. They are committed to their customers and employees. The

company has created a “Southwest Citizenship.” The Southwest Citizenship mission is “At

Southwest Airlines, we are united by our Purpose to connect People to what is important in

their lives through friendly, reliable, and low cost air travel. Our Purpose fuels our passion and

is at the heart of everything we do.” The company intends to meet its social responsibility

obligations through: Charitable Giving: Southwest strives to give top-notch customer service

both in the air and on the ground in the community. The company has created boards made up

by various employees to evaluate donation requests from their local communities. They also

support local non-for-profits. The airline also works with customers to assist them in

extenuating circumstances such as:

Families Facing Serious Illness

Military and their Families

Youth Leadership and Community Involvement

Disaster Preparedness and Response

The Environment

Environmental Initiatives:

Southwest feels that the environment is important and it is important to care for it. Being

efficient is not only good for the business but also good for the environment. Southwest has

invested in technology and partnerships to reduce emissions reductions through fuel efficiency

and green house gas reductions and now leads the industry in reductions and intends to

continue doing so. Some environmental initiatives are:


Flight Efficiencies

Winglets

Green Plane

Ground Idle Speed

Engine Wash

Initiatives on the Ground:

Southwest is also thinking “green” on the ground. They are working to convert ground

equipment to clean burning technology such as natural gas or electric. They are also looking

into:

Gate Electrification

Load Planning

Recycling and Waste Reduction:

Southwest has not taken on the task of reducing waste and the importance of recycling alone;

they have collaborated with airports to send the message and choosing the right suppliers. The

airline is also committed to reducing paper wherever possible by using e-tickets and reducing

the amount of paper crew’s use.

November 2009- Launch of an improved onboard recycling program that currently

exists within facilities.

Employee Involvement:

All environmental issues are addressed by the green team, which is made up by employee

volunteers from the company. The team works with professional environmental employees and

environmental staff in each of the city’s Southwest is located, to create improvements.


Green Team projects and participation include:

Implementation of a robust, Companywide, co-mingled recycling program

Participation on committees to help identify areas of our operations where emissions

can be reduced

Development of Employee outreach programs on environmental issues so individual

Southwest Employees can reduce their personal environmental footprints

Development of external outreach programs to support Employee volunteerism

addressing environmental issues

Encouraging alternative transportation options where Southwest operates, including the

investigation of Employee commuter programs

Implementing "Green Tuesdays," which provide tips each week to Employees on how

to live and work green

Development of a Green Ambassador program in each individual city Southwest serves

to foster Environmental Stewardship

Green Team Goals include:

Identify environmentally responsible efforts already in place

Search for areas for improvement

Make recommendations for environmentally responsible business practices

Put a "green" filter on future business decisions”(Airlines, 2014)

Southwest has a strong presence in the community and have already implemented a strong

plan for corporate social responsibility. They have addressed or are working to address issues


that have been presented to them. The airline has set goals that may be a challenge but are most

definitely attainable to continue their efforts in helping the environment.

Ethical Implication (KM)

An ethical implication of Southwest Airlines is supplier diversity. The procurement

department adheres to the company’s mission statement, which states their commitment to

maintain leadership in low costs through efficiency. The airline treats all companies fairly

during the selection process. They support companies that hold any type of disadvantage as

long as the requirements of the supplier diversity program have been met. For example to

qualify as a diverse business the business, must be 51% owned and fall under a diversity

classification.


Southwest Airlines has a high expectation for all parties involved in conducting

business with the airline to follow the ‘Southwest Code of Ethics’ and the ‘Procurement Ethics

code.’ In the past, Southwest Airlines has been acknowledged for supplier diversity. The

strategy and high expectations Southwest has for business partners has made them the most

efficient airline in the world.

Conclusion (RR)

Consumers know Southwest Airlines as a quality flight at a low price. Usually when a

company uses low prices as their company’s strategy there are a lot of negatives and positive

that can come from it. The negative connotation is that low cost mean decrease in quality but

that is not the case for Southwest Airlines. They have taken low cost flights and put an

emphasis on hospitality as their bargaining marketing tool. The basis of the Southwest Airlines

mission statement is to describe that those who chose to fly are considered friends and will be


treated as such. Their comfort and experience needs to be a positive one so that Southwest

Airlines feel that they have accomplished their goal.

Having a good mission statement is not enough if those that work for the company do

not believe in it but that is not the case for them. They have created an environment where the

mission statement is part of them and every employee believes in it. It is not just those that

work for Southwest Airline but those that financially support them are also very happy with the

company. When other companies are spiraling downward Southwest Airlines stays profitable

yearly and expands with innovation and fleet. This airline has found the ideal formula for

success that makes each flight a quality flight.


Appendices (MR)

Activity Calendar10/7/2014 Team meeting 5:00-600pm

Assign parts for module 110/14/2014 Team meeting 5:00-600pm

Assign parts for module 210/21/2014 Team meeting 5:00-600pm

Assign parts for module 3

Review with everyone to see if they need assistance, if they are done with their part.

10/28/2014 Team meeting 5:00-600pm

Assign parts for module 4

Review with everyone to see if they need assistance, if they are done with their part.

11/4/2014 Team meeting 5:00-600pm

Assign parts for module 511/11/2014 Review with everyone to see if they

need assistance, if they are done with their part.

Email parts to each member that still needs your parts to finish their section.

11/18/2014 Team meeting 5:00-600pm

Put Final paper together

Discuss how power-point will be completed, and assign date that power-point slides need to be sent to member that will put all slides together.

Discuss who will put all slides together.


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