Southwest airlines final

“Southwest Airlines just plane smart”

A Case Analysis ofSouthwest Airlines

12 April 2012 – Longview Hall, LeTourneau Univeristy

© 2012 Entre- All Rights Reserved.

ENTRE Kiya Gage, Cullen Griffin, Josh Puryear

01. Overview and Current Performance

02. Key Issue Identification

03. Analysis of Vision, Mission and Objectives

04. Corporate-Level Strategies

05. Functional Strategies

06. Evaluating the External Environment

07. Marketing Analysis

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Items to Discuss 01

© 2012 Entre - All Rights Reserved.

08. Financial Analysis

09. Evaluating Company’s Resources

10. Ability to Compete

11. Competitive Strength Assessment

12. Core Competency

13. Organizational Efforts for Good Strategy Execution

14. Ethics and Social Responsibility

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Continued… 02


15. Culture

16. Analysis of Strategic Alternatives

17. Recommendation

18. Justification

19. Christian Leadership Distinctives

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Continued… 03


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Overview of Southwest Airlines 04

2 Scores and 6 years ago ….1966

2 Scores and 1 year ago….1971


Lamar Muse was hired as CEO to begin the operations of Southwest Airlines. June 18, 1971, Southwest flewout their first flight.

The primary goal of Rollin King was to beginA low cost and low fare airline that would Allow passengers to fly between San Antonio,Dallas, and Houston.

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Overview of Southwest Airlines 05

Profits since 1973

Expansion


In 1981, the company expanded to 14 Destination cities. As of today, Southwest fliesTo 72 cities in 37 states.

Southwest Airlines has continued to earn a Profit even through the crisis of 2008.

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Key Issue Identification 06


Cost of Operations Varied Company Factors

Social TrendsEconomic Conditions

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Cost of Operations

Rising Labor Costs . In response to the war on terror this would induce special training, increased awarareness,

passenger security upgrades, air marshals etc. Potential costs, such as anti-weapons systems will increase expenses to the airlines.

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Varied Company Factors

Competitive factors that impact Southwest Airlines are fare sales, and capacity decisions made by

the company and its competitors.

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Economic Conditions

The economic downturn directly affects people’s will to travel by changing consumer ticket purchasing habits such as, visiting friends and family during the holidays.

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Social Trends

The ability to eliminate the need for businessmen to make deals in person increases everyday. Skype, OoVoo, and Cisco have made it possible to interact , peer-to-peer or B2B to conduct sales, initiate and close contracts.

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Mission Statement 11


The mission statement of Southwest Airlines is dedication to the highest

Quality of Customer Service delivered with a sense of warmth, friendliness, individual

Pride and company spirit.

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Mission Statement to Employees 12


Best Place to work

Convenient Schedule

Desirable Destinations

Safest, Most Efficient, Most Reliable

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13


Objectives

Do all in a way that that maintains a low costStructure and the ability to offer low fares.

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Corporate Level Strategies 14


Broad DifferentiationLove CampaignTen minute turnaround

Low-Cost1971 - $10 fareCut prices in half

Best-CostRegular priced ticket w/Free gift

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We’d like to match their new fares, but we’d have to raise ours!15


$59 - 2 checked bags

Fees total $37

Actual Price $22 Actual Price $49

Fees total $10

$59 – 1 checked bag

United Airlines Southwest Airlines

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Functional Strategies of Southwest Airlines 16


Herb Kelleher

Cofounder and longtime CEO

You’ve got to take the Time to listen to People’s ideas.

Colleen Barrett

President - 2001

Primary goal was to Ensure employees felt Good about what they Were doing.

Gary Kelly

Current CEO

Continues managing the Company the same waysPrevious.

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Porters ‘ 5 ’ Forces 17


Potential New Entrants

Substitue Products And Services

Bargaining PowersOf Suppliers

Bargaining Power of Buyers

Competitive Rivalry

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Competitive Rivalry

American Airlines

United Delta

US AIR

Jetblue

Southwest

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Bargaining Power of Suppliers

Aircraft Manufactures

Aircraft Leasing

Fuel Companies

Airports

Food Service Companies

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Potential New Entrants

Foreign Carriers

Regional Startups

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Bargaining Power of Buyers

Travel Agents

Business Travelers

Pleasure Travelers

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Substitute Products and Services

Alternate Traveling

Videoconferencing

Private Transportation

4 P’s Price

Product

Place

Promotion

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Marketing Analysis 23


Product: No frills airline service. Customer Service

Place: Locations acrossThe United States. Flying into Smaller airports.

Price: Low fares, Free bags,Biggest Strategic Advantage.

Promotion: Clever print and Advertisements. Runs promotionsOn certain flights. Rapid Rewards.

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Financial Analysis 24


Southwest Airlines Finacncal Analysis Year 2011 2007 2006 2005 2004 2003

Profit RatiosOperating Profit Margin 4.4% 8.0% 10.3% 9.6% 6.2% 6.4%Net Profit Margin 1.1% 6.5% 5.5% 6.4% 3.3% 6.3%Return on Stockholder's equity 2.6% 9.3% 7.7% 7.3% 3.9% 7.4%Earnings Per Share 0.23$ 0.84$ 0.61$ 0.67$ 0.38$ 0.54$

Luquidity Ratios Current Ratios 0.96 0.92 0.71 0.94 0.56 1.34Working Capital (in millions of $) -188 -395 -826 -228 -1676 590

Leverage RatiosDebt-to-assets ratio 61.9% 58.6% 58.6%Debt-to-equity ratio 54.5% 30.1% 26.2% 29.9% 33.4% 30.4%Long-term-to-equity ratio 45.2% 29.5% 24.3% 20.9% 30.8% 26.4%Coverage ratio 3.57 6.65 7.30 5.94 4.59 4.16

Other Important Measures of Financial PerformanceDividend yield on common stock 21% 17% 12% 11% 11% 11%Price-earnings ratio 37.22 14.52 25.11 24.52 42.84 29.89Dividend payout ratio 7.8% 2.1% 3.0% 2.7% 4.7% 3.3%Free cash flow (in millions of $) -20 1,679 707 -173 -481 -93

Sensible ExpansionBusiness Model Effieciency

Team Spirit

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SWOT Analysis 25


StrengthsNo Frills

Image

Product Innovation

Safety Record

Customer ServiceFlexibility

No AlliancesEasily mimicked

No baggage transfer

Small Room for Development

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SWOT Analysis 26


WeaknessesMulti-country coverage

Low-cost positionExpansion

Mergers or Aquisitions

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SWOT Analysis 27


OpportunitiesSocietal Values

Long-term industry growth

Growth/smaller airports

Cost of operationsWeather

Varied comp factors

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SWOT Analysis 28


ThreatsTerrorist Attacks

Number of RivalsComp Economies of Scale

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Value Rareness Imitability Organization 29


Competitive Advantages

Value: through low-cost initiatives

Imitability: Highly Competitive.

Rareness: One of the few companies That offer low-fares.

Organization: Research and development

VALUE

RARENESS

IMITABILITY

ORGANIZATON

Case Study 30

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Competitive Strength Assessment 31


Rating Score Rating Score Rating Score Rating ScoreKey Success Factors WeightAdvertising 0.05 3 0.15 3 0.15 2 0.1 2 0.1Cost Structure 0.2 3 0.6 2 0.4 3 0.6 2 0.4Service Quality 0.1 3 0.2 3 0.3 2 0.2 1 0.1Contracted Airports 0.1 3 0.3 3 0.3 2 0.2 2 0.2Price Competitiveness 0.15 4 0.6 3 0.45 3 0.45 3 0.45Management/Culture 0.2 4 0.8 2 0.4 3 0.6 2 0.4Financial Position 0.15 4 0.6 3 0.45 2 0.3 3 0.45Market Share 0.05 3 0.15 3 0.15 1 0.05 1 0.05Total 3.5 2.6 2.5 2.15

The rating 4 = major strength, 3 = minor strength, 2 = minor weakness and 1 = major weakness.

Rival 3 Rival 2Rival 1Southwest Airlines

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Core Competency 32


Southwest Airlines has continuedTo make sure their employees are

Happy which in return, keeps Customers happy.

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Organizational Efforts for Good Strategy Execution33


Southwest Airlines is intereseted in peopleWho externalize.

Southwest wants employeesWho work well in teams, Have good judgement, and Who are not selfish.

The Federal Aviation Administration trainingcourses

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Organizational Efforts for Good Strategy Executiion34


Employees who had been there And done that understand who Will be under them.

Operation Kick Tail

Managers are to spendAt least 1/3 of their timeObserving employees.

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Ethics and Social Responsibility 35

Named in the top 50

Southwest offers donations to organizations


-Aid Families Facing Serious Illnesses-Provide Support for our Military and Families-Developing Youth Leadership Programs- Assist in Disaster Preparedness and Response

Ranked number 7 in 2009 for the Performance of the company during theCrisis of 2008.

Laid Back

Employees

Enjoyable

Customers 2nd

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The Culture of Southwest Airlines 36


Culture

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Recommendation and Justification 37


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