To better analyze Southwest Airlines Co., it would be wise to take a look at its Mission Statement, the nature of the business it’s in, the type of cut-throat competition it is facing, its competitive edge, and its financial position over its years of operations.

“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’s target market can be summarized as follows: “To provide short or medium-haul, point-to-point, high-frequency, low-fare, and high Customer satisfaction service.”

There is no doubt that Southwest Airlines has grown way beyond its roots. After overcoming all types of obstacles in its starting days, the company that became airborne with three Boeing 737 aircraft serving three Texas cities –Dallas, Houston and San Antonio- has surprised many of its competitors. Just recently, in 2004, the company has announced its 31st consecutive year of profitability. That’s a major success considering it’s seen as the number 6th company in the airlines industry. It has done this feast without any accidents under the firm direction of Herb Kelleher, a transplanted New Jersey native. No wonder that he was appointed to a Homeland Security panel under Tom Ridge! On May, 2004, SWA launched services to Philadelphia which became its 60th airport.

With the addition of its Philadelphia service, SWA now operates 2,800 daily flights to 60 airports in 59 cities across the United States.

Incorporated in Texas in 1967, Southwest commenced Customer Service on June 18, 1971. One may wonder why it took so long for SWA to become airborne despite the fact it had secured some aircraft from Boeing. Despite Herb Kelleher’s research and feasibility study, he had to contend with the Civil Aeronautics Board which is the federal regulatory body that had jurisdiction over the airlines. This board had not authorized the creation of a major airline since before World War II. What came to be known by many in the industry was that the real function of the CAB was to prevent competition. Its jurisdiction extended only to interstate airlines-those with routes extending across state lines. By flying only within the state of Texas, Southwest might be able to avoid CAB jurisdiction.

Looking around, Kelleher found a precedent in the Pacific Southwest Airlines (PSA) which had flown for years as interstate airline. PSA avoided the suffocating regulation of the CAB. With the stimulus of competition, the California airline market had become the most highly developed in the world. Why couldn’t Texas support the same kind of service? Kelleher and his partner were familiar with the sorry state of air service in Texas. Fares were high, flights were often late, and schedules frequently were dictated by the availability of aircraft after flying more lucrative, longer-haul flights where the CAB-regulated airlines made their real money. Short-haul, intrastate service was merely and afterthought, existing primarily as a tail-end segment of a long flight coming in from New York or Minneapolis or other areas.

Kelleher concluded that Texas was ripe for an airline that would focus on the intrastate passenger, offering good, reliable service at a reduced fare and on a schedule designed to meet the needs of local travelers rather than passengers coming in from far-off points. This may explain why the company’s mission statement is focusing on this niche market.

In order to get started, SWA visionary executive had to find aircraft. He turned to Boeing that, due to a slow market, had three new 737-200 planes sitting on the tarmac. Southwest recognized the 737 as the perfect aircraft for the mission it had in mind. The 737’s modern, fuel-efficient, twin engine configuration would allow highly reliable, efficient, and economical operation in Texas’ short-haul intrastate markets. Agreeing to finance 90 percent of the cost of the new planes, Boeing let Southwest make use of the planes. CAB, defending the interests of the traditional service airlines was not finished with Southwest. Even though another judge threw out the complaints brought on by Braniff and Texas International, a friendly judge in Austin helped them win a restraining order against Southwest on the eve of the day when they were to start flying. In the days ahead, despite the success of Southwest, its opponents would take the battle from the court to the sky in the forms of advertising and propaganda.

The preceding just showed that any new business must have a good business plan to guide it and spearhead it in the times when competitors are gearing to taking it apart. Kelleher and his team just hanged on while working diligently to secure capital. It was true that Braniff and Texas International ultimately would be convicted of federal criminal antitrust violations because of their tactics, but insolvency was just a few days ahead. Remaining viable was Southwest’s preoccupation.

The niche market needed to be served. Boeing believed the business plan which Kelleher managed to sell to them. No wonder they agreed to support the new airline company. In 1973, Southwest recorded its first profit. Its fleet has grown from three 737-200s to more than 220 modern Boeing 737 aircraft. So strong is Southwest’s loyalty to the 737 that it is the only major U.S. airline with an all-Boeing fleet. Southwest has also served as the launch customer for three new models of the 737: the 737-300, now the workhorse of the fleet, the 737-500, and the upcoming 737-700 which was delivered in 1997. Based on its annual reports, this year, Southwest is planning on retiring the old models.

Greg Wells, Vice President Safety, Security, and Flight Dispatch for Southwest Airlines, talked about airport security. In a speech titled, “Preserving Southwest Airlines' Customer Service Leadership in the face of Security Challenges” he said the following: “It is an understatement to say that the events of September 11, 2001 changed the lives of all Americans and particularly our relatively unfettered ability to travel by air. While all of us were accustomed to some level of security at domestic airports, the imposition was minimal compared to what was in place at major airports in the Middle East, as well as throughout Europe and Asia. All of what we knew changed as the result of the diabolical endeavors of a relative few, and the new procedures, while still evolving, will likely be with us in perpetuity.

Customer Service has always been a major tenet of Southwest Airlines’ product – quick, easy access to high frequency, low cost air transportation. Multiple hour waits throughout our System threatened the foundation of our business. The People of Southwest Airlines rose to the occasion, and we seized and continue to assume a leadership role in positioning Southwest to help the Transportation Security Administration (TSA) and our Company improve Customer Service while enhancing security.” It’s shown that after, 9-11, safety and security has become a major issue for all airline companies. Southwest once again rose to the occasion by becoming a noticeable leader in the field.

As far as the overall content of the Financial Plan module is concerned, we’ll take a look at the company’s financials.

The company’s balance sheet shows assets of $11337 million in 2004 whereas in 2003, it was only $9,878 million. The Income statement shows values for 2002, 2003 and 2004. It is the income statement for 3 years ended in 2004. It shows the operating revenues and operating expenses to arrive at the operating income. The operating income was increasing year after year. The annual cash flow statement shows the values for 2002, 2003 and 2004. It shows the cash flows from operating activities, investing activities and financing activities. Then, there are also the quarterly balance sheet, the quarterly income statement and quarterly cash flow statements. In order to identify the planning process for the company, we’ll have to take a look at the major capital investment decisions made by the leaders of Southwest and analyze the type of working capital and/or banking arrangements they might have.

Southwest is committed to providing low fares and understands that maintaining its low cost structure is the way to protect its competitive advantage and maintain job security. For more than 32 years, it has known profitability. This fact has not gone unnoticed by the major news media and specially, Fortune Magazine. “Southwest was once again recognized by Fortune as on of America’s Most Admired Companies and America’s most admired airline. We are proud of the magnificent People of Southwest. Their greatness and accomplishments are unsurpassed in the airline industry.” Business Traveler calls Southwest, “the best low-cost carrier.” Other newspapers and magazines have also sung the praise of this small company that can. The San Francisco Chronicle states, “Let’s see, Southwest pays Employees well and makes it clear through actions rather than ‘managementspeak’ that it appreciates and trusts its workers. And the company succeeds where others fail. What a shock! (San Francisco Chronicle, Aug. 13, 2003).

In December4, 2003, Airline Financial News reports the following, “Southwest Airline may only be the nation’s sixth largest airline, but it does not act like no. 6. In many ways, it may be no. 1. The grandfather of the low cost airline has set the pace and provided the model for the latest crops of low-fare carriers. Southwest’s financial superlatives in these days of airline bankruptcies of chest-pounding stuff.” Southwest’s airline’s planning process can be analyzed in its Executive Summary accompanying the 2004 annual report. The leaders of the company reported that in 2004, the company had a profit of $313 million which exceeded 2003’s profit of $298 million. They were quick to point out the effects of fuel and oil costs on the industry in general. Thanks to Southwest’s forward-thinking and planning, the first part of 2005 should find them in good conditions for fuel. In fact, Southwest is in a better economic position thanks to its previously signed contract to pay a fixed price. For the entirety of 2005, Southwest is 85 percent hedged with prices capped at the equivalent of $26 per barrel of crude oil. Since prices are so high on the 15 percent unhedged portion of its anticipated requirements and because oil refiner spreads for converting crude oil to jet fuel are unusually high, the company anticipates that prices are going to remain high for the first quarter of 2005.

As of January 28, 2004, the report shows the following representatives of the company in their capacities: Herbert D. Kelleher, Chairman of the Board of Directors, James F. Parker, Chief Executive Officer and Director, Colleen C. Barret, President, Chief Operating Officer and Director, Gary C. Kelly, Executive Vice President and Chief Financial Officer etc. Under the leadership of legendary founder Herb Kelleher, Southwest continues to surprise many naysayers. The company’s organizational structure is safe and sound. The greatest product or service will not be a financial success if no one is interested in buying it. Herb Kelleher and his old pal Rollin King had already conducted market analysis and feasibility study. King and Kelleher had long concluded that Texas and other major metropolitan areas were ripe for an airline that would focus on the intrastate passenger, offering, good, reliable service at a reduced fare and on a schedule designed to meet the needs of local travelers rather than passengers coming in from far-off points. In Texas, the CAB-regulated airlines offered a golden opportunity to those who would be interested in short-haul, intrastate service or segment of the market. Southwest was created to put an end to high fares, late flights and lack of decent schedules. Just as in its early days, Southwest knows one thing or two about how to address competition which could force it to liquidate its small assets. It had to find a way to remain appealing to customers. From the reward of a bottle of premium liquor such as Chivas Regal, Crown, Royal, or Smirnoff to the famous headline going after its fierce competitors “Nobody is going to shoot Southwest out of the sky for a lousy $13.”

Go to Podshoppingblog Airlines Analysis to complete the reading of this article