Southwest Airlines Capital Analysis

Southwest Airlines has been making changes over the past few years that helped them become the largest low-cost carrier in the United States. Most other airlines have been struggling to make it through this economy, but Southwest has found a way to thrive. The airline has dropped their prices and eliminated fees for extras that have allowed them to fill up most flights. One cost they continue to struggle with is offsetting the increasing fuel prices. This has caused some airlines to merge or sell the company to competitors.

The firm has decided to increase the debt finance component portion from 20% to 30% which is a good decision since the interest payments are 100% tax deductible. The appropriate capital structure would be to

Another advantage is that payments will be level and interest rate will be fixed, since the boards forecast for the future is very pessimistic. The negatives of using debt through an insurance company have nothing to do with the financing or numbers. It is the management who was entirely against the idea. They believed that long-term fixed rates were too high, even though they had yet to return to early 1995 levels, where they were significantly higher. Another problem management had with the use of debt through insurance was that they did not like that there would be an extravagant set of covenants. More specifically Ruhl said that he disliked the type of covenant that could put the company in default without any action of management. "Violation of a debt-capital ratio, for instance," explained Ruhl with great relish, "could occur as a result of an adverse year rather than anything we do. " (Case Studies in Finance) Management, Ruhl, was extremely adamant about not agreeing to something that was out of his control. Ruhl actually preferred the informal loan, saying it was 'friendly'. This shows how much management does not know about financial decisions. Spreading the debt out over a longer period of time would improve the quick and current ratios. (see exhibit 7a) A negative of the loan itself is that if Padgett were to have the cash to prepay the loan they would face

The article “U.S. Slaps Duties on Canadian Jet, Raising Trade Tensions,” written by Ana Swanson and published in The New York Times on September 26, 2017, describes how new duty fees will be charged on all new Bombardier CS100 airplanes imported into the United States. This conflict arose after Boeing (American airplane manufacturer) accused Bombardier (Canadian airplane manufacturer) of using subsidies to sell its jets at incredibly low prices in the American market. The United States Commerce Department confirmed that Bombardier’s CS100 aircraft had received subsidies that were worth 220 percent more than the value of the plane’s sales price. These subsidies, which were given by the Canadian government, allowed Bombardier to reduce prices on their aircraft. The profits that they

In case they finance with debt, Winfield (the company) would be able to enjoy the tax shield as a result of tax deductible interest expense, hence their effective cost of debt will be 4.225%. However, when financed with stock, the new stockholders will be entitled to perpetuity of $7.5M in dividends. Working out the net present values of the two scenarios as shown in the tables above, Debt financing becomes a favorable option to stock since it yields a higher NPV.

The company position is strong enough so its better that company should use debt financing instead of equity financing.

a. Determine the value of the firm at the above debt levels. What level of debt should the firm

The intent of this paper it to define critical concepts of strategic planning with Southwest Airlines (SWA) top management and how their organization pursued choices and different strategies to run the business by using superior performance employees that gave them a competitive advantage over their competitors. I will concentrate on the thirteen strategic staffing decisions that are critical for any organization to be successful. I will also emphasis the knowledge, skills, abilities, and others (KSAOs) relative to the staffing process and how the company teaches these skills to the employees.

With long-term debt Panera Bread is not obligated to pay back the entire loan within a year and will be able to slowly pay it off over the course of many months. This will have a much smaller financial impact on Panera from month to month as the repayment amount wont be as much as short-term debt. With the use of long-term debt the company can get back on track and increase their growth while maintaining margins. This will lead to an influx of revenue that can be used to pay off the long-term debt. In addition to this once the company reaches their growth goals they will be able to increase prices to increase the margins again, once again helping to pay off the remaining long-term debt issued. Short-term debt is more desirable for a brand new company that has uncertain costs. Panera Bread has been established for several years and has a relatively good idea on what their costs should be. With short-term debt you cannot borrow as much, and the millions of dollars that would be needed might be too much to repay within a year for the company. The company simply needs too much money to use short-term debt. Long-term debt gives the firm the time and money they need in order to meet their

Generally, firms can choose among various capital structures in order to maximize overall market value of the company. It is proposed however, that

Every successful company must have some reasons on its behind. There is no exception to the Southwest Airlines. To analyze this great carrier company we need to dig deeper on its core value and the best practice Southwest Airlines has done.

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

Firstly, interest on debt is tax deductible, therefore, debt is the least costly source of long-term financing as this is a tax saving for the frim. Thus, creditors or bondholders require a lower return on debt as it is considered a reflectively less risky investment. Secondly, the capital structure of a firm is flexible due to debt financing. Ultimately, bondholders are creditors and they do not have voting rights, hence, they are not involved in decision making and business operations. Additionally, the major advantages of equity finance are as follows. Firstly, the capital provided is to finance the businesses short term needs and future projects. Secondly, the business will not have to pay any additional bank expenses such as interest on loans, thus allowing the business to use the money for business activities. Lastly, investors anticipate that the business will develop thus they help in exploring and executing thoughts. Certain sources, for example, venture capitalists and business angel can bring significant skills, abilities, contacts and experience to businesses and they can also provide expertise advice to businesses (Hofstrand,

Research topic: Southwest Airlines Company is looking to establish a global presence in either Vietnam or Spain. This research paper is to help analyze both countries and to determine which of the two countries Southwest Airlines Company should enter. The second purpose of this research paper is to determine how Southwest Airlines Company should enter the country. This paper proposes to answer four questions: Who is Southwest Airlines Company? What does Southwest Airlines Company do? Which country should Southwest Airlines Company enter; Vietnam, or Spain? How should Southwest enter that country; by investing in a facility, marketing products, or joint venture? The participants are students of Mount Washington College, Global Issues: Business, Government, & Society course BADM364, team B. Team B members are: Kyle Forbes, Adam Paquette, Nina Scarpino, Louie E. Watson, and Cheryl Kessler. Research methods applied include research and discussion to compare and analyze findings to determine which country makes the best fit for Southwest Airlines Co. global business strategy. The data analysis will compare each country’s history, economy, politics, government, culture, demographics, infrastructure, how business is done, and how Southwest has done business in

One of the disadvantages is the relationship between the suppliers and customers will be affected because of the bad debts. The suppliers will lose trust if the customers failed to make the payments within the agreed periods. The customers will have to purchase stocks on cash basis on the next transaction. The customers will also adopt this bad habit by using trade credit and may lead to overspending. The customers will end up by purchasing too much of goods using trade credits if they are not aware of the way they use trade credit. Other than that, if the debtors unable to make the payment before the due date, more interest rate will be charged on the total amounts of sales and finally the customers will end up by paying higher costs. The debtors will be ended up paying extra expenses which the money can be used for other financing purposes. Lastly, short term finance can be a serious risk for the customers especially for small traders. Trade credit will increase company’s liabilities if the amount of debts has not been settled. This situation will lead the company to a weak and dangerous position where it could face bankruptcy or