...Air Group and Southwest Airlines Co. | | 2/11/2012 | Introduction For the purpose of this paper, Alaska Air Group (ALK) is the subject of the primary financial analysis with the majority of comparisons made against Southwest Airlines Co (LUV). For financial purposes, the airline industry falls under the transportation sector, consisting of airlines, railroad, and trucking and characterized by the movement of people and products. For the purpose of this analysis, comparable airline carrier ratios are used. An enhanced look into the specifics of Alaska and Southwest’s financial statements and accounting methods explain their positioning in the airline industry and reflect their performance in recent years. Activities Alaska Airlines reported record earnings for the year 2010, with a $203 million improvement from 2009. A 9.8% increase in passenger traffic over the previous year drove the revenue increase (Alaska Air Group, Inc., 2011). Alaska also led the ten largest carriers in on-time performance for the year. For the third year in a row, it ranked highest in customer satisfaction among traditional network carriers, as listed by J.D. Power and Associates (Alaska Air Group, Inc., 2011). Challenges * The safety and financial results could be harmed in the event of an accident or incident * Changes in government regulations or restrictions could drive operating costs up * Security concerns related to the airline industry as a whole ...
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...Strategic Management Case Analysis: Southwest Airlines Southwest Airlines Co. (Southwest) is often cited as a success story in terms of strategic management. Southwest is a passenger airline that provides scheduled air transportation in the United States. Primarily, the company offers passengers low-fare, point-to-point air transport services in 72 cities in 37 states all throughout America (MarketLine, 2012). Southwest is headquartered in Dallas, Texas, and has about 45,392 employees as of FY2011. For FY2011, the company generated revenues of $15.658 billion, increasing by 29.4% over FY2010 (MarketLine, 2012). Southwest reported net profit of $178 million in FY2011. It must be noted that the airline industry is famed for its cut-throat competitiveness. However, since its inception in 1971, Southwest has been able to steadily rise to the top of airline rankings due to its Low Cost Leadership strategy (Muduli & Kaura, 2011); Box & Byus, 2009). Southwest also consistently offers on-time arrival that, combined with low-priced fares, makes it highly favorable for passengers. Southwest is able to achieve its strategy by using a linear, point-to-point network and does not have an airport hub (Tierney & Kuby, 2008). As a result, the company’s aircraft are seldom idle while its competitors spend prolonged idle time while passengers switch planes at the hub (Tierney & Kuby, 2008). Because of the impact of this strategy on passengers and the industry as a whole, competitors tend to...
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...------------------------------------------------- SOUTHWEST AIRLINES 2008 ------------------------------------------------- (Case Analysis) Problem Statement: How can Southwest Airlines maintain its low cost leadership in the industry by making the strategy sustainable against the competitors that are emerging strong without compromising on the quality of customer service? External Analysis: Pest Dimensions | Effects on the case | Political | * 9/11 Attack, Ongoing war in Iraq, 2003 SARS epidemic affected the industry but Southwest was affected the least | Economical | * High Fixed Costs * Constantly changing fuel expenses | Social | * Strong commitment towards customer service * Hiring based on the attitude not on the experience | Technological | * Constantly emerging technologies has enabled frequent traveling among people * Enabled online ticket booking through website launch. | Legal | * Won legal battles against the competitors in the US courts twice * Bankruptcy protection filed by various Airlines | Environmental | * Other airlines were now out of bankruptcy with lower costs and higher efficiency. | SWOT Analysis: Strengths | * Point to point flight system * Low turnaround time of 15 min while the industry average was 45min * First movers in the online presence with a website of their own and in 2007 they accounted for 74% of their tickets booked online * Low prices * Customer centric behavior made the Southwest airlines stand out with fewest...
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...Case Study 1: JetBlue Airways IPO Valuation 08 Fall AFF5300 Case Studies in Finance- March 2013 Executive summary This report examines the decision of JetBlue management to price the initial public offering (IPO) of JetBlue Stock on the April 2002, a few months after the terrorist attack in September, 2001. First, the paper provided a brief introduction to JetBlue Airways and its industry. This paper revealed JetBlue’s innovative strategy and the associated strong financial performance over its initial two year. It followed by, a discussion on the advantages and disadvantages of going public (IPO) for JetBlue. The paper later provided an insight analysis of the company comparison multiples valuations (EBIT and PE multiples valuations) and the discounted cash flows to value JetBlue’s share price. It reached a conclusion that JetBlue Airways IPO should be in a range of $25 to $26 per share. By: Tam Huynh (24675512) Contents 1.0 Introduction 2 2.0 The Airline Industry and JetBlue 2 3.0 JetBlue’s Going Public 2 3.1 The Advantages of going public 3 3.2 The Disadvantage 3 4.0 JetBlue’s Valuation 3 4.1 The comparable Companies Analysis 3 4.1.1 P/E Multiple 3 4.1.2 EBIT Multiple 4 4.2 Discounted Cash Flow Analysis 5 4.2.1 Weighted Average Cost of Capital 5 4.2.2 Discounted Cash Flow Share Price Valuation 5 5.0 Recommendations and Conclusions 5 References 7 1.0 Introduction The terrorist attacks of September 2011 had a severe...
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...FInTHE ROLE OF OIL FUTURES IN RISK MANAGEMENT From: To: Senior Management - Airlines Company November 2011 0 University of Westminster - Westminster Business School International Risk Management COURSEWORK THE ROLE OF OIL FUTURES IN RISK MANAGEMENT Student: Student ID: Course: Word count: MSc. Finance and Accounting 2557/2617 1 EXECUTIVE SUMMARY In the world today, oil is being used as the main source of energy for a lot of core industries. Due to its non-renewable characteristics and the global rising demand, oil has increased in its value, which results in many oil price crises recently. For all those industries using large amount of oil in operation, the risk of rising oil price is an extensive problem. The most efficient method to hedge against this risk is by using oil futures contracts. Because of its effectiveness, oil futures contracts are playing a key role in risk management for a number of industries including transportation and manufacturing. This report provides principal knowledge about oil futures and its role in hedging the risk of oil price volatility. A case study of US airline industry with most updated data obtained from Bloomberg system is also discussed, which suggests the effectiveness of oil futures in risk management for most airlines companies. However, in some case, the inflexible use of oil futures may create a burden in financial costs while not producing effectiveness in risk hedging. 2 TABLE OF CONTENTS LIST OF...
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...Milestone One Analysis: Business Case and Discovery of Southwest Airlines Jacqueline L. Gholar GM543-01(1505D) Organizational Diagnosis and Design August 25, 2015 Professor Rebecca Herman Rebecca Herman, Ph.D., MBA, BS. Milestone One Analysis: Business Case and Discovery of Southwest Airlines Introduction Southwest Airlines has a complex organizational structure comprised of several multi-divisional structures. These structures are constructed on increasing horizontal and vertical differentiation, as well as customer relations as a service driven business (Dearinger, R., 2010). Southwest’s business strategy from its launch in 1971 encompassed four core competencies, which are; “the lowest operating costs per plane; an economical point-to-point airport network; a fanatical culture focused on customer service and cost savings, and an ability to keep planes in the air more of the time than its competitors” (Heller, I., 2008). For the past 40 plus years Southwest has exceedingly accomplished these competencies and strategies within a very competitive market, and has outstandingly been recognized as a low cost provider in airfare with frequent service domestically. In 2014, Southwest chose to integrate international flights in its business strategy. In an effort to identify issues and develop solutions for this new integration, clarifying strategic priorities and providing the company’s strengths and weaknesses will aid in supporting the use of the Strategy Canvas...
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...reoccurring external environment factors affecting Southwest Airlines and the entire airline industry. “Southwest management fully understood that low fares necessitated zealous pursuit of low operating costs and had, over the years, instituted a number of practices to keep its cost below those of rival carriers” (Southwest Airlines in 2008, Case 23). Southwest Airlines has and continues to utilize various methods to overcome these obstacles. One method is fuel hedging and derivative contracts. Southwest began using fuel-hedging strategies, in 1998, to reduce their volatility to fluctuating fuel costs. “Southwest’s oil-hedging prowess has made it the master of the airline universe…locked in low cost fuel prices in advance” (Southwest’s hedge on fuel backfires, 2011). In the past, this has been tremendous savings for Southwest. However, when crude oil prices drop to $69 per barrel, Southwest paid higher prices for their fuel because they are locked into derivative contracts. According to the case, the derivative contracts are over twenty percent for 2011/2012 for roughly $76 - $77 per barrel. “The company was hit with its first quarterly loss in two years…Southwest lost money on its fuel hedges—future purchases of gas for its jets” (Southwest fuel hedge misstep, 2011). Assuming fuel prices continue to decline, Southwest does not have any alternatives solutions in place to combat their derivative contracts. Analysis and experts in the industry have stated this is a “temporary...
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...The Airline Industry: A Strategic Overview of Southwest Airlines Terra Thompson Ohio Dominican University Running head: SOUTHWEST AIRLINES 1 The Airline Industry: A Strategic Overview of Southwest Airlines Terra Thompson Ohio Dominican University SOUTHWEST AIRLINES The Airline Industry: A Strategic Overview of Southwest Airlines Table of Contents 2 The History of Southwest Airlines ................................................................................................. 3 Target Market and Business Model ................................................................................................ 3 Current Product............................................................................................................................... 4 Southwest’s Culture ........................................................................................................................ 5 Mission Statement .......................................................................................................................... 5 Mission and Corporate Culture....................................................................................................... 6 Employees and the Mission ............................................................................................................ 7 The Importance of the Mission Statement and Corporate Vision................................................... 7 Strategic Analysis .................
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...Culture/Leadership Actions Corporate Culture/Leadership Actions for Strategy Implementation Veronica M. Peterson Strayer University Strategic Management - Bus 599 Dr. Donny Bagwell June 14, 2010 Southwest Airlines Discuss the corporate culture at Southwest Airlines and how it leverages its culture to achieve a competitive advantage. Southwest Airlines culture has set them apart from other airlines and companies. Their culture is living the Southwest Way, which means one must have a warrior spirit, a servant’s heart and a fun-LUVing attitude. Another important company value is getting excellent results, which includes: focusing on safety, low cost, and high customer service delivery. Also, demonstrating integrity in all actions: being honest, ethical and trustworthy. They define their culture as the development, improvement, and refinement of the originality, individuality, identity, and personality of a given people. (Southwest) They operative principle is that the “employees come firs and customers come second.” The culture that Southwest Airlines have is the basis for their labor relations, customer service and organizational flexibility. One excerpt from Southwest's "The Book on Service: What Positively Outrageous Service Looks Like at Southwest Airlines" is rather instructive: "'attitude breeds attitude...' If we want our customers to have fun, we must create a fun-loving environment. That means we have to be self-confident enough to reach out and share...
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...SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 1 Southwest Airlines Fuel Hedging and Relations to Profitability A Case Study in Cost-effective Fuel Management SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 2 Abstract In order to stay airborne, a passenger airline has to consistently generate profits. Profits come only from paying passengers, hence all stratagems must be customer oriented. In a scenario where there are many airlines competing with each other, one way of attracting passengers is to keep the cost of flying low, while providing value for money. On the other hand, expenses must tightly controlled to reach and stay at the lowest possible. Certain expenses are unavoidable; however, one variable that can be kept low through decisive planning and foresight is the cost of fuel, which, at best, can be called volatile. A good way to achieve this is by hedging fuel cost, which is a complex, but rewarding process, as Southwest Airlines proves beyond doubt. SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 3 Southwest Airlines Company: A Case Study in Managing the Cost of Aviation Fuel Introduction: Southwest Airlines Company, an American low-cost airline is the third largest airline in the world as well as the U.S.A. by the number of passenger aircraft among all of the world's commercial airlines (Arlene Fleming, About.com Guide; nationsonline.org), operating more than 540 Boeing 737 aircraft today between...
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...Southwest Airlines Case Study Jared G. Sanders BUSN412 Business Policy April 1, 2012 SOUTHWEST AIRLINES WWW.SOUTHWEST.COM AIRLINE INDUSTRY BACKGROUND /HISTORY/ COMPANY TIMELINE: Southwest, founded by Rollin King and Herb Kelleher, began as a small Texan airline almost 35 years ago and has grown to become one of the largest airlines in America. It was created on the following premise: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline!” (www.southwest.com). Today Southwest Airlines flies more than 70 million passengers a year to 60 great cities all across the country, and they do it more than 3,000 times a day. They have 436 of the newest jets in the nation, with each plane being an average age of 9 years. (www.southwest.com). Southwest’s combination of low fares, outstanding customer service, and strong leadership have helped the airline remain profitable even in the midst of tragedies like the terrorist attacks on September 11, 2001. SWOT ANALYSIS: Southwest was set up for success from the beginning because of its unique upside-down organizational structure. Upper management is at the bottom and supports the front line employees, who are the real experts. Kelleher’s unorthodox leadership style, in which everyone in the company makes management decisions, is largely unheard of these days. The company doesn’t...
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...| Southwest Airlines Co. | Organizational Commitment and Communication | | | | Southwest Airlines, Co is according to Fortune magazine one of the best places to work for. The Company’s mission statement is "The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit." (Southwest.com) Southwest believes that their mission statement has led the way to the best cumulative consumer satisfaction record, according to statistics published by the U.S. Department of Transportation. They have the fewest customer complaints, and they have the most satisfied employees, their turnover ratio is less than 10% (D’Aurizio, 2008). Communication and Leadership play a critical role in any organization and Southwest Airline is not the exception. These two factors are crucial to their success. In this paper, I will discuss the role of organizational commitment and communication within Southwest Airlines. Specifically, I will discuss how the various sources of power and leadership styles impact the organization as a whole. Also, I will discuss the motivational theory that I believe fits best with Southwest’s current culture and how the organization communicates the motivational theory to its employees. Finally, I will take a look at the commitment of the employee and how they respond to the organizations attempt to motive them. Organizational Commitment and Communication ...
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...Issue/Decision Despite its industry-leading position, Southwest Airlines was facing new challenges in mid-2008 which threatened its annual growth potential. Historically, Southwest’s seat availability grew at a rate of 5-10% each year; however, 2008’s projected growth was limited to 3% year-over-year. This is a direct result of strengthened competition which weakened Southwest’s competitive advantage, the onset of an economic recession, a high fixed cost structure with high operating costs—particularly fuel which consumed 31% of the total operating costs—and overall market saturation. Strategic Framework Southwest Airlines was built with a strong cost-leadership strategy, focusing on domestic, short-haul (under 500 miles), point-to-point flights (not “hub-and-spoke” network like competitors), using only one type of aircraft and offering a “no frills” approach to service. Its operating efficiencies enable high frequency flights with quick turnaround times. Like all airlines, Southwest faced challenges with the market environmental factors. The industry is notorious for its high fixed-cost structure. With 80% of operating costs fixed, there are limited cost reduction opportunities, which make it low profit-potential industry. The airline industry was faced with pressures of customer dissatisfaction with airline services, increasing costs for aircraft safety maintenance, debt servicing, increased air-traffic delays, financial pressures encouraging mergers, and increased...
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...Southwest Airlines: Leading Success Stephanie Pena Communication for Accountants/ COM530 July 14, 2014 Brent Smith Southwest Airlines: Leading Success Leadership, motivation, and workforce commitment are key building blocks within an organization. In a successful organization, these building blocks are connected and held together with the effectiveness of communication. Organizations develop their respective cultures through communication among leadership and with all employees, regarding their mission, values, and goals (Robbins & Judge, 2011). Leaders, both formal and informal, use communication within an organization as a means to motivate others, and to develop loyal and trustworthy employees. Such an organization is Southwest Airlines, whose company culture has been characterized over the years as having unique leadership and communications style. The style of leadership that exists within the organization sets the tone for the types of communication that are not only effective but are also motivational to its workforce. Analysis of Leadership Leadership is broadly defined as the ability to influence a group toward the achievement of vision or set of goals (Robbins & Judge, 2011). While no two people will lead in exactly the same manner, early research conducted by psychologist Kurt Lewin states that there are three basic leadership styles. The basic styles of leadership are (1) authoritarian, (2) participative and (3) delegative leadership (Cherry, 2014)...
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...4315*2 Team 4 Strategic Profile and Case Analysis Purpose In the airline industry competitors have to work hard to maintain market share and even more to increase their share. Southwest Airlines has become the market share leader in terms of passengers carried with the simple strategy: “low-cost/low-price/no-frills.” They have done an excellent job in implementing and executing their strategy elements. Some of the most crucial executions in the Southwest strategy are their point-to-point scheduling of flights, customer service and customer satisfaction, and appreciation of employee involvement for continuous company improvement. Although many other airlines can implement the same strategic elements as Southwest has, they would still be behind the times since Southwest has been working efficiently from inception. Throughout this analysis of their performance, one may conform his or her own opinion on how to grade Southwest with the information provided. Alternative strategic suggestions will be evaluated with a preferred alternative choice that could improve the Southwest image and performance. Situation Analysis General Environmental Analysis Until the Airline Deregulation Act of 1978, the government had control over airline fares, routes, and market entry. But since Southwest's initial plan was to fly only intrastate routes, they did not have to come under the regulation of the Civil Aeronautics Board. Southwest did, however, encounter some legal and regulatory...
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