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Economic Analysis Of Southwest Airlines

4637 words - 19 pages

Economic Analysis of Southwest Airlines

Facilitator: James Young
MGT: 513 Managerial Economics
October 14,2012

Economic Analysis of Southwest Airlines
History of Southwest Airlines
History and Key Defining Moments
Southwest Airlines was founded in 1966 when a group of Texas investors pooled together 560,000 to form the Air Southwest Company, incorporated in 1967 the company was envisioned as a commuter airline serving the cities of Texas, Dallas, Houston and San Antonio. Although the Texas Aeronautics Commission (TAC), the body responsible for overseeing aviation within the state granted the company permission to fly the routes requested in February 1968, three competing ...view middle of the document...

In March of 1978, significant changes were made in southwest upper management, in August Howard D. Putnam a United Airline executive became president and chief executive officers.
In 1989, southwest annual revenues pass 1 billion, as a result the company enters the 1990’s as a major airline with a fleet of 94 planes serving 27 cities, relying on conservative financial management the company was able to avoid the pitfalls of debt that crippled many other carriers in the early 1990’s. In 2011, Southwest Airlines reached its 39th year of profitability lead by record operating revenues and load factors all while staying true to their low-fare philosophy. Southwest Airline reach a significant milestone on May 2, 2011, as they welcomed AirTran into their family, this contributed to the 29.4 percent year-over-year growth in revenues. The company earnings however did declined year-over-year due to a 34.6 percent increase in operating expenses driven largely by high jet fuel prices, to manage cost the company is focused on improving productivity and eliminating waste, the company still ended the year in a strong financial position with 3.1 billion in cash and short term investments.
In 2011, Southwest Airlines has the following achievements :
* Earned a net income of $178 million, despite rapidly rising fuel costs
* Excluding special items, the company net income was $330 million
* Achieved record operating revenues of $15.7 billion
* Achieved a record annual load factor of 80.9 percent
* Generated more than $400 million in free cash flow
* Placed first in the industry Customer Satisfaction ranking
* Expanded domestic market share to 25 percent a year ago

Technological Changes
Southwest has a longtime program to hedge fuel prices, the company has purchased fuel options for years in advance to smooth out fluctuations in fuel costs. The use of hedges help Southwest maintain its profitability during the aftermath of the September 11, 2001 attacks and the oil shocks related to the Iraq War and later Hurricane Katrina, as of 2005 Southwest is currently paying 50% of the market price for its fuel. A southwest airline also has a winglet program which began in 2007, and in 2010 the company will complete the installations of the winglets on the 102 eligible 737-300 aircrafts, overall the winglet program is responsible for an estimated annual fuel saving of more than 42 million gallons. Another successful fuel efficiency program is the installation of auto-throttle technology which has accounted for additional fuel saving of 67,000 gallons. As of March 2012, more than 200 of Southwest airlines aircraft offer Wi-Fi service on board and the company goal is to have the entire fleet enable in 2013.
Government Regulations
When airline deregulation came in 1978, Southwest began planning to offer interstate service from Love Field, this cause many affiliates with the Dallas Fort Worth Airport including the city to push the...

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