Southwest Airlines Reinventing the Wheel

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Southwest AirlinesReinventing the Wheel

• Presentation Team
• Phil Sturgeon Teresa Hagan
• Ni-Hao Neil McGinn
• Adrian Christie Gillian Fraser

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Southwest Airlines

• Provide short-haul, high-frequency,
  point-to-point, low-fare air transport.
• Southwest Airlines was established in 1971 and
  dedicated to the highest quality of customer
  service.
• Established a business model that revolutionized
  the industry and has been copied by many.
• Have recorded their 33rd executive year of
  profitability.

Southwest Airlines
Source Southwest Airlines website.
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Industry PEST Analysis

• Political
• Chapter 11 put on hold.
• US travel now a strategic imperative.
• Airline recession Sept 11th.
• Economic
• Oil The fifth horseman of the apocalypse.
• Social
• Auto-travel substituted for air.
• Technological
• Boeing building smaller 100-200 seater aircraft.
• Airlines supply chain weakness.

Southwest Airlines
Source Mintel.
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General Industry Trends

• Industry
• Infrastructure

• Rise of Low Cost Airlines
• The low cost phenomenon continues to break all
  records
• European LCC market growing at 24, American at
  12.
• LCC share of total ticket sales grown from 6 in
  2001 to 15 in 2004.
• Legacy Carriers adopting the low fare concept.

Southwest Airlines
Sources - OAG Data Mintel, UNISYS Hub Spoke
business model.
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Airline Segment Trends

• Cargo
• Stand-alone profit centre rather than passenger
  by-product.
• Industry growing at 6.5.

• Industry Travel Agents
• Travel accounts for one third of all e-commerce
  purchases.
• Shift from direct suppliers to online agents.
• Legacies formed Orbitz.
• Grown from 4.2 billion in 1999 to 63 billion in
  2005.
• Driven by online managed business travel.

Southwest Airlines
Sources - Hospitality Net, The international Air
Cargo Association.
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Airline Segment Trends

• Travel Distances
• Greatest demand from short/medium haul flights.
• Short/medium ticket prices continue to fall.
• Pause in growth of long haul flights.
• Return of long-haul markets essential for US
  aviation recovery.

Southwest Airlines
Source Mintel.
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SWA Segment Trends

• SWA Vacations
• 3rd largest online agent.
• Bucked industry trend of selling tickets via
  online agents.
• Internet bookings increased from 39 in 2001 to
  65 for 2005.

• SWA Cargo
• SWA Cargo group continue to be profitable.
• Quick turn-around times impact on load capacity
• Freight accounts for 1.75 of SWAs total
  revenue, industry average is 15.

Southwest Airlines
Source Southwest Airlines Annual Report 2005.
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SWA Segment Trends

• Travel Distances
• Economy short-haul fares fallen by 4.54.
• Average hop distance increased.
• Number of trips flown increased
• - 947,331 in 2002.
• - 1,028,639 in 2005.

Southwest Airlines
Sources Business Travel News, Southwest
Airlines Annual Report 2005.
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SWA Niche Analysis
Southwest Airlines
Source Southwest Airlines website.
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Target Segments
Southwest Airlines
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Southwest Airlines Competitors

• American Airlines are legacy carrier that
  operates international flights as well as
  domestic services in the United States.
• Air Tran Airways are a discount airline serving
  the eastern and central United States.
• JetBlue Airlines are a low cost airline major
  hubs in New York-JFK, Boston, Washing DC-Dulles,
  Fort Lauderdale, Long Beach, and Oakland.

Southwest Airlines
Sources Websites of American Airlines, Air
Tran, and Jet Blue.
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Southwest Airlines Technologies

• Southwest use the Boeing 737 series exclusively.
• More viable for Southwest to service and maintain
  fleet.
• First to introduce innovative internet check-in
  service wi-fi check-in technology.

Southwest Airlines
Source www.phillyburbs.com
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SWA Route Map
Southwest Airlines

• Point-to-point routes.
• Close, convenient, local airports.
• Aircraft scheduled to local needs.

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Compass Strategy
Southwest Airlines
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S.W.O.T Analysis
Southwest Airlines
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Sales and Services
Southwest Airlines
Sources - 2004 Annual Reports of Southwest
Airlines, JetBlue Airways, Air Tran Airways,
American Airlines.
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SWA Product Market Portfolio
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S/M
Southwest Airlines
C
Market Growth Rate
15
L
VP
10
0.1
1.0
10
Relative Market Share
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Porters Five Forces
Southwest Airlines
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Financial Performance
Operating Revenue
Southwest Airlines
Millions
Sources - 2004 Annual Reports of Southwest
Airlines, JetBlue Airways, Air Tran Airways.
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Financial Performance
Southwest Airlines
Sources - 2004 Annual Reports of Southwest
Airlines, JetBlue Airways, Air Tran Airways.
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Ratio Analysis

• Current Ratio 2004 5.29
• 2003 5.73
• Operating profit 2004 8.5 2003 8.1
• Total Debt/Equity (mrq)0.299
• Quarterly revenue growth over 05/06 at an average
  of 20.10

Southwest Airlines
Source - Southwest Airlines Annual Report 2004,
Yahoo! Finance.
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Future Performance Projections

• Quarterly revenue growth - Jun 06 15.6
• - Dec 07 10.1
• Court case costing 27.5 million
• - Racial Profiling case
• - Damage to image?
• Crude oil price hits record amount of 72 per
  barrel - earlier than expected.

Southwest Airlines
Source - Yahoo! Finance Analyst Estimates, ABC
News, TheStreet.com.
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Key Statistics

• Number of Employees 2005 31,729
• Market share of 66 based on passengers carried
  to top 100 city-pair markets.
• Named Best Low Cost Carrier at the annual Best
  in Business Travel Awards 2004.

Southwest Airlines
Source - Southwest Airlines Annual Report
2004/2005.
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Key Statistics

• Global industry leader in low-fares airline.
• 77.6 million passengers carried in 2005.
• Serve 62 US destinations.

Southwest Airlines
Source - Southwest Airlines Annual Report
2004/2005.
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Recent profits Dec 2005
Profit Margins
Southwest Airlines
Source Yahoo! Finance
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SWA Benchmarks for Success

• Competing on price Lowest cost.
• Customer friendly. - Law suit implications.
• Excellent employee relations.
• Culture low unit costs higher profits
  defines the best.

Southwest Airlines
Source www.unisys.com
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The Future

• Southwest has a long future.
• Short to medium and medium haul travel will
  dominate.
• Buy more slots in other airports throughout the
  US to increase their presence and expand the
  variety of destinations for customers.

Southwest Airlines
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• Thank you for your time
• Please feel free to direct any questions
• to the presenters.

Southwest Airlines