Profitability and Creditworthiness Analysis for the Southwest Airlines

The five universal competitive plans include overall low-cost provider strategy, broad differentiation strategy, focused low-cost strategy, focused differentiation strategy and best cost provider strategy (Bethel, 2017). Southwest Airlines popular competitive strategy is keeping customers happy by being low cost, employee driven, future-minded, and differentiated. The overall low-cost provider strategy that is being used at Southwest is a low-cost airline that focuses on no-frills service (Investopedia, 2015). Southwest Airlines diligently follows the strategy of a differentiated low-cost carrier. [They do this by providing the lowest possible fare in the industry, and do so by focusing on consistent service, reliable operations,

The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future

The purpose of this study is to compare Spirit Airlines with American Airlines using the financial ratios of liquidity, activity, debt, profitability and the market, and to derive some concrete conclusions about the financial nature of Spirit Airlines. According to Spirit Airlines (2015) “Historic Stock Lookup,” from 2011 to 2014, the year-end stock prices have increased by 79.4%, which is outstanding. Thus, Spirit Airlines will be used as a benchmark in terms of comparing

This memo focuses on the dividend payout, dividend yield, and dividend per share of Southwest Airlines, while comparing its performance and dividend strategy to that of the industry.

A review of a company’s profitability lets investors or managers know how efficiently a company is operating. There are three key ratios to review. The profit margin, return on equity and return on assets. The profit margin is the net income divided by sales. The higher the profit margins the better. The return on equity is net income divided by total equity (Cornett, Adair & Nofsinger, 2009).. This can help to determine the amount of financial leverage the company is using. The return on assets is the net income divided by total assets. This can also help determine the financial leverage the company is using in regards to its assets (Cornett, Adair & Nofsinger,

The return on equity ratio measures how well a company is using its owner 's investments to generate after tax profits. Investors like to see a high return on equity since it indicates the company is using the owner 's investments efficiently to generate after tax profits, (Schermehorn, J, et al, 2004). Different industries requires different percentage of return on equity as some industries need to generate high return on the basis that less capital is invested, (Palepu et al. 2010). Return on equity has increased from 3.39% in 2011 to 5.46% in 2012 this is consistent with the growth strategy and cost efficiency strategy. However the strategic cost played a significant part in the lower net income of 2011 for example even though the total equity increased by 4.70% it is not as large as the 68.44% increase in the profit after tax. Return on equity has three parts; operation efficiency, assets used efficiency and equity multiplier.

Total Resource Network (TRN) congratulates Southwest Airlines for thirty-eight years of consecutive profitability. This is a major accomplishment that should be applauded especially during this economic recession and recovery period. Southwest’s success has been attributed to their core values and mission that begin with their employees and exceptional customer service. These two attributes along with low airfares have

Southwest airlines began in 1971 using a strategy unlike any other airline at the time. Starting out in Texas, with only three planes, they flew between the Texas cities of Houston, Dallas, and San Antonio (Coulter, pg 250). Their primary goal was to get their passengers to their destinations, on time, at the lowest possible fares, and to provide a fun atmosphere for their customers. They focused on providing short-haul routes with fares that were competitive with driving. Today, Southwest serves 101 destinations across the United States, as well as eight additional countries, and operates more than 3,900 flights a day. (Southwest , 2017) They have achieved a record 44 consecutive years of annual profitability, while staying true to their goal of providing the highest level of customer service at the lowest fare. In 2016 they ranked number 1 in customer satisfaction according to statistics listed by the Department of Transportation, with and average passenger airfare of $149.09 one way trip. (Southwest , 2017)

Now would be the best time to make an investment in Southwest Airlines, since they are coming out of the financial depression that all airlines went into during 2009 to 2013. Since the biggining of 2013(1/2/13), Southwest’s stock has climbed from a low of $10.47 to a high of $33.57 on 9/30/14. This shows that Southwest Airlines is indeed comiing out of the depression.

This proposal addresses the needed steps to be taken in order for Southwest Airlines to see continued growth in the airline industry. Southwest Airlines has been able to remain one of the most profitable airlines in the industry for an extended period of time. Even with the hindrance of the 2001 terrorist attacks involving airplanes and the U.S recession of 2008, Southwest has continued to see strong revenue growth. Meanwhile, other companies were experiencing major losses and in some cases folding. Southwest Airlines has capitalized on the company’s strength of being the top low cost

Low-cost carriers pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers prevents them from competing

Southwest Airlines was incorporated in 1967 and founded by Rollin King and Herb Kelleher. However, due to lawsuits, Southwest was unable to fly their first commercial flight until 1971. Southwest founded their business on the quote: "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 yourairline5." Southwest focused on a point-to- point operational system and a low cost pricing strategy that is currently used today. The organization is very centralized due to its point to point emphasis. The centralization of the company requires very strategic route utilization. The company for instance, selects routes to airports with low competition and overall traffic. This allows the company to be more price competitive as competitors are reluctant to venture into less travelled routes. In order to make decisions regarding these routes a centralized organizational structure is warranted. In addition to the centralized organizational structure of Southwest, many committees, teams, and task forces are designed with the sole purpose of reducing waste and cost control. The airline industry is predicated on cost containment, particular those related to fuel and other commodity prices. Task forces are designed with the purpose of providing a sustainable means of reducing costs without a corresponding decline in customer experience. The centralized

Southwest Airlines faced many barriers to entry from the fierce competition of other airlines in the industry. Though competition was fierce, Southwest Airlines managed to succeed by doing things differently. Their mission was to provide affordable air travel to those who would not normally fly. Contradictory to the rest of the airline industry, Southwest maintained a profit while keeping its fares low. Southwest was unique to the industry in two ways. They focused on the short haul traveler and used a point-to-point method of flight connections.

This case analysis looks at Southwest Airlines and how the company is in a vital financial position. The analysis was done using news articles, the company’s website and finance websites. The research was used to focus on how they have a strong employee to company relationship and customer to company relationships that they do not want to jeopardize and ruin but they need to bring forth $100 million without laying off employees and losing customers due to raising fare prices. This analysis shows how Southwest is looking into new ideas that will enhance the brand and in the long run make them successful.

Profits dropped again in the quarter ending 30-Jun-2014, representing 1st quarter of Financial Year 2015, with the company posting a 52% decrease in operating profits to SGD39 million (USD31 million). (Center for Aviation, 2015). Singapore Airlines is still one of the most competitive airlines in the world market and has not suffered an annual loss s far however, the fact is that the airline has faced in the recent past - and continues to face – some of the greatest challenges ever as a business. The airline company has to make strategic adjustments for the group to be better positioned for profitability, sustainability and growth. Singapore Airlines still has a number of core strengths as well as a lot of opportunities, however, serious challenges are also present ahead with any proposal of strategic adjustments coming with risks. In this SWOT analysis, the report incorporates Singapore Airline's 1st Quarter Financial Year 2015