Southwest Airlines

Southwest Airlines:

Business Evaluation

Submitted by:

D. Dill

March 13, 2006

EXECUTIVE SUMMARY

Purpose, Method and Scope

Southwest Airlines began business over 30 years ago in Dallas, Texas, to provide customer with a low-cost way to fly and has grown to the third largest airline in the nation. To evaluate whether Southwest has good investment potential, there must be an evaluation of the airline industry and Southwest. The industry will be evaluated using Porter’s Five Forces Model. Southwest will be evaluated using a strengths-weakness-opportunities-threats (SWOT) analysis. After the assessments are complete, they will determine if Southwest stock should be purchased as in investment.

Strategic Analysis Findings

First, Porter’s Five Forces Model showed the airline industry to be high risk, but not to be discounted if held as part of a diversified portfolio. Second, a comparison between segments determined the U.S. airline market is more stable and faces fewer threats than the European market, so any investment will be made with a U.S. based carrier. Third, Southwest was shown to have outperformed other U.S. carriers. Fourth, Southwest business level analysis shows its functional strategies offset the threats and weaknesses revealed by the SWOT analysis and Porter’s Five Forces Model; it also shows Southwest is well positioned to take advantage of the strengths and opportunities showcased in the SWOT analysis. Lastly, Southwest has excellent organizational structure, controls and corporate culture to adapt to industry changes in the future.

Solutions and Recommendations

Although the airline industry is unpredictable, some airline carriers are more dependable and have better historical achievements than others. Southwest shows superior performance and implementation of business strategies. Therefore, the recommendation is to invest in Southwest.

INTRODUCTION

Southwest Airlines was established over 30 years ago by Rollin King and Herb Kelleher to provide customers with low fares, to ensure on time flight arrivals and departures, and create a fun experience for passengers. This novel approach to airline service was a critical event in Southwest’s founding. King and Kelleher used these ideas to develop and select the business and functional level competencies they pursued to become the fourth largest airline in the U.S. Southwest continues to pursue an aggressive low cost strategy which has helped it gain and maintain market share. However, with costs rising, Southwest has an almost Herculean task of