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Commercial Airline Industry and Southwest Airlines

Commercial Airline Industry and Southwest Airlines. Commercial Airline Industry: Current Environment. The World’s Largest Airline US Airways and American plan to merge

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Commercial Airline Industry and Southwest Airlines

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  1. Commercial Airline Industry and Southwest Airlines

  2. Commercial Airline Industry: Current Environment • The World’s Largest Airline • US Airways and American plan to merge • The merger would reduce the number of major US airline companies to four—the new American Airlines, United Continental Airlines, Delta Air Lines, and Southwest Airlines • Together, they would control more than 70% of the US market • Oil prices have been projected to decrease in future years but they are still very volatile

  3. Industry Profile

  4. Industry Profile • The US airline industry (the majors, nationals, and regionals) generated total revenues of $195.6 billion in 2012, up 1.3% from $193.0 billion in 2011 • Industrywide passenger load factor (the percentage of seats filled) was up 0.8 percentage points to 82.8% in 2012

  5. Industry Trends • Shrinking number of competitors due to increase in mergers • Increase in “ancillary fees” • Long list of bankruptcies • Highly levered business • International business is decreasing due to a weak global economy • From 2001-2011 total financial losses fro the US airline industry exceeded $50 billion

  6. Porter's Five Forces

  7. How the Industry Operates • Revenues • Passengers, mail, cargo, services • Structure • Major, national, regional, charter • Fares • Variable pricing, price wars • Costs • Fuel, labor, equipment

  8. Southwest Airlines:Business Description • Southwest Airlines Co. operates Southwest Airlines and AirTran Airways, major passenger airlines that provide scheduled air transportation in the US and near-international markets • As of December 31, 2012, the company served 97 destinations in 41 states and consisted of 694 aircrafts • Known for conveniently timed flights, low fares, and no supplementary fees for baggage • Boeing is Southwest’s sole supplier for aircrafts • The company’s business is somewhat seasonal and greater during summer months

  9. Company Operations • Route Structure: Southwest provides point to point rather than hub and spoke service while AirTran operates on hub and spoke • Cost Structure: Low cost structure for low fares but challenging with increases in fuel prices • Fare Structure: “Wanna Get Away,” “Anytime,” and “Business Select”

  10. SWOT Analysis

  11. Key Financial Statistics • As of December 31, 2012 (in millions): • Total Revenue: 17,088 • Net Income: 421 • Total Debt: 2,883 • Total Assets: 18,596 • Growth over prior year: 9.1%

  12. Works Cited • Capital IQ • S&P NetAdvantage • SEC website • Module 1 from Valuation for Financial and Accounting Professionals

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