Case Study: Southwest Airlines
Case Study:
Southwest Airlines
Jeremy Potter
Oakland City University
Introduction Southwest Airlines is one of the most successful airlines in the world. Their success comes from many different sources within the company. Today, most airlines are purely focused on growth, and tend to “nickel and dime” their customers to make up for profit losses. Southwest, on the other hand, has put an increased focus on their customers. They’re constantly striving to provide low ticket prices and excellent customer service. Southwest has been able to make a profit 39 years in a row. Even post 9/11 when most companies were filing for bankruptcy, Southwest was able to make a profit (Anonymous, 2010). Southwest’s managers have been able to do this by keeping costs low and making decisions different from other airlines. More specifically, Southwest Airlines has focused on CVP analysis, activity-based costing, budgeting, and responsibility accounting to keep their costs low.
CVP Analysis Cost-volume profit analysis is a vital tool in helping managers make decisions about how certain factors will affect profits. These decisions include what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to implement (Brewer, Garrison, & Noreen, 2013). Southwest Airlines decided to offer no first class seating. This allows for more seats on the airplane and better utilization. Also, Southwest only uses the Boeing 737 airplane in its fleet. Using only one type of plane cuts down on repair costs, keeps inventory costs down on parts, and cuts costs on training pilots and maintenance crews (Anonymous, 2010). The airline also decided to offer no in-flight meals to customers. Southwest flights are typically very short within the United States; therefore cutting out a meal can keep the cost of the flight low. Some customers want to fly internationally, but Southwest offers no international flights. International
Southwest Airlines
Jeremy Potter
Oakland City University
Introduction Southwest Airlines is one of the most successful airlines in the world. Their success comes from many different sources within the company. Today, most airlines are purely focused on growth, and tend to “nickel and dime” their customers to make up for profit losses. Southwest, on the other hand, has put an increased focus on their customers. They’re constantly striving to provide low ticket prices and excellent customer service. Southwest has been able to make a profit 39 years in a row. Even post 9/11 when most companies were filing for bankruptcy, Southwest was able to make a profit (Anonymous, 2010). Southwest’s managers have been able to do this by keeping costs low and making decisions different from other airlines. More specifically, Southwest Airlines has focused on CVP analysis, activity-based costing, budgeting, and responsibility accounting to keep their costs low.
CVP Analysis Cost-volume profit analysis is a vital tool in helping managers make decisions about how certain factors will affect profits. These decisions include what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to implement (Brewer, Garrison, & Noreen, 2013). Southwest Airlines decided to offer no first class seating. This allows for more seats on the airplane and better utilization. Also, Southwest only uses the Boeing 737 airplane in its fleet. Using only one type of plane cuts down on repair costs, keeps inventory costs down on parts, and cuts costs on training pilots and maintenance crews (Anonymous, 2010). The airline also decided to offer no in-flight meals to customers. Southwest flights are typically very short within the United States; therefore cutting out a meal can keep the cost of the flight low. Some customers want to fly internationally, but Southwest offers no international flights. International
References: Anonymous. (November, 2010). Southwest Airlines: Case Study in Managerial Accounting [Information Blog Post]. Retrieved from http://official- information.blogspot.com /2010/11/southwest-airlines-case-study-in.html Brewer, P.C., Garrison, R.H., & Noreen, E.W. (2013). Introduction to Managerial Accounting (6th ed.). New York, NY: McGraw-Hill.