Southwest Airlines began in 1971 with 3 aircraft serving 3 Texas cities. It now serves 64 cities in 32 states with 537 aircraft. The presentation analyzes Southwest's competitive position, internal and external factors, financial performance, strengths/weaknesses, opportunities/threats, and identifies possible strategies like international expansion or mergers.

1. SOUTHWEST AIRLINES
Strategic Analysis Presentation

2. Introduction
 Began operations in 1971
3 Aircraft
 Served 3 cities
 All in TX (Dallas, Houston, San Antonio)
 Currently serves 64 cities in 32 states (As of
12/08)
 537 Aircraft
 Notable Leadership includes:
 CEO Gary Kelly
 Chairman Emeritus Herbert Kelleher

3. Mission & Employee
Commitment
 Current Employee Commitment provides
excellent guidance
 Recommend a revision of Southwest’s Mission
Statement
 Southwest lacks a visible Vision Statement

4. Competitive Assessment
The
Competitive
Southwestern American Airlines JetBlue AirTran
Profile Critical Success Factors Weight Rating Score Rating Score Rating Score Rating Score
Matrix Advertising 0.05 3 0.15 3 0.15 2 0.1 2 0.1
demonstrate Cost Structure 0.2 3 0.6 2 0.4 3 0.6 2 0.4
s how Service Quality 0.1 3 0.2 3 0.3 2 0.2 1 0.1
Southwest is Contracted Airports 0.1 3 0.3 3 0.3 2 0.2 2 0.2
rated in Price Competitiveness 0.15 4 0.6 3 0.45 3 0.45 3 0.45
Management/Culture 0.2 4 0.8 2 0.4 3 0.6 2 0.4
Critical
Financial Position 0.15 4 0.6 3 0.45 2 0.3 3 0.45
Success Market Share 0.05 3 0.15 3 0.15 1 0.05 1 0.05
Factors in Total 1 3.5 2.6 2.5 2.15
comparison The rating refers to strength and weaknesses: 4 = major strength, 3 = minor strength, 2 = minor weakness and 1 = major weakness.
with other
airlines.

5. Internal Assessment
Key Internal Factors
Opportunities Weight Rating Score
The Internal 1 Ticket Price Restructuring 0.025 3 0.075
2 Existing Capacity Potential 0.1 3 0.3
Factor 3 Strong Presence in Low Fare Market 0.15 4 0.6
Evaluation 4 Ability to shift from Agency to Booking/Merchant Model 0.025 2 0.05
5 One fleet/engine type 0.1 4 0.4
shows 6 High Service Quality 0.05 4 0.2
several 7 Strong Credit Rating 0.1 4 0.4
strong 8 Financial Ratios 0.1 3 0.3
Opportunitie Threats Weight Rating Score
s and 1 Labor/Union Strike 0.025 2 0.05
2 Competitive Price Movement Response Ability 0.05 1 0.05
relatively 3 Lack of International Presence 0.1 1 0.1
weak 4 Strong Dependency on Fuel 0.15 1 0.15
5 Small Market Focus 0.025 2 0.05
Threats. Total 1 2.725
The rating refers to strength and weaknesses: 4 = major strength, 3 = minor strength, 2 = minor weakness and 1 = major weakness.

6. External Assessment
Key External Factors
Opportunities Weight Rating Score
The External 1 Increased Domestic Travel 0.1 3 0.3
Factor 2 Increased International Travel 0.05 2 0.2
3 Integrated Consumer Technology 0.05 2 0.1
Evaluation 4 Aircraft Purchase Flexibility 0.1 4 0.4
shows few 5 Commercial Leases 0.05 2 0.1
6 Increased Commercial Freight Demand 0.05 1 0.05
strong 7 Increased Business Travel Demand 0.1 2 0.2
Opportunitie
Threats Weight Rating Score
s and
1 Increased Competition/new upstarts 0.05 2 0.1
several 2 High Fuel Costs 0.15 4 0.6
significant 3 Governmental Regulation/Cost 0.05 3 0.15
4 Competitor Alliances 0.1 2 0.2
Threats. 5 Economic Downturn 0.1 3 0.3
6 Terrorist Activity 0.05 2 0.1
Total 1 2.7
The rating refers to strength and weaknesses: 4 = major strength, 3 = minor strength, 2 = minor weakness and 1 = major weakness.

7. Financial Analysis
2008 Profitability Highlights 2008 Debt Highlights
 Year-over-year revenue  Southwest’s1.0 current
growth of 11.8% is ratio is on par with the
considerably above the Major industry average
Airlines Sub-Industry average
of 8.5%.  Debt-to-capital of 22.8% is
 Gross margin of 34.37% is far below the industry
above the Major Airlines Sub- average of 73.8%. The
Industry average of 28.9%. five year average of 20.8%
is also far lower than the
 Net margin of 1.61% is below industry average of 65.9%.
its five-year average of 5.1%.
 ROE of 3.6% ranks 3 out of  Debt to equity ratio of
11 within its Major Airlines 188.8%
Sub-Industry

8. Financial Analysis
2008 Investor Analysis 2008 Cash Highlights
 Earnings per Share of  Substantial liquidity in
$0.24 the form of cash on
hand of $1.4 billion at
 Price/Earnings Ratio of the end of 2008
35.92  Enviable cash ratio of
 Dividend Yield of 2.09% 0.64
 Book Value per Share  Low Days' Sales in
of $6.13 Receivables of 6.92
 Degree of Financial  High Days' Sales in
Leverage of 1.38 Inventory of 10.24

9. Strengths & Weaknesses
Strengths Weaknesses
 Low Fare Leader  Small Market Focus
 Strong Culture  Fuel Dependency
 Aircraft  Limited Fare
Purchase/Lease Flexibility
Flexibility  Serves only 64
 Profitable Domestic Cities in 32
 Capacity Potential States
 Fuel Hedging  Lack of Discount
Internet Provider

10. Opportunities & Threats
Opportunities Threats
 Price Restructuring  New Upstarts
 Strong Presence in Low  Increased Fuel Costs
Fare Market  Governmental
 International Expansion Regulation Costs
 Domestic Expansion  Economic Downturn
 Ability to Shift from  Terrorist Activity
Agency to  Competitor Market
Booking/Merchant Expansion
Model
 Competitor Alliances
 Future Increase in
Demand

11. SWOT Analysis Review
 SWOT Analysis identified 3 possible strategies
 Merger or Acquisition
 Financially Strong
 Strong Culture
 Industry Best Low-cost Business Model
 Foreign Markets
 International Expansion
 Latin and South America
 Differentiation
 Business Travelers & Higher Net Worth Customers
 Internet Booking System
 Amenities – Aircraft Purchase/Lease Flexibility

12. Strategic Recommendation
 Differentiation strategy targeting business
travelers and higher net worth travelers
 Utilize 71.2% load factor to increase amenities
 Increased legroom
 Head-rest LCD TVs
 Expanded internet and phone services
 Website can currently cater to business travelers
 Aircraft purchase flexibility
 Retrofit current fleet
 Full implementation – 3 year process

13. Financial Forecast
 The following assumes implementation of
recommendation:
 2009 – Flat revenue & net income when compared to
2008
 2010 – Economic relief and increased travel activity
should spur $12 billion in revenue and $500 million
net income
 2011 – Steeper rise in revenue and net income due to
higher percentage of business travelers to $13 billion
and $600 million
 2012 – Implementation of plan fully realized with $15
billion in revenue and $725 million net income

14. Thank you for your valuable time
Joshua Sigmon
April 26th, 2009