Managerial Accounting Case

Topics: Airline, Southwest Airlines, ATA Airlines Pages: 19 (6132 words) Published: October 13, 2010
Case Study in Managerial accounting

Case 1:
Southwest Airlines

Part A : General Information

Company Name: Southwest Airlines Co.
Company is traded on the New York Stock Exchange trade market (NYSE) with symbol LUV. Corporate Headquarters are located at the physical address: 2702 Love Field Drive, Dallas, Texas 75235. Corporate Web Site:

Corporate Web Site for business travelers:

Industry Classification

Company operates in the Industrial Sector – Services, and Industry – Regional Airlines. According to the Standard Industrial Classification System (SIC), company belongs to the industry group 451: Air Transportation, Scheduled, and Air Courier, and particularly to the industry 4512: Air Transportation, Scheduled. Companies covered by this classification code are primarily engaged in furnishing air transportation over regular routes and on regular schedules, including air cargo carriers, scheduled and air passenger carriers, scheduled (DOL). According to the North American Industry Classification System (NAICS), Southwest Airlines relate to the Code 481111: Scheduled Passenger Air Transportation. Industry description per this classification is as follows: “This U.S. industry comprises establishments primarily engaged in providing air transportation of passengers or passengers and freight over regular routes and on regular schedules. Establishments in this industry operate flights even if partially loaded” (NAICS).

Industry Overview

The United States air carriers transport about one third of the amount of worldwide traffic, serving over 1.5 billion passengers a year. Over the past two decades, air travel has grown at an average of about 5% per year. In general, the annual air travel growth has been twice as much as the annual growth in GDP.

Productivity improvements and cost management have been two of the greatest concerns for US airlines, especially with sharp recent increase in the oil prices. As market competition keeps increasing, airline management is trying to improve productivity, using different methods to reduce unit costs, and increasing total network revenues without raising fares. Advances in computer and internet technologies have allowed for airlines to distribute their products to customers through an alternative method, striving to improve the overall performance efficiency (Mistry, Moy, & Owens, 2003). In 1978, the United States have "deregulated" their airlines. Before, the government dictated airfare, route networks, and other operational requirements for each airline in the very details. Since deregulation, airlines have been largely free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to charge airfares and supply flights according to the market demand. The entry barriers for new airlines were lowered in a deregulated market, and so the U.S. has seen hundreds of airlines start up. This has produced much higher competition than before deregulation in most markets, and average fares tend to drop 20% or more, stimulating new sources of demand (Aviation Explorer).

General Description of the Firm’s Operations, Organization, Products, and Markets

Southwest Airlines Co. runs as a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2007, the company operated 520 Boeing 737 aircraft and provided service to 64 cities in 32 states. Founded in 1966 and incorporated in 1967, Southwest Airlines is the world's third-largest airline by passengers carried and has been profitable every year since 1973. Actually, Southwest Airlines is the only major airline carrier to remain profitable in every quarter since 9/11, in comparison with competitors who have posted significant losses or even declared bankruptcy. The company was able to handle perfectly well the post-9/11 crisis situation and outperform all its competitors in almost all...
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