Company Stock Project Write-Up
Southwest is one of the most growing domestic airlines along with JetBlue Airways and United Airlines. Southwest airline was first established in Texas in 1967. In the start of its business, southwest focused only in the Southwest region (that’s where the name came from). With 45 years of service, Southwest expands its company to the whole country with more than 3,400 flights each day. Southwest currently has a total capital of 10,991 million dollars. In 2011, it generated $15.7 billion dollars of revenue, and $178 millions of income. Southwest consolidated net income of $178 million in 2011 decreased by $281 million compared to its 2010 net income of $459 million. The results of this years’ performance were significantly impacted by high and volatile fuel prices. Jet fuel and oil consumed approximately 38 percent of the Company’s operating expenses, which constituted the largest expense incurred in 2011.
Operating expenses for 2011 increased by $3.8 billion, or 34.6 percent, compared to 2010. The increase in operating expenses was also due to the acquisition of AirTran with an amount of $970 million recorded in goodwill. The additional debt held by the Company in connection with the AirTran acquisition resulted in $26 million additional interest expense for 2011. The majority of the Company’s tangible assets are aircraft, which are long-lived. The Company's goal is to maintain a conservative balance sheet and grow capacity steadily and profitably. While the Company uses financial leverage, it strives to maintain a strong balance sheet and has a “BBB” rating with Fitch, a “BBB-” rating with Standard & Poor’s, and a “Baa3” credit rating with Moody’s as of December 31, 2011, which are considered “investment grade.” The Company’s 1999 and 2004 French Credit Agreements do not give rise to significant fair value risk but do give rise to interest rate risk because these borrowings were originally issued as...
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