bryan brown john bynum. southwest is experiencing financial difficulties following the expiration...
DESCRIPTION
Volatile fuel prices Inconsistent culture High cost of labor Heavily unionized No longer the low cost providerTRANSCRIPT
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Southwest Airlines
Bryan BrownJohn Bynum
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Case Question
Southwest is experiencing financial difficulties following the expiration of their oil hedging contracts
Make a recommendation for the companies strategy for the next 5 years
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Problems
Volatile fuel prices Inconsistent culture High cost of labor
Heavily unionized No longer the low cost provider
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Core Competencies
Point to Point strategy 2 free bags No seating chart/ class 737 sole airframe Put the employee first, everything
else will follow
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Financials
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Operating Profit Margin
2010 2011 2012 2013 through Q2 2014
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Southwest Operating Profit MarginDelta Operating Profit MarginAmerican Operating Profit MarginUnited Operating Profit Margin
*see Fig. 1
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Rate Comparison
Southwest American US Airways0
100
200
300
400
500
600
700
800
900
1000
Raleigh - San An-tonioRaleigh - New YorkRaleigh - Jacksonville
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Advertising
• Abandoned humorous advertising campaign
• Emphasizing that they care• Messages on carts and napkins• Positioning themselves as more
professional
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Outward Culture
A warrior spirit A servant’s heart A “fun-luving” attitude Employee recognition program
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Inward Culture
Shift in culture Employees first, the rest will follow Kelleher to Kelley
2007
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Financials
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National Comparative Advantage
National Comparati
ve Advantage
Factor conditions
Related and
Supporting Industry
Demand Conditions
Strategy, Structure,
Rivalry
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Recommendation
Be a best cost provider Reduce Fuel Consumption Expand to Alaska/ Hawaii Hedge fuel Labor Relations
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Lowering Fuel Cost
Fuel saving policy- top down Practice maintaining a higher cruise
altitude -40,000 ft. Glide down to airport 6,875 gal. * .01 = 68.75 gal. 68.75 * 3,400 Daily flights = 233,750
gal. 233,750 * 365 = 85,318,750 gallons 85,318,750 gal. * $3 = $255,956,250
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National Expansion
Alaska/ Hawaii only serviced by one major carrier- Alaska Airlines
Fleet consists of exclusively Boeing 737’s
Higher profit margins on longer flights, more time in air, less time in terminals/ fewer terminal fees
*See Fig. 2
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Alaska Acquisition
Push for increased presence in Western US
Seattle- Alaska headquarters Spokane Los Angeles Chip away at Alaska’s market share
*See figure 3
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Alaska Acquisition
Shares: 132,631,936 Current Price: $55.42 Premium: $57.00 Total Cost: $7,560,020,352.00
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Decision on Hedging
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Labor
Have more transparency within the ranks
Satisfy the internal customer Go back to employee first,
everything else will follow
See Fig. 4
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Timeline
2015 2016 2017 2018Today 2019
Dec 29 Airtran dissolves
Expand national operations in western US
Buy Alaska Airlines
Hedge fuel
Implement fuel saving practices
Alaska Airline fully integrated
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References
Southwest Airlines- Fuel Hedging Case Analysis by Vishal Prabhakar
NASDAQ finance- Income Statements Southwest 2013 Annual Report Delta 2013 Annual Report COB Case packet Frank Miner- personal interview Boeing.com Ogj.com
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Questions?