Southwest Airlines Corporate finance

Southwest Airlines Corporate finance - Southwest Airlines...

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Unformatted text preview: Southwest Airlines Co.(SWA) is the American low-cost airline. This carrier flies approximately 3,510 flights a day; maintaining the third largest fleet of passenger aircraft among all of the world’s commercial airlines, according to Wikipedia, the free encyclopedia. The company’s mission “is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” (Company Perspectives, para. 1). This paper will review SWA's alternatives and make a recommendation of that financial decision with a cash flow budget for the next five years. Southwest Airlines’ success led to a number of airlines following its business model. That trend was termed the Southwest Effect. The original objective of SWA was to be able to travel between two points cheaper than driving between those same two points because of the energy crisis in the early 1970s. SWA "developed a template for entering the markets at rates that allowed the airline to be profitable, yet only on the basis of lean operations and high aircraft use" (Wikipedia, the free encyclopedia). The key concept of the Southwest Effect is that when a competitor enters a market, the market would change, usually growing dramatically. An example cited by Wikipedia, the free encyclopedia: "when fares drop by 15% from their historical averages, the number of new passengers in the market may not just double, but actually quadruple, or more". Thus the reason this Southwest Effect has become an inspiration for a number of smaller aircraft systems such as Canada's West Jet and Australia's Virgin Blue. According to Emery, Finnerty, and Stowe (2007), a firm cannot change its market value by changing the way it is financed but it can change its value by the size of its expected future cash flows. Southwest Airlines capitalized on this concept by focusing on increasing its future cash flow. Their focus on improving efficiencies was to lower costs in order to decrease fares. According to Southwest Airlines (2005), Low fares are only feasible with low costs (To Our Shareholders, para. 5). The lower fares resulted in additional fares, increasing volume. However, the lowered fares weren’t the only factor that created loyal customers....
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This note was uploaded on 02/18/2012 for the course HISTORY hs101 taught by Professor Lynch during the Spring '12 term at Dublin City University.

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Southwest Airlines Corporate finance - Southwest Airlines...

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