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
