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Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
Southwest Airline 2009
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Southwest Airline 2009

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Southwest Airline, based in States. …

Southwest Airline, based in States.
Market Analysis 2009

Published in: Business, Technology
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  • 1. 1 Southwest Airlines(2009)  Outstanding Service at the Lowest Fares
  • 2. 2 Mission Statement (actual) The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Vision Statement (Proposed)  At Southwest, we strive to be the new generation of flight transportation while providing luxury at a price anyone can afford.
  • 3. 3 Mission Statement (expanded) We are committed to quality service for the everyday person (1). Southwest provides air transportation to cities all around the United States (2, 3). We fly the most luxurious planes on the market with the latest technology money can buy (4). We competitively provide the lowest airfare price in search for the greatest advantage in today’s busy world (5). We provide the highest standards of safety for all our customers while still offering a reasonable price (6, 7). A portion of our proceeds are donated to various charities throughout the United States (8). Since our first flight in 1971, our employees have been the vital asset in making Southwest the most recognized airline today (9).
  • 4. 4 Mission Statement Components 1. Customer 2. Product or services 3. Markets 4. Technology 5. Concern for survival, growth, profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees
  • 5. 5 Competitive Profile Matrix SouthWest American United Critical Success Factors Weight Rating Weighted Scor e Rating Weighted Score Rating Weighted Score Market Share Price competitiveness Financial Position Consumer Loyalty Advertising Management Security Precautions Organizational Structure Customer Service 0.13 0.10 0.12 0.10 0.15 0.10 0.09 0.06 0.15 2 4 3 4 4 4 3 3 4 0.26 0.40 0.36 0.40 0.60 0.40 0.27 0.18 0.60 4 2 1 2 4 3 3 3 3 0.52 0.20 0.12 0.20 0.60 0.30 0.27 0.18 0.45 3 2 1 2 2 2 3 2 1 0.39 0.20 0.12 0.20 0.30 0.20 0.27 0.12 0.15 Total 1.00 3.47 2.84 1.95
  • 6. 6 EFE Matrix-Opportunities Key External Factors Weight Rating Weighted Score Opportunities 1. There is an increased demand for international travel. 0.10 1 0.10 2. There is a decline of 11 percent in airline companies with funding leading to used planes being able to be purchased. 0.01 1 0.01 3. Increased demand for cities that are currently without SW airline flights (Atlanta, New York, etc.) 0.10 1 0.10 4. Each year airline companies (Delta and Northwest in 2006) are declaring bankruptcy leaving more cities existing allowing more airlines to fly to. 0.05 1 0.05 5. Increase popularity of internet leads to an expected rise of 22 percent from 2006 in flights booked online. 0.03 4 0.12 6. Increase popularity with Visa check card purchases with reward points. 0.01 1 0.01 7. With an increase of nearly 3 million people in the US there is an expansion of developing cities across the United States. 0.01 2 0.02 8. Technology is increasing making older planes outdated. 0.03 2 0.06 9. Increased amount of upper level business travelers has led to greater demand for better seats. 0.01 1 0.01 10. Stock market has increased leading to more money to being spent on vacations or business affairs. 0.05 1 0.05 11. Decline of 11 percent in airline companies with funding leading to experienced workers being laid off. 0.03 3 0.09
  • 7. 7 EFE Matrix-Threats Threats 1. Specialization expertise of Jet Blue using one plane model allows them to provide less expensive mechanics to maintain planes. 0.09 4 0.36 2. Jet Blue is the only airline to carry satellite televisions on planes. 0.04 1 0.04 3. Higher ticket taxes. 0.04 1 0.04 4. Increase in airport security due to possible terrorism. 0.10 4 0.40 5. Many companies such as AirTran Airways are offering a business class in their B717 jet. 0.05 1 0.05 6. Competing airlines offer satellite radio in their passenger jets. 0.03 1 0.03 7. High cost of fuel leads to increase in ticket prices. 0.10 3 0.30 8. Studies in 2000 report that obese passengers cost airlines an extra $275 million in fuel costs. 0.03 1 0.03 9. Other airline companies offer in-flight meals adding luxury. 0.03 3 0.09 10. SW competitors are flying newer and more technologically advanced jets with luxury items. 0.06 1 0.06 TOTAL 1.00 2.02
  • 8. 8 Ratios (12/07) Growth Rates % Southwest Industry SP-500 Sales (Qtr vs year ago qtr) 9.50 14.50 8.30 Net Income (YTD vs YTD) 29.30 17.50 16.00 Net Income (Qtr vs year ago qtr) 96.50 28.20 6.60 Sales (5-Year Annual Avg.) 12.30 24.71 13.34 Net Income (5-Year Annual Avg.) 21.76 36.88 20.14 Dividends (5-Year Annual Avg.) 0.00 6.81 10.00 Price Ratios Current P/E Ratio 15.2 18.0 21.9 P/E Ratio 5-Year High 62.9 70.0 22.3 P/E Ratio 5-Year Low 13.6 27.0 5.9 Price/Sales Ratio 0.95 1.39 2.38 Price/Book Value 1.36 2.36 3.39 Price/Cash Flow Ratio 7.80 9.80 10.60
  • 9. 9 Ratios (12/07) Continued Profit Margins Gross Margin 26.1 28.5 33.8 Pre-Tax Margin 10.7 12.2 17.5 Net Profit Margin 6.5 9.7 12.4 5Yr Gross Margin (5-Year Avg.) 28.4 27.7 33.5 5Yr PreTax Margin (5-Year Avg.) 9.4 12.3 16.8 5Yr Net Profit Margin (5-Year Avg.) 5.9 9.7 11.7 Financial Condition Debt/Equity Ratio 0.30 0.74 1.19 Current Ratio 0.9 1.2 0.9 Quick Ratio 0.9 1.2 0.7 Interest Coverage 31.6 44.7 43.3 Leverage Ratio 2.4 2.5 4.0 Book Value/Share 9.45 8.41 16.25
  • 10. 10 Ratios (12/07) Continued Investment Returns % ReturnOnEquity 9.6 17.1 20.8 ReturnOn Assets 4.3 5.9 5.8 ReturnOnCapital 5.7 7.7 7.7 ReturnOnEquity(5-Year Avg.) 7.8 12.8 14.5 ReturnOn Assets(5-Year Avg.) 3.7 4.3 5.1 ReturnOnCapital (5-Year Avg.) 4.8 5.5 6.8 Management Efficiency Income/Employee 18,762 51,840 37,696 Revenue/Employee 286,840 355,791 343,930 Receivable Turnover 36.9 44.5 9.5 InventoryTurnover 32.2 214.4 5.6 AssetTurnover 0.7 0.7 0.6
  • 11. 11 Ratios (12/07) Continued Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%) 12/07 17.60 0.95 1.29 6.5 12/06 27.20 1.39 1.86 5.5 12/05 24.70 1.75 1.97 6.4 12/04 55.80 2.00 2.31 3.3 12/03 30.00 2.23 2.52 7.4
  • 12. 12 Ratios (12/07) Continued Date BookValue/Share Debt/Equity ROE(%) ROA(%) InterestCoverage 12/07 $9.45 0.30 9.3 3.8 11.5 12/06 $8.23 0.26 7.7 3.7 12.1 12/05 $8.33 0.30 7.3 3.5 8.7 12/04 $7.04 0.33 3.9 1.9 8.2 12/03 $6.40 0.30 8.7 4.5 8.3
  • 13. 13 Net Worth Analysis (Year-end 2007) 1.Stockholders’Equity+Goodwill=6,941+0 $6,941 2.Netincomex5=$645x5= $3,225 3.Shareprice=$13/EPS0.84=$15.47xNetIncome$645= $9,982 4.NumberofSharesOutstandingxSharePrice=735x$13= $9,555 MethodAverage $9,900
  • 14. 14 IFE Matrix-Strengths
  • 15. 15 IFE Matrix-Weaknesses Weaknesses 1. SW has highest percentage of full-time employees leading to increased overhead. 0.06 2 0.12 2. SW only flies one plane, the Boeing 737. 0.01 1 0.01 3. They will not fly outside the continental United States, 63 cities and 32 states. 0.10 1 0.10 4. Difficult to convince customers SW offers benefits other airlines do not. 0.01 2 0.02 5. Flying only 737s could lead to negative press if problems with that plane arise. 0.01 1 0.01 6. Does not accommodate for severely handicapped. 0.02 1 0.02 7. Large cities (Atlanta, Charlotte, etc) are without SW service. 0.10 1 0.10 8. Does not provide a first class for passengers. 0.01 1 0.01 9. Do not provide assigned seating. 0.01 1 0.01 10. Only some 737s carry televisions. 0.01 2 0.02 11. SW does not offer any type of in-flight meals. 0.01 2 0.02 TOTAL 1.00 2.89
  • 16. 16 SWOT Analysis-Strengths 1. SW has a larger market capital compared to others with $11.3 billion. 2. SW has all flights going to cities within the United States. 3. Use point-to-point flight system with no hubs one way. 4. Ability to determine cost/prices within the organization. 5. Leader in market capitalization. 6. Largest in US by the number of passengers carried yearly and 3rd in the world. 7. One of the world’s most profitable and highest posted profits for 34 consecutive years. 8. In 2006 70 percent of flight bookings and 73 percent of revenue came from bookings on Southwest’s website. 9. Low prices and relaxed atmosphere made it an icon. 10. First airline to have a webpage in 1995. 11. SW has 481 Boeing 737s jets. 12. Financially they purchase fuel options to hedge cost years in advance to smooth market fluctuations.
  • 17. 17 SWOT Analysis-Weaknesses 1. SW has highest percentage of full-time employees leading to increased overhead. 2. SW only flies one plane, the Boeing 737. 3. They will not fly outside the continental United States, 63 cities and 32 states. 4. Difficult to convince customers SW offers benefits other airlines do not. 5. Flying only 737s could lead to negative press if problems with that plane arise. 6. Does not accommodate for severely handicapped. 7. Large cities (Atlanta, Charlotte, etc) are without SW service. 8. Does not provide a first class for passengers. 9. Do not provide assigned seating. 10. Only some 737s carry televisions. 11. SW does not offer any type of in-flight meals.
  • 18. 18 SWOT STRATEGIES-SO 1. Through increased advertising online SW can increase flight bookings (S8, O5). 2. Using a point-to-point system SW can increase flights with business travelers who need timely flights (S3, O9). 3. Use incentives to purchase flights using credit cards to increase profits (S7, O6). 4. Less expensive flights, due to cutting fuel costs by $155M, leave market capitalization available on areas where airline companies no longer fly due to bankruptcy (S12, O4). 5. Cut ticket cost by $2.00, but add a charge of $2.00 to each extra bag (one allowed) (S4, O10).
  • 19. 19 SWOT STRATEGIES-WO  Hire more part time workers (W1, O11).  Add new technology to older planes in order to become up-to- date and accommodate the handicapped (W6, O8).  With airline companies selling planes SW can purchase models similar to the 737, which could lead to better press if a problem with the 737 arises (W5, O2).  Offer in flight meals for those who meet appropriate requirements based on points received from Visa card usage (W11, O6).  Install televisions and satellite radio in planes for enhanced customer service (W10, O7).  Provide higher quality and luxuries (first class) in some jets for customers willing to pay extra (W8, O9).
  • 20. 20 SWOT STRATEGIES-ST 1. Upgrade our fleet by adding 12 of the similar Boeing 717 jets in order to accommodate to the travelers desiring the luxury of a business class. These jets will be flown in the larger cities with more travel demand with an approximate cost of $700 M. 2. Expand the rapid rewards program to offer one reward point for every three purchases made on the Southwest website at least one month in advance. This will help Southwest in the booking processes so that there will be less complications and delays associated with last minute purchases. 3. In order to compete with the luxury airlines offering in flight meals, Southwest will now offer in flight drinks (soda, water, juices, and limited alcohol items) and small snack foods available to the passengers by cash or charge. 4. Make all flights with in the 48 states point-to-point flights with strict time lines given to the employees in order to alleviate delays. We predict this will increase our percent of on-time flights from 83.96% to approximately 90.00%. Then create a marketing program through television and magazines advertising the new policies.
  • 21. 21 SWOT STRATEGIES-WT  Using the code share with ATA airlines begin offering flight to select areas outside the US including (Cozumel Mexico, Select Canada locations, Paris, London, etc.)  Shorten the flight life span of the B737’s in order maintain planes that are consistently up to date with technology. This will allow us to hedge any risk of negative problems arising with the 737’s. Maintaining new equipment allows us to easily liquidate the assets when new items are needed to be purchased.  Add new cities not flown to by Southwest such as Atlanta, Charlotte, Chicago, and New York
  • 22. 22 SPACE Matrix 6 5 4 3 2 1 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 -2 -3 -4 -5 -6 FS Conservative Aggressive Defensive Competitive IS ES CA
  • 23. 23 SPACE Matrix x-axis: -2.0 + 4.4 = 2.4 y-axis: 2.4 + -3.0 = - 0.6
  • 24. 24 Grand Strategy Matrix Rapid Market Growth Quadrant II Quadrant I Strong Competitive Position Slow Market Growth Weak Competitive Position Quadrant III Quadrant IV
  • 25. 25 IE Matrix The IFE Total Weighted Score Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99 High I II III 3.0 to 3.99 Medium IV V VI The EFE Total Weighted Score 2.0 to 2.99 Southwest Low VII VIII IX 1.0 to 1.99 Hold and Maintain
  • 26. 26 QSPM-STRENGTHS Strategic Alternatives Key Internal Factors Weight Add 12 B17s to Fleet Shorten Life of Current Planes in Use Strengths AS TAS AS TAS 3. SW has a larger market capital compared to others with $11.3 billion. 0.04 2 0.08 3 0.12 4. SW has all flights going to cities within the United States. 0.02 2 0.04 3 0.06 5. Use point-to-point flight system with no hubs one way. 0.06 3 0.18 2 0.12 6. Ability to determine cost/prices within the organization. 0.06 --- --- --- --- 7. Leader in market capitalization. 0.03 2 0.06 3 0.09 8. Largest in US by the number of passengers carried yearly and 3rd in the world. 0.02 3 0.06 2 0.04 9. One of the world’s most profitable and highest posted profits for 34 consecutive years. 0.05 3 0.15 2 0.10 10. In 2006 70 percent of flight bookings and 73 percent of revenue came from bookings on Southwest’s website. 0.10 --- --- --- --- 11. Low prices and relaxed atmosphere made it an icon. 0.01 --- --- --- --- 12. First airline to have a webpage in 1995. 0.01 --- --- --- --- 13. SW has 481 Boeing 737s jets. 0.10 2 0.20 3 0.30 14. Financially they purchase fuel options to hedge cost years in advance to smooth market fluctuations. 0.15 --- --- --- ---
  • 27. 27 QSPM-WEAKNESSESS 1. SW has highest percentage of full-time employees leading to increased overhead. 0.06 --- --- --- --- 2. SW only flies one plane, the Boeing 737. 0.01 3 0.03 4 0.04 3. They will not fly outside the continental United States, 63 cities and 32 states. 0.10 3 0.30 2 0.20 4. Difficult to convince customers SW offers benefits other airlines do not. 0.01 2 0.02 3 0.03 5. Flying only 737s could lead to negative press if problems with that plane arise. 0.01 4 0.04 3 0.03 6. Does not accommodate for severely handicapped. 0.02 2 0.04 3 0.06 7. Large cities (Atlanta, Charlotte, etc) are without SW service. 0.10 2 0.20 1 0.10 8. Does not provide a first class for passengers. 0.01 4 0.04 2 0.02 9. Do not provide assigned seating. 0.01 3 0.03 1 0.01 10. Only some 737s carry televisions. 0.01 3 0.03 4 0.04 11. SW does not offer any type of in-flight meals. 0.01 --- --- --- --- SUBTOTAL 1.00 1.50 1.36
  • 28. 28 QSPM-OPPORTUNITIES Key External Factors Weight Add 12 B17s to Fleet Shorten Life of Current Planes in Use Opportunities AS TAS AS TAS 1. There is an increased demand for international travel. 0.10 --- --- --- --- 2. There is a decline of 11 percent in airline companies with funding leading to used planes being able to be purchased. 0.01 4 0.04 1 0.01 3. Increased demand for cities that are currently without SW airline flights (Atlanta, New York, etc.) 0.10 --- --- --- --- 4. Each year airline companies (Delta and Northwest in 2006) are declaring bankruptcy leaving more cities existing allowing more airlines to fly to. 0.05 2 0.10 1 0.10 5. Increase popularity of internet leads to an expected rise of 22 percent from 2006 in flights booked online. 0.03 --- --- --- --- 6. Increase popularity with Visa check card purchases with reward points. 0.01 --- --- --- --- 7. With an increase of nearly 3 million people in the US there is an expansion of developing cities across the United States. 0.01 --- --- --- --- 8. Technology is increasing making older planes outdated. 0.03 3 0.09 4 0.12 9. Increased amount of upper level business travelers has led to greater demand for better seats. 0.01 4 0.04 2 0.02 10. Stock market has increased leading to more money being spent on vacations or business affairs. 0.05 --- --- --- --- 11. Decline of 11 percent in airline companies with funding leading to experienced workers being laid off. 0.03 2 0.06 1 0.03
  • 29. 29 QSPM-THREATS Threats 1. Specialization expertise of Jet Blue using one plane model allows them to provide less expensive mechanics to maintain planes. 0.09 1 0.09 3 0.27 2. Jet Blue is the only airline to carry satellite televisions on planes. 0.04 3 0.12 2 0.08 3. Higher ticket taxes. 0.04 --- --- --- --- 4. Increase in airport security due to possible terrorism. 0.10 --- --- --- --- 5. Many companies such as AirTran Airways are offering a business class in their B717 jet. 0.05 4 0.20 1 0.05 6. Competing airlines offer satellite radio in their passenger jets. 0.03 3 0.09 4 0.12 7. High cost of fuel leads to increase in ticket prices. 0.10 --- --- --- --- 8. Studies in 2000 report that obese passengers cost airlines an extra $275 million in fuel costs. 0.03 --- --- --- --- 9. Other airline companies offer in-flight meals adding luxury. 0.03 --- --- --- --- 10. SW competitors are flying newer and more technologically advanced jets with luxury items. 0.06 3 0.18 4 0.24 SUBTOTAL 1.01 1.04 SUM TOTAL ATTRACTIVENESS SCORE 2.51 2.40
  • 30. 30 RECOMMENDATIONS  The QSPM strategies assessed adding 12 new planes to the fleet or retiring older planes. It is recommended Southwest add 12 new planes at a total cost of $500 million.
  • 31. 31 EPS/EBIT Analysis  $ Amount Needed: 500M  Stock Price: $13  Tax Rate: 35%  Interest Rate: 7%  # Shares Outstanding: 735M
  • 32. 32 Mission/Vision  Give SW Customers the Freedom to Fly  Low Fares  Frequent Flights  Friendliest Service in the Sky
  • 33. 33 Strategy to Date  Low Cost, Low Fare  High Frequency  No Frills  Almost No Interlining  No Hubs, No International  Point-to-Point Short-Haul Service  Regional Service HQ in Texas
  • 34. 34 Strategy Success to Date I  Net Income at $499.0 million in 2006  Passenger Revenues in 2006 at $9.086 Billion  Many years of top airline performance re: on-time; complaints; and lost luggage  33 consecutive years of profit through 2006
  • 35. 35 Strategy Success to Date II  Diluted EPS of $.61 in 2006  Rivals Delta & United near Bankruptcy  Overall SW looks strong in 2007 despite the aftermath of 9/11  Long Term Debt at $2.887 billion in 2006
  • 36. 36 Internal Analysis: Strengths  Low Cost  Fast Turnaround  Work Force commitment and flexibility  Differentiation --not just low cost but better service (on time, no lost luggage,fewer complaints)  Leader in Re-engineering  Operational Simplicity
  • 37. 37 Internal Analysis: Weaknesses  Low Economies of Scale (small relative to other majors, short routes)  No Hub System  No code sharing -- can sell only tickets from its own offices  No Interlining  No International Routes
  • 38. 38 Internal Analysis  Financial  Marketing  Management  Operations  Information Technology
  • 39. 39 External Analysis: Opportunities  Market Expansion: over 100 cities have asked Southwest to offer service  Longer Flights  International Expansion to Canada and Mexico
  • 40. 40 External Analysis: Threats  Weak Demand  New Rail Service (Dallas to Houston)  Increased Competition -- if they lose their Love Field Restrictions  Increased Regulation (noise)  Dependence on Domestic Markets
  • 41. 41 External Analysis: Porter’s 5 Forces  Entry of New Competitors: Unlikely  Substitute Products: High Speed Rail, Video Conferencing  Competition Among Existing Competitors: Strong  Power of Suppliers: In 2007, Weak for Aircraft but Strong for Fuel Suppliers  Power of Customers: Strong
  • 42. 42 External analysis  Economics  Demographics  Environmental  Legal  …...
  • 43. 43 Strategy Alternatives  Continue Present Strategy -- --Problem is limited growth  Expand Geographically --Point-to-Point --serve other regions efficiently  Expand Geographically --Major Hubs  Remain Regional --through hubs  Increased ticketing via internet
  • 44. 44 Should Southwest Code Share?  PRO: Increase visibility and potential customers  CON: Increase Costs
  • 45. 45 How Can High Worker Commitment and Productivity be Sustained?  As Company Expands, New Workers Will Be Needed with Company Culture Transferred to them  Reward System with Bonuses and Incentives but within Cost Controls
  • 46. 46 Management Depth  Management will have to be extended to support expansion  Kelleher, Kelly and Barrett are still the top trio (see p. 242)
  • 47. 47 Conclusion  Southwest is a Benchmark Competitor --Setting Industry Standards  They have successfully expanded and continued to innovate -- e.g., ticketless travel, boarding pass download at home or office prior to going to the airport, friends fly free, use of underutilized airports, etc.
  • 48. 48 Recommendations  Continued Gradual Expansion  Maintain the characteristics that have enabled their success:  Conservative Growth  Cost Containment  Commitment of Employees  …  …  ...
  • 49. 49 Update  2008 Results (from SW Website) operating revenues at $11.023 Billion up 10% over 2007  Expansion continues with new service at San Francisco, planned service to New York  Stock Price 2/9/09 = $7.18; 52 Week Range $16.77 to $6.56  Hedging on Fuel was successful as Fuel Prices rose but costly when they fell in late 2008.

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