Southwest Airlines Analysis

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Economic System

Company Overview

Southwest Airlines (Southwest) is an air-carrier that primarily provides short haul, high frequency, point-to-point, low-fare services in 31 US states. The company operates only in the US. Southwest has been ranked the top US domestic airline by the Bureau of Transportation Statistics (BTS) of the US Department of Transportation (DoT). It is headquartered in Dallas, Texas and employs about 31,000 people.

The company recorded revenues of $6530 million during the fiscal year ended December 2004, an increase of 10.0% over 2003. The increase was primarily attributable to an increase in revenue passenger miles (RPMs) flown and an improved load factor for the airline. The operating profit of the company during fiscal 2004 was $554 million, an increase of 14.7% over fiscal 2003. The net profit was $313 million during fiscal year 2004, a decrease of 29.2% from 2003.

Business Description

Southwest is a domestic US airline that provides short haul, high frequency, and point-to-point, low-fare services to and from 60 airports in 59 cities across 31 US states. The airline has been ranked the top US domestic airline (in terms of number of passengers) by the BTS.

The company operates a point-to-point route system that provides direct routings for customers. As a result there are fewer connections to be made on routes, so total trip time and delays are minimized. Approximately 78% of the company's customers fly non-stop. In addition, Southwest serves many conveniently located satellite or downtown airports, which are typically less congested than the hub airports of other airlines.

The company does not assign seats and customers are dealt with on a first-come first-serve basis. This is in order to ensure an efficient and quicker service at the departure gate, allowing the plane to turn around more quickly. The added revenue received as a consequence of the extra routes flown means that Southwest is able to maintain its low fare policy.

Southwest was the first major US airline to offer customers the option of ticket-less traveling. About 85% of customers currently use this service. The airline uses the SABRE computer reservation system to provide automated ticket bookings. Southwest also offers customers the chance to purchase their ticket through an on-line booking service at the company website. This accounts for about 50% of ticket sales.

Southwest presently operates six reservation centers located in San Antonio, Houston, Phoenix, Albuquerque, Chicago and Oklahoma City.

Major Products & Services

Southwest is the largest US airline in terms of domestic customers boarded and currently serves 59 cities in 31 states. The airline currently operates more than 2900 flights a day.

The company's products and services are categorized under the following different segments:

• Domestic flights

• Arrival suites

• Frequent flier loyalty program

• Cargo transportation services

• Military and government services

• eServices centers

• Contract flight training

• Full flight simulator

• eTicket services

• Airport Lounge

Revenue Analysis

The company recorded revenues of $6530 million during the fiscal year ended December 2004, an increase of 10.0% over 2003. The increase was primarily attributable to an increase in revenue passenger miles (RPMs) flown and an improved load factor for the airline. The company operates only in the US.

Southwest generates revenues through its three business divisions: passenger (96.2% of total revenues during fiscal 2004), freight (1.8%), and other revenues and commissions (2.0%).

Revenues by Division

During the fiscal year 2003, the passenger division recorded revenues of $6280 million, an increase of 9.4% over fiscal 2003.

The freight division recorded revenues of $117 million in 2004, an increase of 24.5% over fiscal 2003.

Other revenues and commissions amounted to $133 million