Southwest Airlines

Introduction

Southwest Airlines began operating in 1971 with four planes serving three cities and with revenues of $2 million. For 35 years Southwest has had over 13 million satisfied passengers along with 35 consecutive years of profits. Southwest operates as a low-cost, no-frills but high customer service airline flying point-to-point, which is a key factor in the success of the company. Southwest works hard at maintaining a culture that emphasizes flexibility, family orientation, and fun. Southwest has been highly successful, generating profits each year since it was founded and realizing significant appreciation in the value of its stock of over the life of the company.

Theses

Within Team B's paper of southwest airline corporation the research and evaluation of the impact and or affect of current fiscal, monetary policy to the company as well as ten economic indicators that related to the company/ organization and its policies will be discussed. These economic indicators will include Gross Domestic Product (GDP) the unemployment rate, and CPI which is a measure of inflation, among others.

Company Overview

Southwest Airlines began in 1971, when President Lamar Muse flew the maiden voyage from Dallas, Houston, and San Antonio. For 35 years Southwest has had over 13 million satisfied passengers. In 2004, they announced its 31st consecutive year of profits. Southwest now has over 2800 daily flights to 60 airports in 59 cities across the United States and has continued to maintain customer and employee loyalty. By aggressively gaining market share, they became a major force in U.S. air travel. Southwest remains devoted to making flying available to everyone and the company has been successful in implementing this strategy, having experienced strong growth and profitability. Southwest is now the fifth largest carrier in the U. S. in total customers. Southwest has operated profitably for 24 consecutive years in an industry with a volatile earnings history (Southwest).

Consumer Price Index

The Consumer Price Index is a statistical measure of a weighted average of prices of a specified set of goods and services. It is a price index which tracks the prices of a specified set of consumer goods and services, providing a measure of inflation. Team B found that the Air Travel Price Index rose 6.4 percent in the third quarter of 2005 which is the biggest one-year increase in four years according to the U.S. Department of Transportation's Bureau of Transportation Statistics (BTS). Southwest Airlines Co., the world's largest low-fare airline, its average fares in the quarter that ended June 30, 2005 was 2.1 percent higher than a year earlier. (Bloomberg)

Inflation factor

Recently many airlines tacked $50 onto their unrestricted coach fares that is the most recent in a string of targeted and general fare increases, triggered in March by Southwest Airlines, the king of discounters. Taken together, the fare increases have produced a double-digit percentage rise in the cost of the average airline ticket since fall of 2005. The run-up in fares can be calculated in various ways. Among them:

* The average domestic fare paid per mile flown was up 12.5% in February from a year earlier, when fares were the lowest ever in inflation-adjusted terms. A 2,000-mile trip that cost, on average, $229 in February 2005, was up to $258 this past February.

*The price of the typical one-way business fare between Chicago and Washington was $339 in early April, up 71% from a year earlier, according to price-tracker Harrell Associates. For 329 popular domestic routes, it reached $223 in the October-December quarter, up more than 10% from $202 from the first quarter of the year.

* Southwest Airlines, popular with leisure travelers, pushed its average one-way fare above the psychologically important $100 mark on March 10 when it added $2 to $4 each way to most fares. (Sigcorp, 2006)

Stock Price

Stock prices are at a low however, Southwest has continued on a stable path. In 1977, Southwest Airlines went public with its stock on the New York Stock Exchange (NYSE); LUV. By 1985, SW Airlines was selling for a whopping $2.50 per share and in April, 2006, those same stocks sold for $16.00. If an individual had purchased $1,000.00 of SW Airlines stocks in 1985, those same shares would be worth little more than $142,000.00. Southwest Airlines (LUV, news, msgs.) has bucked the trend, reporting a second-quarter profit of .20 cents a share. (Walberg 2005)

Southwest announced April 2006 that it posted a net profit of $61 million, or .07 cents per diluted share, in the first quarter, up from $59 million in the like period a year ago. (Wisnefski, 2006)

Unemployment Rate

Unemployment rates are always a factor within the airline industry.Empoyment rate determines the sale of flight and with a low employment rate people are less likely to travel. However, within the Southwest airlines corporation, they remain one of the few airlines hiring. Last year, the airline received 225,895 resumes and hired 1,706 for all jobs. Southwest is also one of the few that has never laid off a worker. (Business Wire, 2005)

Labor Productivity and Vertical Gap Analysis

Southwest airlines issues a report on two of the most comprehensive studies to date on labor productivity and vertical gap analysis benchmarks for the airline corporation. The results are two specialized reports: (1) global financial benchmarks using common-size statement ratios (vertical analysis), and (2) labor-productivity and utilization measures collected across borders.

While most vertical analyses merely focus on benchmarking against domestic ratios, Southwest pools statistics on tens of thousands of companies across over 40 countries, and applies a seven-stage methodology: (1) identification of industry classifications, (2) firm-level data collection and aggregation, (3) standardization of raw statistics, (4) filtering outliers, (5) calculation of global norms, (6) projection of deviations and gaps, and (7) projection of ranks and percentiles.

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