Southwest is an impressive organization because it’s the most flown airline within the United States and has been consistently profitable (Northouse, 2009). Southwest is ranked 205 in the Fortune 500 and their profits in 2011 were 459 million which exceeded their 2009 profits of 363.6 million (CNNMoney, 2011) Against industry problems and business pressures-air-traffic congestion, merger of rivals, stricter government regulations regarding aircraft safety and maintenance, and mounting customer dissatisfaction with airline service, Southwest has managed to continue climbing to the top. The company strategy from day one was to be an airline that pursued a low-cost/low-price/no-frills strategy. This strategy opened their market segment to a larger portion of the U.S population and gave the company their tag line “The Freedom to Fly” (Northouse, 2009). Southwest also known as “the love airline” first took flight in 1971. Herb Kelleher, initially a lawyer retained by the airline to get it off the ground, was running the place by 1978. The airline was initially known for sexy flight attendants in hot pants to gain attention before it became the leader in low cost fares. "You can have a low-cost carrier and people still don't fly it because they don't know about it," Kelleher said. "And so, the schtick kind of fit in with getting known" (CBSNEWS, 2012). The airline now employs 34,000 people, services 64 different facilities, owns 500 planes, and is the nation’s sixth largest airline. Southwest has also been known for turning flights around fast which came about by accident when they had four planes and sold one just to stay in business. "And they went out to the ground ops folks and said, 'Guess what? We're gonna maintain the same schedule that we had with four aircraft now with three aircraft,'" said Kevin Freiberg, who co-wrote a book on Southwest with his wife, Jackie. "And of course, everybody said, 'How are you gonna do that?' He said, 'Well, you're gonna have to turn an airplane in 10 minutes' and of course the average turn-around time at that point was more like 45 minutes or an hour" (CBSNEWS, 2012). Southwest is currently averaging 23 minutes to turnaround their planes while other airlines are taking twice as long. The relationship between the company and its employees has come to be known as the Southwest culture and has been the key element to the success of the company. "In the majority of businesses that are truly successful today, they've got a really definitive cause that everybody rallies around and believes in and serves toward, and works hard for. I think that's critical and Southwest got that 34 years ago, Jackie Freiberg said” (CBSNEWS, 2012). The Southwest spirit and company culture is committed and engaged to providing good customer service. They also have done a first-rate job of employee selection, training and motivation. Employees strive to create customer satisfaction and are encouraged to have fun while doing it. “The mission of Southwest Airlines is dedicated to the highest quality of customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” (Southwest Airlines Co, 2012). The key elements of Southwest’s culture is hiring employees for attitude and training for skills, learning is viewed as a never-ending process for all company personnel with the expectation that all employees are intentional learners, 80 to 90 percent of Southwest’s supervisory positions are filled internally, Southwest’s pay scales are above the industry average, 80 percent of Southwest’s 34,300 employees belong to a union, and they currently have a no-layoff policy (Northouse, 2009).
The strengths of Southwest are that they offer low fares compared to any other industry airlines. They have done this by fuel hedging, cutting maintenance and operating costs, and investing in time-saving strategies. The policies, procedures, operating practices, and core values underlying Southwest’s efforts to implement and execute its low-cost/no frills strategy included employing one type of aircraft- the Boeing 737 which minimized the inventory of spare parts, reducing training of part maintenance and repair personnel, and improved the proficiency in which maintenance could be accomplished. Southwest was the first to begin offering ticketless travel including purchases through the company’s website which bypassed the need to pay commissions to travel agents and reduced staffing requirement at the airline reservation centers. The company offered flights within medium size cities to avoid congested airports which produced exceptional on-time performance and reduced fuel costs associated with the planes sitting in line or circling airports awaiting clearance. They also avoided high landing fees and terminal gate costs at high-traffic airports. The point-to-point scheduling of flights was more cost-efficient than the hub-and-spoke systems used by other airlines. To reduce the amount of time it took terminal personnel to check in passengers and simplified the whole task of making reservation, on-line check in was available 24 hours in advance allowing passengers to print their boarding pass and bypass counter check-in. Flight attendants became responsible for cleaning up trash left by deplaning passengers and making the plane presentable for the next flight whereas other Airlines, even though recently adopting the Southwest practice to cut costs, hired cleaning crews. Southwest implemented new software to improve on-time performance by significantly decreasing the time required to generate crew schedules. The airline converted from cloth to leather seats even though initially more expensive, saved money since it’s more durable and easier to maintain. Southwest has been the leader in Fuel hedging which has counteracted rising prices for crude oil and jet fuel. Winglets have been added to all aircrafts which improved flight performance by reducing lift drag and it has allowed aircrafts to reach higher levels quicker, improved cruising performance, extended engine life, reduced maintenance costs, and reduced fuel burn. In 2007, Southwest partnered with the aviation consulting firm Naverus to develop new flight systems and procedures which would reduce fuel consumption, lower emissions, and curtail noise while taking better advantage of the high performance characteristics of their aircrafts. Lastly, Southwest invested in technology and software to replace its ticketless system, back office accounting, payroll, and human resource information systems which enhanced data flow, operational efficiency, and customer service capability (Northouse, 2009).

Southwest is a company with no visible weaknesses or critical operating problems however; there is a few areas of legitimate concern. Southwest has lost some of its cost advantage in recent years because of other airlines slashing costs in pilot and employee salaries. Southwest had initially lower labor costs however; employees have more longevity and higher salaries whereas employees at rival airlines are new and have not yet received pay raises to the extent as Southwest employees. Southwest has been expanding into airports with higher landing fees such as Denver and Philadelphia. Rival airlines have slashed their food costs and all airlines now just provide peanuts and beverages whereas Southwest was the only airline that didn’t serve meals and offered only snacks. Southwest can contribute the company’s profitability to their gains on fuel hedging. Without these gains, Southwest may have reported net losses rather than net profits. Southwest’s future growth depends on moving into major hub airports where its rivals have big market shares. Southwest will need to make a presence in major airports that are crucial to the revenues and profitability of these rivals. Southwest has prospered by focusing on less congested airports and avoiding those airports that controlled by their rivals. Southwest has recently had a few safety lapse’s in inspecting its planes (Northouse, 2009). “Southwest Airlines announced Saturday that it is grounding 79 planes for inspection after a 3- to 4-foot hole tore open in the fuselage of one of its planes, bringing a view of the blue sky and a white-knuckled emergency descent” (CNN, 2011) The plane was traveling from Phoenix to Sacramento when it made an emergency landing at Yuma Marine Corps Air Station International Airport Arizona. The incident happened 35 minutes into the flight and took around 45 seconds before the oxygen masks came down (CNN, 2011). "I heard a loud popping sound about three or four minutes before it blew open on us," passenger Greg Hansen said. "(Then) a big explosion happened. A big noise, and from there, you felt some of the air being sucked out. It happened right behind me, in the row behind me and it covers about 2 1/2 rows," he said from seat 11C (CNN, 2011) I would suspect that Gary Kelly learned an important lesson and wouldn’t let maintenance or safety issues happen again.
The opportunities of Southwest include expanding into other airports they don’t currently serve. This would provide a source of new customers, revenues, and jobs for employees. The low-cost/low-price/no-frills strategy is key to keeping their customers along with expanding their customer base. Continuing Southwest culture is critical to the success and expansion for the reasons stated in opening paragraph. Also renewing efforts to reduce costs and encouraging employees to pursue other cost-saving strategies along with preventing future safety and maintenance lapses (Northouse, 2009).
The threats of Southwest are other rival airlines however; the company has created a recipe for success and needs to continue to pursue other cost saving ideas while sticking to the low-cost/low-price/no-frills strategy that has made them so successful. There isn’t much to criticize or object to in any of Southwest’s policies, procedures, operating practices, and core values (Northouse, 2009).
Based upon the SWOT analysis conducted, I would invest in Southwest because it has created a recipe for success. Their cost saving procedures and company culture has produced a brand unlike any other rival airline. The internal stakeholder’s of Southwest are the employees and shareholders. The external stakeholders are their customers. The employees wants and needs consist of job security which Southwest currently has a no layoff policy, increase in pay and promotion which 80 to 90 percent of promotions were filled internally, and a rewarding place to work which the airline has prided themselves as the Southwest culture. The wants and needs of the shareholders is increased profitability which Southwest has accomplished every year since 1973 (CBSNEWS, 2012). The wants and needs of their customers are low fares which Southwest has become known for and great service which falls under their culture. Hands down I would invest in the Southwest Corporation. "You put your employees first and if you take care of them, then they will take good care of you," Herb Kelleher, the airline's chairman, said. "Then your customers will come back, and your shareholders will like that, so it's really a unity” (CBSNEWS, 2012).
Southwest’s revenues for 2011 were 15.7B in which it increased its revenue by 29.4% above the prior year’s result. The company’s earnings per share for 2011 were $0.43. Southwest Airlines Co. has seen their bottom line decrease from $459.0M to $178.0M even though they had an increase in revenues from $11.6B to $14.9B. The key component in the bottom line decreasing even though the increase in revenues was the sales devoted to cost of goods went from 78.03% to 82.27% (Bloomberg Businessweek, 2012).
There are several issues to consider when assessing Southwest stock after announcing its fourth quarter earnings. Positive arguments for Southwest are that they have the lowest operating structure within the domestic airline industry and consistently offer low fares. They focus on increasing revenue through international code share agreements, a new southwest.com, frequent flier program, in-flight WiFi, and improved cargo volumes. The organization holds a strong financial position among other industry rivals that has allowed them to still grown amid the high fuel costs. The AirTran acquisition provides an opportunity for Southwest to expand its presence in the larger markets. The negative arguments include high labor costs within the organization, with high prices of jet fuel the shares of airlines are likely to fluctuate, the company only services the U.S. making is solely dependent on the U.S. economy, and they heavily invest in new technology to bring its systems into the 21st century (CNNMoney, 2011).

Delta Air Lines is a main competitor of Southwest and is ranked 88 in the Fortune 500. Based out of Atlanta, Georgia, Delta is the second largest U.S. airline. Its revenues exceed all other airline revenues at 31 billion for 2011 which is up 13.2% from 2009. Unlike Southwest, Delta serves yearly 160 million customers and has a strong presence in the global market by servicing 340 destinations in 60 countries on 6 continents. Back in 2011, Delta merged with Northwest Airlines, Inc. The Northwest merger is expected is expected to generate 2.0 billion in annual revenue and cost synergies. It’s also expected to provide strong cash flows to reduce its high debt level in the coming years. Main competition for the airlines includes routes, services, and fares. It’s also competes with foreign airlines for U.S. passengers traveling abroad as well as solely international flights. The airline plans in investing 2 billion through 2012 on improved products like winglets for the planes, services with improved cabins including flat-bed seats in BusinessElite, in-seat audio, and video in all cabins, and upgraded airport facilities. Deltas new products and service are expected to generate 1 billion by 2013. Deltas basic business principles are to always fly safe, to have 7% of organic growth and RASM at 105% of industry, they must lead in industry productivity, create value through customer services, operations, brand, employee relations, and new ideas in all aspect of their business. Like Southwest, Delta also believes in taking care of their employees by treating them with Respect and dignity. They pride themselves on providing a safe and secure place for them to work. Delta also believes in appropriate compensation and benefits and room for company advancement. They will maintain 40/60 debt to equity ratio which will produce 8-10% pre-tax return. Lastly delta will be good corporate citizens. (CNNMoney, 2011)

United Continental Holdings is ranked 114 in the Fortune 500 and is a holding company with two subsidiaries, United Air Lines, Inc. and Continental Airlines, Inc. The company headquarters is located in Chicago, IL and is a result of the United Airlines and Continental Airlines merger. The company’s total revenues for 2011 were 23.0 billion which is up 42.2% from 2009. The subsidiaries both transport people and cargo through their main operations by utilizing jet aircrafts and regional operations. Regional operations utilize smaller aircraft that are operated under contract by United Express, Continental Express and Continental Connection carriers. The organization operates 5,800 flights a day to 375 U.S. domestic and international destinations from their main hubs at A.B. Won Pat International Airport , Chicago O'Hare International Airport, Denver International Airport, George Bush Intercontinental Airport, Hopkins International Airport, Los Angeles International Airport, Newark Liberty International Airport, San Francisco International Airport and Washington Dulles International Airport. United operates approximately 3,350 flights a day, including regional operations to more than 235 U.S. domestic and international destinations. Continental operates approximately 2,500 flights a day, including regional operations to more than 280 U.S. domestic and international destinations. A large amount of the origin and destination traffic is due to the location of their domestic hubs strategically located in large business and population centers. The hub and spoke system allows United Continental Holdings to transport passengers between a large number of destinations with frequent service than if routes were serviced separately (CNNMoney, 2011).
All three companies are in the airline industry however, they are very different as far as who they service and how their business operates. Southwest doesn’t currently serve international destinations and I believe if they started international service it would take away from their low cost low-cost/low-price/no-frills strategy. With the price of jet fuel, landing fees, and terminal fees I don’t see away for Southwest to bring that strategy into the international market. Southwest does need to expand into other domestic airports to keep up with other rival airlines. The expansion into other airports will provide new revenue, customers, and jobs for their employees (Southwest Airlines Co., 2012).
The airline industry is especially impacted by economic trends because it depends on a large number of other industries. Since the industry involves multiple borders, economic factors in other countries also affect the market. Wage inequalities and other positive and negative externalities have a capability of changing the operations of the airline industry. In developed countries like the U.S., supply has exceeded demand and airplane tickets go for much cheaper than they should. Airlines are coping with the low demand by reducing labor costs which is ultimately making it impossible for new airlines to enter the market. (Global Economy Issue, 2012).
With Southwest being the largest low-fare carrier plans for an expansion may delayed as late as 2014 as $100-a-barrel oil erodes. “Flights and seating capacity will be unchanged this year, and “we haven’t made a final decision about 2013 yet,” Kelly said today in an interview. “It’s just premature. In any event, I don’t sense we’re going to see a significant increase in capacity in 2013, if we have any at all” (Schlangenstein, 2012). Higher energy costs are driving renewed efforts with the airline to cut spending and boost productivity. Southwest has ordered more fuel efficient jets and will add an additional six seats to its current planes. Kelly says “Our earnings are not where I want them to be in terms of expansion,” he said. “We’ll wait as long as possible before we make any commitments to 2013” (Schlangenstein, 2012). Fourth quarter net income rose 16 percent to $152 million equating 20 cents a share. Profit fell 43 percent to $66 million, excluding the benefits linked to fuel-purchase contracts. “Travel demand and airlines’ revenue outlook remains “strong,” Kelly said. “Southwest’s revenue from each seat flown a mile rose 8.2 percent in the quarter, and its average fare per mile increased 4.1 percent. The extra seats on each plane should produce $250 million in new annual sales, Southwest has said” (Schlangenstein, 2012). Southwest will begin adding flights into Atlanta which is the only plans for expansion in 2012. (Schlangenstein, 2012).
Southwest culture is directly controlled by human resource management (HRM). The company culture is a large factor when looking at the success of Southwest Airlines. HRM is committed to providing great customer service by first taking care of their most important resource, their employees. This is a main reason, as a mutual fund manager, I would invest in Southwest Airlines. The airline has been successful because of their company culture, fuel hedging, and cost-saving strategies. The cost-saving strategies of Southwest have been a front runner within the airline industry. They have been looked to all parts of the organization to cut costs from employing one type of jet which has save in maintenance and training, to replacing their cloth seats with leather for easier up keep and a longer life span. Even with the increase in fuel, Southwest will continue to grow because it makes well thought strategic decisions in all aspects of their business.

References
Bloomberg Businessweek. (2012). SOUTHWEST AIRLINES CO. Retrieved from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=LUV:
US
CBSNEWS. (2012). Something Special About Southwest Airlines. Retrieved from http://www.cbsnews.com/2100-3445_162-3221531.html
CNNMoney. (2011). FORTUNE 500 2011. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2068.html
Global Economy Issue. (2012). How Economic Factors Affect The Aviation Industry. Retrieved from http://www.globalrp.org/how-economic-factors-affect-the-aviation-industry.html

Northouse, P. G. (2009). Leadership, theory and practice. (5th ed. ed.). Thousand Oaks, CA: Sage Publications, Inc.
Schlangenstein, M. (2012). Southwest May Delay Growth in Flying to 2014 With Oil Near $100. Retrieved from http://www.businessweek.com/news/2012-01-22/southwest-may-delay- growth-in-flying-to-2014-with-oil-near-100.html Southwest Airlines Co. (2012). About Southwest. Southwest.com. Retrieved February 8, 2012 from http://www.southwest.com/html/about-southwest/index.html?int=GFOOTER-
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