This website uses cookies to ensure you have the best experience. Learn more

Southwest Airlines Case Essay

707 words - 3 pages

Matthew Catan
September 22, 2015
ACC 380K | Smith
Cash Flow Analysis

1. Prepare a table comparing the following metrics for Southwest Airlines for the years 2007 - 2009. Use reported numbers from the 2009 10-K.

Southwest Calculations Year
2009 2008 2007
A Revenue $10,350 $11,023 $9,861
B Operating profit margin 2.53% 4.07% 8.02%
C “Net” profit margin 0.96% 1.61% 6.54%
D Accounts Receivable days 6.67 8.08 9.62
E Inventory days 9.51 9.82 11.10
F Trade creditor days 31.72 30.32 35.36
G Return on assets 0.70% 1.15% 4.27%
H Return on common equity 1.90% 2.99% 9.63%
I Cash Flow From Operations $985 -$1,521 $2,845
J Cash Flow From Investing -$1,569 -$978 -$1,529
K Cash Flow From Financing $330 $1,654 -$493

2. Briefly describe the cash generation / usage activity of Southwest over this same time period.

From analyzing the statement of cash flow we get a good picture at Southwest’s cash usage over the three-year period. ...view middle of the document...

In 2009 Net income continued to suffer but the Cash collateral provided to fuel derivative counterparties resulted in a significantly smaller loss then the previous year (96% less). This $2,000 less loss contributed to the positive gain from operations.

Investing Activities
In the three year financial period covered for Southwest a major economic recession occurred. We see Southwest investing roughly 30% less each year back into PPE. This can be viewed as a negative point because Southwest generates all of it’s revenue directly from it’s fixed assets (Planes) and if they are not re-investing into their main revenue driver it is hard to continue to grow sales.

Financing Activates
The main outlier seen in Southwest’s Financing section is in 2008. When the recession occurred southwest issued 100% more debt then the year prior (2007). The reason for this was because net income took such a hit (74% decrease) that they had to keep operations going by taking on more debt until business operations recovered and Net Income rose back to normal levels.

3. Describe the environment that Southwest is operating in and the reasons for the changes in cash generation / usage over the time period.

Southwest is operating in a very tough environment during this time period. Oil prices start at $65 dollars a barrel in 2006 and rise all the way up to $140 a barrel by mid 2008. Then in mid 2008 Oil prices come crashing from $140 to $43 a barrel at the start of 2009. This volatility is very bad for a company like Southwest that has a huge portion of it’s operating cost tied to the price of oil. This is why we see a huge loss in the derivative hedging line in the Operating Cash Flow Statement. Also, the economy was in a major recession due to failure of many mortgagee-backed securities. As people’s discretionary income was eaten away they began to only spend money on necessities, airline flights not being one of them. The major drop in Operating and Net Income is evidence of this decrease in customer flight purchases. Also, we see Southwest having to issue 100% more debt then usual to keep operations afloat. They also do not have the funds to invest as much CAPEX as they normally do. Overall, they are operating in a very tough environment between the recession and the volatile oil prices.

Other Papers Like Southwest Airlines Case

Southwest Airlines Case Study

1337 words - 6 pages STRATEGIC MANAGEMENT (MGT431) GUIDELINES FOR THE WRITTEN STANDARDIZED CASE ANALYSIS Overview and Background The introduction of your paper should acquaint the reader with the company being analyzed and demonstrate your ability to succinctly describe the company from a historical perspective. Take this opportunity to highlight key factors and past strategies, which have led the company to its present position. It is important for you

Southwest Airlines Marketing Case Essay

919 words - 4 pages Caso Southwest Airlines 1.Southwest ha dominado el modelo de bajo precio y tiene los resultados financieros para probarlo. ¿Por qué no los de otras compañías aéreas copiar el modelo de Southwest? Southwest es una compañía aérea de bajo costo que se enfoca en un servicio rápido y sencillo, y sin lujos. Nunca ha servido comidas, no tiene reservas de asientos avanzadas, y vuela sólo aviones Boeing. Estas decisiones han ayudado Southwest ser

Case Study of Southwest Airlines

4102 words - 17 pages Week- 3 Case study On Components of Multinational Environment- Bangladesh Submitted by: Niraj Kharel MBA 4th trimester Business Strategy Introduction Bangladesh is emerging as a country capable of producing advanced products like pharmaceuticals, ships and electronics. The world’s eighth largest country in terms of population with approximately 160 million inhabitants will most likely remain heavily dependent on labor-intensive and

Southwest Airlines

2899 words - 12 pages Southwest Airlines Case Study: History and Analysis   | | | |[pic] | |Southwest Airlines Case Study  | |Thousands of people travel by air; Southwest Airlines provides low-fare air transportation service among 58 cities in the

Southwest Airlines

741 words - 3 pages Introduction:Southwest Airlines Corporation was incorporated in Texas in 1971 with only three Boeing 737 aircraft's and gradually expanded to 417 Boeing 737 jets that drive the company to success. Southwest provides services to 60 airports in 31 states throughout the United States competing with airlines such as United, American, Delta and JetBlue. Southwest Airlines prides themselves as the nation's low-fare and high customer satisfaction

Southwest Airlines

1074 words - 5 pages Submitted By: Group G2 ------------------------------------------------- SOUTHWEST AIRLINES 2008 ------------------------------------------------- (Case Analysis) Problem Statement: How can Southwest Airlines maintain its low cost leadership in the industry by making the strategy sustainable against the competitors that are emerging strong without compromising on the quality of customer service? External Analysis: Pest Dimensions

Southwest Airlines - 1508 words

1508 words - 7 pages Running head: VALUES AND ETHICS: SOUTHWEST AIRLINES Values and Ethics: Southwest Airlines University of Phoenix Management 521 Abstract Personal values and organizational values are important concerning decisions for any company. Those values and the decision-making style of one team member, based on the Williams Institute Ethics Awareness Inventory Assessment, correlates with the organizational style of Southwest Airlines, as

Southwest Airlines - 729 words

729 words - 3 pages Southwest in Baltimore case questions:  Issue at Hand: Baltimore is one of the eight mega stations for Southwest Airlines. The airline plans to expand operations there, rapidly. But the operational performance at Baltimore station is lagging behind the system-wide average of the airline. The challenge is to overcome this impediment so that the station can accommodate additional growth as planned. 1. How does Southwest airlines (SWA

Southwest Airlines Paper

904 words - 4 pages they are known for, but to still appeal to their client base over other airlines. Southwest also faces a number of internal changes as well. A number of the highest ranking executives as well as the CEO are no longer with the company. This change, in particular, has had the greatest effect on Southwest’s organizational culture. As new and younger executives replace those founding members, the company’s focus begins to change (Southwest Airlines Case

Southwest Airlines: Leadership Matters

1391 words - 6 pages . References D’Aurizio, P. (2008). Southwest Airlines: Lesson in loyalty. Nursing Economics, 26(6), 389-392. Getz, I. (2009). Liberating Leadership: How the initiative-freeing radical organizational form has been successfully adopted. California Management Review, 51(4), 32-58. Jackson, W. T., & Jackson, M. (2009). Southwest Airlines: The next flight begins. Journal of the International Academy for Case Studies, 15(8), 59-70

Southwest Airlines Loves Bags

820 words - 4 pages Southwest Airlines Loves Bags Name Oklahoma Wesleyan University Executive Summary This paper discusses the case study in chapter seventeen on Southwest Airlines. The case study is titled, “At Southwest Airlines, “We Love Your Bags”. The case involves how Southwest Airlines promotes their brand and their services via various communications methods and advertisement campaigns. In this paper, we will discuss the case and create a

Related Essays

Southwest Airlines Case Study

830 words - 4 pages MBA 610 Case Study: Southwest Airlines Corporation 1. Southwest Airlines Corporation is an extremely popular and profitable company due to their strategy of being the nations’ low-fare, high customer satisfaction airline. Southwest is able to offer the nation’s lowest fares due in part to their low operating-cost structure, the lowest in the domestic airline industry. This low operating-cost structure (refer to Exhibit 1 for 5 year financial

Southwest Airlines Case Study

1671 words - 7 pages Case #20 – Southwest Airlines Marisa Melchiorre Amber Harrison Emeka Onyia Company History  1966 Rollin King approached Herb Kelleher’s law office with plan to start low-cost/lowfare airline  Ran into legal problems, rival airlines in Texas did everything they could to block new airline  Herb Kelleher was determined to start up airline  1971 – Lamar Muse Southwest CEO, background in industry to get it up and starting  Raised $7 million in

Southwest Airlines Case Study 739 Words

739 words - 3 pages Southwest Airlines Calsouthern University Introduction “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else (Sam Walton, 2015).” Millions of people fly everyday. Southwest airlines provide low-fare travel among 58 cities in the United States. Although the airline industry suffered greatly in the aftermath of September 11, Southwest was able to

Southwest Airlines In 2008 Case Analysis

3419 words - 14 pages boost the pay of teams and individuals. SOUTHWEST AIRLINE CASE ANALYSIS From its first flights on June 18, 1971, Southwest Airlines launched an era of unprecedented affordability in air travel described by the U.S. Department of Transportation as "The Southwest Effect," a lowering of fares and increase in passenger traffic wherever the carrier serves. With 41 consecutive years of profitability, Southwest is one of the most honored airlines in