Profit Analysis of Southwest Airline

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SOUTHWEST AIRLINES

Presented by:

Allan Abutin
Rick Boone
Peter Bond
Bethany Lam
Phuong Nguyen

A. EXECUTIVE SUMMARY

Southwest Airlines has been serving its customers since 1971 and has focused its business on convenience, customer service and low-cost flights. From the outset, the two founders were dedicated to success and the company has taken many steps since then to accomplish this. Through the use of technology, strategic placement of travel routes and keeping the business person in mind, Southwest has continued to succeed even when the economy would project otherwise.

The following information will give you a history of Southwest Airlines and the airline industry, an overview of their business strategy, a financial analysis covering the past four years, a valuation of the company’s stock and a recommendation to purchase the stock.

B. ANALYSIS OVERVIEW

I. Company Background

Southwest Airlines is one of the most well-known and recognized names in the airline industry today. Known for its inexpensive, yet efficient flights, Southwest has set a business model that many airlines attempt to imitate. In 1971, Rollin King and Herb Kelleher joined to create a unique airline company. At the roots, their idea was to provide people with an airline who was the cheapest, got their passengers to their destination on time, and gave good service on the way. That first year, Southwest Airlines began service between San Antonio, Houston, and Dallas. They furthered their great service outside of Texas 1979, when they introduced service from Dallas to New Orleans. As they began to purchase more and more aircraft, Southwest became more popular. This was evidenced by their continued growth to major cities. In 1982 service began in Los Angeles, San Francisco, San Diego, Las Vegas, Phoenix, and Kansas City. 1987 marked the sixth year in a row that Southwest Airlines was the recipient of the Best Consumer Satisfaction Award of any U.S. Carrier. 1989 had another major accomplishment for Southwest Airlines. They reached the $1 billion revenue mark and became a “major” airline.

The company continued to blossom and did not slow down with the internet boom. In 1996, Southwest debuted southwest.com, showing their ability to adapt as a company and continue to make flying more convenient for their customers. Soon after, customers were able to search, reserve, and pay for tickets on Southwest’s website. They continued to make flying the best experience possible and that tradition continues today.

By 2009, more than 104 million passengers fly Southwest Airlines every year to 64 different cities across America, more than 3,400 hundred times per day. This is an amazing feat that all started 38 years ago by two men with a vision and a work ethic to accomplish their goals.

Gary Kelly is the current Chairman of the Board, the Chief Executive Officer, and the President for Southwest Airlines. Along with those titles, he is the second highest share holder for the company as he holds 146,019 shares of stock. This amount of stock is second only to Herb Kelleher, one of the founders of Southwest Airlines. He currently owns 2,774,457 shares of Southwest Airlines stock.

II. Business Competition

For a company with great pride and a passion for customer satisfaction, comes several competitors. Southwest Airlines faces several different types of competition. The most direct competition is other Airlines who are constantly looking for an advantage in the market. The big players are AMR Corporation, Delta Airlines, JetBlue, and Continental Airlines. These companies all have reputations of being reliable trustworthy, which means Southwest is forced to stay innovated in their business plan, practices and prices.

In addition, there is indirect competition, such as driving, bus and train travel. In our current economic situation, customers will look outside of comfort and travel...
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