Southwest Airlines Troubles
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Transcript of Southwest Airlines Troubles
8/7/2019 Southwest Airlines Troubles
http://slidepdf.com/reader/full/southwest-airlines-troubles 1/23
Southwest AirlinesSouthwest AirlinesMD SHAHBAZ KHAN & ROSHAN KUMAR
Skyline Business School
8/7/2019 Southwest Airlines Troubles
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Table of ContentsTable of Contents
� Tyler
� Facts & Flight Method
� Porters 5 Forces
� Looking Into The Future
� Nicole
� Mission Statement & Timeline
� Industry Life Cycle
� Financial Stability
� Emily
� In The Beginning
� Value Chain
� RBV ± � Resources & capabilities
� Competitive advantage
� VRIO
� K eigha
� Leadership & SW cities
� P.E.S.T.E.L
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In The Beginning«
³As company legend goes,
the very first route map
was drawn on a cocktail napkin
during a meeting betweenHerb Kelleher and Rollin King.´
http://www.southwest.com/programs_services/adopt/about_southwest.html
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http://www.southwest.com/about_swa/customer_service_commitment/customer_service_commitment.pdf
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Timeline«Timeline« June 18, 1971
Began airline service
Flights to Houston, Dallas, and San Antonio
1977
SW stock listed on NYSE as "LUV"
1982
Appointed Herbert D. Kelleher
President, CEO, & Chairman of the Board
1984
#1 in customer satisfaction (4th year in a row)
1990
announce billion dollar revenue mark
Officially declared a "Major" airline! May 2003
Top ranked domestic passenger airliner
2006
Southwest¶s 34th consecutive year of
profitability
http://www.southwest.com/about_swa/airborne.html
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Facts / Milestones«Facts / Milestones« Low-fare, high frequency
Point-to-point carrier
Largest domestic U.S. carrier
4
th
largest major airline in AmericaMore than 34,000 Employees
Fly more than 64 mil. passengers a year
58 destination cities (59 airports)
More than 3,200 flights a day
Top competitors:
AMR Corp.
Continental Airlines
JetBlue
http://www.swabiz.com/about_swa/press/factsheet.html#Leadership
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Flight MethodFlight Method
"point to point" (city to city)
NOT hub-and-spoke model Domestic flights only
Quantity focused
Flies only Boeing-737 aircrafts
No assigned seats
No mealsOnly snacks: peanuts
No electronic entertainment
No fees to change same-fare
ticketshttp://ostpxweb.ost.dot.gov/aviation/airlinebusinessmodel.htm
Few amenities / no ³frills´«
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Leadership / Structure:Leadership / Structure:
Herbert D. K elleher Executive Chairman of the Board
Gary K elly
Vice Chairman of the Board
and
Chief Executive Officer
Colleen BarrettPresident, Secretary,
and Director
http://gallery.swamedia.com/photos/value=open/type=jpg
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Map: SW Cities / DestinationsMap: SW Cities / Destinations
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ECONOMIC
When economic conditions are unfavorable:
- Airliners very susceptible / vulnerable
- Discount airlines see profits
- People look for cheaper travel options
POLITICAL
- Deregulation in 1978
- 1st big political win for airlines
- Post 9/11:
- Gov. helped 2 major airlines
get out of financial trouble
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P.E.P.E.SS..TT.E.L.E.L
TECHNOL
OGICAL
Some airlines have
converted to e-tickets,
and have a self
checking machine.
Many people use the
internet to compare
prices to find the best
option for their trip.
SOCIAL
Flying on planes to get
to where you need to be
has been the norm for thelast 30 years and will
continue to be the norm
in to the foreseeable
future.
As more and more
Spanish speakers come to
live and travel in the US
there is more need for
airlines to be bi-lingual.
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P.E.S.T.P.E.S.T.EE..LLLEGAL:
Legal issues have hindered
airlines from making a full
³9/11 recovery.´
According to the Air
Transportation Association:
³Airlines constitute about 2/3 of
F AA-controlled flights but pay
more than 90% of the bill. In
return, the airlines are stuck using
a 1950s ground -based, radar -
dependent navigation system with
legacy facilities and processes.´
ENVIRONMENTAL:
Airlines have cut
prices and offered
expensive frequent
flyer programs just to
grab customers away
from other airlines.
The regular airlines
are starting to get away
from the hub system
and switch to the point
to point system that SW
uses.
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Porter¶s 5 ForcesPorter¶s 5 Forces
� High cost of entry
� High competition
� Many other forms of transportation
� Many other airlines
� Suppliers
� Food and drink
� Coke products
� Fuel Sources
FocalFocal
FirmFirm
BuyersBuyers
SuppliersSuppliers
EntryEntry
RivalryRivalry
SubstitutesSubstitutes
IndustryIndustry
ThreatThreat
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Industry Life CycleIndustry Life Cycle
Customer K nowledge
Increasingly sophisticated
Over 50% ticket price in 25
years
Expenses
Drastic compression of airlineyield premium
Exploring new ways to revenue
Labor and fuel (largest costs)
The first mover effect
Security
Carrier¶s assets, personnel assets
and customers interest
Regulations enforced by
government
Anticipating, managing, paying
Innovation will be key!
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Resources & CapabilitiesResources & Capabilities
TANGIBLE:
Financial
Physical
Technological
Organizational
INTANGIBLE:
HumanInnovation
Reputation
http://www.mdcegypt.com/Pages/Management%20Approaches/Strategy,%20Business%20Plan/Develop%20or%20validate%20the%20Strategic%20Plan.asp#ii._Value_Chain
_Analysis_
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Value Chain ModelValue Chain Model
www.web.hec.gov.pk/.../0/chp_value_chain.jpg
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Resources
and
Capabilities
Valuable? R are?
Costly
to
Imitate?
Exploited
by
Organization?
Financial Yes Yes Yes Yes
Physical Yes Yes Yes Yes
Technological Yes Yes Yes Yes
Organizational Yes No Yes Yes
Human No Yes Yes No
Innovation No Yes Yes Yes
Reputation No No Yes Yes
V.R.I.O.V.R.I.O.
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Financial R atiosFinancial R atios
Financial R atio Numerator Denominator
Current Ratio Current Assets Current Liabilities
Quick Ratio Cash + Cash Equivalents +
Accounts Receivable
Current Liabilities
Average collection period
in days
Average Accounts Receivable x
365
Sales
Short Term Liquidity
Long Term Solvency
Financial R atio Numerator Denominator
Debt-to-Total Assets Total Liabilities Total Assets
Debt-to-Equity Total Liabilities Total Shareholder¶s
Equity
Long-Term-Debt-to-
Total-Capital
Total Long-Term Debt Total Shareholder¶s
Equity + Total Long-
Term Debt
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Financial R atios Cont.Financial R atios Cont.
Financial R atio Numerator Denominator
Return on Sales Net Income Sales Revenue
Return on Stockholder¶s
Equity
Net Income Average Stockholder¶s Equity
Asset Turnover Sales Average Total Assets AvailablePretax Return on
Operating Assets
Operating Income Average Total Assets Available
Earnings Per Share Net Income ± Dividends on
preferred stock, if any
Average Common Shares
Outstanding
Financial R atios Numerator Denominator
Price-Earnings Market price of common
share
Earnings per Share
Dividend-Yield Dividends per common share Market price of common share
Dividend-Payout Dividends per common share Earnings per share
Dividend & Market Price
Profitability
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Financial StabilityFinancial Stability
S hort Term Liquidit y Ratios
Current ratio 0.90
Quick ratio 0.56
Average collection period in days 10.05
Long Term S olvency Ratios
Debt-to-total assets 21%
Debt-to-equity 45%
Long-term-debt-to-total-capital 20%
P rofitabilit y Ratios
Return on sales 5.5%
Return on stockholder's equity 7.7%
Asset turnover 0.65
Pretax return on operating assets 6.9%
Earnings per share (1.28)
Market P rice and Dividend Ratios
Price earnings 163.9
Dividend yield 0.02%
Dividend payout 3.0%
(EVA) Economic Value Added (in millions)
NOPAT 857
Operating Income 725
WACC 8.6%
EVA 53,306
AirTransport IndustryAverage EVA 15,032
Southwest above average by 38,275
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In The News«In The News«
³Airlines are constantly in search of new revenue sources.
Travelers have gotten used to paying for food on board. But it'sgoing to be harder to adjust to fees for services that used to be
free.´
~ C hris McGinnis
The Ticket editor (travel newsletter)
http://biz.yahoo.com/hmoney/070430/043007_airline_fees_moneymag.html?.v=4
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Future Plan«Future Plan«
GO
GREEN!
FollowFollow--up systemup system
Entire meal servedEntire meal served
Seat classesSeat classes
Differentiate strategiesDifferentiate strategies
Other services (shuttle)Other services (shuttle)
Consider amenity changeConsider amenity change
Expand internationally?Expand internationally?
Penetrate more domesticallyPenetrate more domestically
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