Southwest Airlines

Southwest Airlines - Assignment 5

Strategic Management - BUS 599

June 12, 2011

Southwest Airlines

Southwest Airlines, once known as Air Southwest Co. became incorporated in 1967. It wasn't until 1971 when Lamar Muse joined the company that they became known as Southwest Airlines. June of 1971 was when Southwest first began to fly with their destinations limited to Dallas, Houston, and San Antonio. There were six round-trip flights a day between Dallas and San Antonio with twelve round-trip flights a day between Dallas and Houston. In 1979, Southwest expanded their footprint to more than the state of Texas. Over the years, Southwest has continued to implement new technology, change policies, change aircraft, and focus on their customer base, which has helped them be one of the leading successful carriers in the low-cost carrier fleet, competing mainly with Airtran, Frontier, and JetBlue. Most recently, Southwest merged with AirTran, which allows Southwest, for the first time in history, to rival with airlines such as Delta. Southwest will not only expand their domestic network but they will for the first time venture into international travel with AirTran's services to the Caribbean and Mexico. They believe between the two companies, they will fly more than 100 million passengers a year. Southwest is making every effort to be the first truly national low-cost carrier, to have a domestic route network that is as comprehensive as the legacy network carriers (www.usatoday.com).

Corporate Culture Leveraging Competitive Advantage

Southwest mission statement says: "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" (www.southwest.com). Cul'ture: the development, improvement, and refinement of the originality, individuality, identity, and personality of a given people (www.southwest.com). It's all about working hard and playing harder.

The corporate culture at Southwest Airlines can be defined within three areas which are its core values, their people, and the management style. Southwest Airlines had two core values, LUV and fun. LUV was more than company ticker symbol at the Stock Exchange, but rather a value. LUV was the way for treating individuals, customers and employees, with respect and dignity while demonstrating a caring, loving attitude. This later became incorporated with red hearts on banners and posters as reminders of compassion that was expected toward employees and customers. Fun was also incorporated into the company's core value as a form of behavior that employees exhibited while performing their jobs. The company's day-to-day operations included jokes and pranks, as well as frequent company-sponsored celebrations to help boost employee morale.

Southwest believes their people are the single greatest strength and most enduring long-term competitive advantage. Southwest strongly believes if you keep your employees happy, they will in turn keep the customers happy. Southwest devotes time and energy to hiring great people who exhibit the "Southwest Way." The Southwest Way is to have a Warrior Spirit, a Servant's Heart, and a Fun-Loving Attitude. Southwest believes those three key characteristic "families" within the Southwest Way has defined their culture over the years.

After being hired, Southwest would train the skills needed to do the job. They believed they could train the skills, but couldn't train the attitude, therefore, they preferred to hire an unskilled person. Each employee hired on would go through an on-boarding program that allowed new hires to receive information and assistance from their first day to the end of their first year. That is a pretty extensive training program most companies do not offer.

The management team within Southwest Airlines were given roles to ensure that employees were proud of the company that they worked for. Managers were expected to spend at least one-third of their time observing their facilities so they could see first-hand what was happening. This also allowed for them to listen and respond to employee concerns and suggestions. Managers and executives were approachable, always ensuring there was an open-door policy, and actively listening to their employee's concerns, suggestions, and opinions. This open door policy allowed for employees to be innovative and creative, while being heard. Most initiatives within Southwest Airlines are employee led.

The corporate culture at Southwest Airlines encourages staff members to enjoy the company of which they are employed. When individuals feel secure with their company and/or job, they tend to be more involved and productive. Having a great team is a key success, which is exactly what Southwest Airlines has incorporated amongst their employees. By exhibiting this behaviour, it has compelled competitive advantages amongst other airline organizations.

Financial Performance

Growth Profitability and Financial Ratios for Southwest Airlines Co.

Financials

2006-12 2007-12 2008-12 2009-12 2010-12

Revenue USD Mil 9,086 9,861 11,023 10,350 12,104

Gross Margin % 49.5 46.2 59.8 63.6 63.9

Operating Income USD Mil 934 791 449 262 988

Operating Margin % 10.3 8 4.1 2.5 8.2

Net Income USD Mil 499 645 178 99 459

Earnings Per Share USD 0.61 0.84 0.24 0.13 0.61

Dividends USD 0.02 0.02 0.02 0.02 0.02

Shares Mil 818 768 742 741 747

Book Value Per Share USD 7.88 9.04 6.68 7.38 8.35

Operating Cash Flow USD Mil 1,406 2,845 -1,521 985 1,561

Cap Spending USD Mil -1,399 -1,331 -923 -585 -493

Free Cash Flow USD Mil 7 1,514 -2,444 400 1,068

Working Capital USD Mil -286 -395 87 682 974

Key Ratios -> Profitability

Margins % of Sales 2006-12 2007-12 2008-12 2009-12 2010-12

Revenue 100 100 100 100 100

COGS 50.46 53.77 40.22 36.36 36.11

Gross