This is a case study – case write up. It should address the key issues that pertain to the financial strategy and then make clear recommendations with as much support as possible. Max.: Three double spaces pages (not including exhibits) and include a cover page with my name, the date, the course number, and the title of the assignment (case name). Paper should be organized into specific sections: Background, Key Issues, Risk, Recommendations, and Detailed Support for Any recommendations. All footnotes and References MUST use the APA Format. Add one or two exhibits please. I am sending you a template to assist you with respect to format.
In 2013, Southwest Airlines (Southwest), was one of the largest US airlines, and based on number of passengers, one of the largest in the world. The company, unlike all of its major competitors, had been consistently profitable for decades and had weathered energy crises, the September 11 terrorist attacks and the 2008-09 recession. As the company entered its 42nd year of service, it was facing some major challenges.
Brief summary of analysis / situation encountered
The US commercial airline industry was permanently altered in October 1978 when the Airline Deregulation Act was signed. This sent airline fares tumbling and allowed many new firms to enter the market. This fostered competition and growth but also created a regional disparity in ticket prices and adversely affected service to small and remote communities. Airline workers generally suffered, with inflation adjusted average wages falling. About 80% of airline operating costs are fixed or semi variable, and the nature of the cost structure limited cost reduction opportunities. After the September 11, 2001, terrorist attacks, domestic airlines lost about $30bn. Other pressures on the industry included: 1) Customer Dissatisfaction with Airline Service; 2) Aircraft Safety Maintenance; 3) Debt Servicing; 4) Air Traffic Delays; 5) Environmental Regulations ; and 6) Open Skies Agreement.
Key Issues / Findings
Southwest began flying in 1971. It became one of the largest airlines in the US, and did not deviate from its initial focus of primarily short haul ( less than 500 miles), point-to-point flights, a fleet consisting only of Boeing 737s, high-frequency flights, low fares, and no international flights ( excluding AirTran route systems). Southwest was the only large airline to operate without major hubs. Relative to other major airlines, Southwest had a no-frills approach to services. It rarely offered delayed customers a hotel room or long distance telephone calls. It was the first national carrier to sell seats from an Internet site and was the first airline to create a homepage on the Internet. In 1995 Southwest was one of the first airlines to use ticketless travel. It was the only major airline with a frequent flyer program based on dollars spent by a passenger, not miles flown. Southwest bucked the industry trend by earning a profit for 40 consecutive years. However, its on-time arrival and departure record, for many years at the top of the industry, had declined in recent years. There is mention of the Southwest Spirit, which refers to staff personalities and approach to customer service. Southwest’s strategy spawned numerous imitators, most of which failed. One successful startup though, is JetBlue Airways which was led by the former president of Morris Air, an airline company which was patterned after Southwest and was the only airline Southwest acquired. Southwest grew steadily over the years but the growth was highly controlled.
In September 2010, Southwest announced that it would buy AirTran Airways for $1.4bn. This would give access to more than 30 new markets. The deal strengthened Southwest’s position in the Southeast and on the East Coast but integrating operations and culture could prove challenging, especially to ensure that the acquisition did not change or weaken the Southwest culture. In 2013, the integration was well under way and Southwest forecasted pre-tax annual synergies of $400m in the current fiscal year.
Conclusion / recommendation
Although Southwest was profitable and had a strong financial position, competition was stiff. The newly merged legacy carriers were expected to become more efficient, and smaller players had lower costs. While Southwest’s employee productivity remained high, its operating costs were rising. The company had among highest salaries in the industry. Would Southwest be able to maintain its position as America’s most prosperous airline? Could it complete the AirTran acquisition and still ensure that customer service and company performance were satisfactory? Could Southwest grow profitably in international markets? Would the major airlines learn how to compete with companies like Southwest and Jet Blue?
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In 20 I 3, Southwest Airlines (Southwest), the once scrappy underdog in the U.S. airline industry, was one ofthe
largest U.S. airlines and, based on number of passengers, one of the largest in the world. The compangig unlike
all of its maor corn etirors, had been consisrentl rofitable for decades and had weathered enet crises, the
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September 11 terrorist attacks, and the 2008-09 recession. An insight into Southwests operating philosophy can
be found in the con1pany’s 2001 annual report:
Southwest was well poised, financially. to withstand the potentially devastating harnrner blow ofSeprernber
1 1. X7liy? Because for several decades our leadership philosophy has been: we manage in good times so that our
Company and our People can be job secure and prosper through bad times… . .Onc:e again, alter September 1 1,
our philosophy of inan-aging in good times so as to do well in bad times proved a marvelous prophylactic for
our Employees and our Shareholders. Need a Professional Writer to Work on this Paper and Give you Original Paper? CLICK HERE TO GET THIS PAPER WRITTEN
As Southwest entered its 42nd year ofservice, the company was facing some major challenges. Legacy car-
riers in the United States had become more efficient, and the recent rnega-mergers involving Delta/Northwest,
Continental/United, and Arneric;mlUS Airways were shaking up the industry. Smaller companies like ]etBlue,
Alaska, and Spirit were pressuring Southwesfs cost advantage and low-iare focus- A major internal challenge for
Southwest would be managing its acquisition ofAirTran, a deal completed in 201 1. To make the acquisition a
success, the company wo uld have to integrate a Workforce of more than 8,000 (about 25% the site oFSouthw-est)
and manage a fleet of aircraft different from the Boeing 7375 used by Southwest.
The U.S. Airline Industry
The U.S. commercial airline industry was pei’tnai1ently altered in October 1978 when President Carter signed
the Airline Deregulation Act. Before deregulation, the Civil Aeronautics Board regulated airline route entry
and exit, passenger fares, mergers and acquisitions, and airline rates of return. Typically, two or three carriers
provided service in a given market, although there were routes covered by only one carrier. Cost increases were
passed along to customers, and price competition was almost nonexistent. The airlines operated as if there were
onl’_y’ two inarket segments: those who could afford to Hy, and those who couldn’t.
Deregulation sent airline Fares tumbling and allowed .rnany’ new firms to enter the market. The financial
impact on both established and new airlines was enormous. The fuel crisis of 1979 and the air traffic control-
lers’ strilre in 3 98! contributed to the industrfs difficulties. as did the severe recession that hit the United States
during the early 19805. During the First decade ofderegulation, more than 150 carriers, many of them start-up
airlines, collapsed into b-.tnkruptqr. Eight of the 11 niajor airlines dominating the industry in 1978 ended up
filing for bankruptcy, merging with other carriers, or simply disappearing from the radar screen. Collectively,
the industry made enough money during this period to buy two Boeing 7473.‘ The three major carriers that
survived intact-Delta, United, and Ainerican-ended up with 80% ol7aIl domestic U.S. air traffic and 67% of
1 P. S. Dempsey, “Transportation Deregulation: On a Collision Course,” Yiizmparnzrion ficzzujozmzrzl, 13, I984, p. 329. Need a Professional Writer to Work on this Paper and Give you Original Paper? CLICK HERE TO GET THIS PAPER WRITTEN
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