SOUTHWEST AIRLINES

Southwest Airlines



Southwest Airlines

Southwest Airlines (Southwest) is a domestic US airline that primarily provides point-to-point, low-fare services. The company operates only in the US. It is headquartered in Dallas, Texas and employs 34,378 people. The company recorded revenues of $9,861 million during the financial year ended December 2007, an increase of 8.5% over 2006.The increase in revenues was primarily due to increase in passenger revenues. The operating profit of the company was $791 million in 2007, a decrease of 15.3% compared to 2006. The net profit was $645 million in 2007, an increase of 29.3% over 2006. (Environmental Scan, 2008)

Environmental Scan

Southwest Airlines (Southwest) is one of the leading low cost airlines' in the US. The company provides scheduled air transportation in the US. Strong operating strategy enables Southwest to achieve high asset utilization and reliable ontime performance. However, rising aviation fuel prices could impact the company's margins.

Economic Factors

Firm operating strategy

The company focuses mainly on point-to-point service, rather than the hub-and-spoke service provided by major US airlines. Point-to-point service allows for direct nonstop routing by minimizing connections, delays and total trip time. As a result, 78% of Southwest's customers fly nonstop. As of December 2007, the company's average aircraft trip stage length was 629 miles with an average duration of approximately 1.8 hours.

Robust revenue growth Southwest has witnessed a strong revenue growth during 2003-07. The company's revenue grew at a CAGR of over 14% from $5,937 million in 2003 to $9,861 million in 2007, reflecting consistent growth in passenger traffic. During 2007, the company's revenues increased by 8.5% over 2006. The increase in revenues was due to 8.1% increase in passenger revenues.

Strong fleet operations

Southwest has a strong fleet base to complement its strong route network. During 2007, the company purchased a total of 37 new Boeing 737-700 aircraft, and added another two leased 737-700s, resulting in the addition of 39 aircraft for the year. As of December 31, 2007, Southwest operated a 520 Boeing 737 aircraft of which 86 aircraft were under operating lease and nine aircraft were under capital lease. The remaining 425 aircraft were owned by the company. Southwest is able to simplify scheduling, maintenance, flight operations, and training activities by operating only one type of aircraft, the Boeing 737. The strong fleet operations of Southwest help the company to attain a competitive advantage over its peers.

Political Factors:

Weak performance of freight division

The sales level of the freight division ...