Air Travel
Southwest
Airlines are utilizing the location strategy of staying at current location while opening branches elsewhere.
Managing Quality
Managing Quality is essential to any business. Quality, itself, is the ability of a product or service to meet customer needs. Quality does not only rely on the
typical finished goods or related services. Quality is based on and encompasses many different aspects. Quality is important because it is used as a basis for a company’s reputation. Perceptions about a company’s goods and services can be based on the reputation, whether good and bad. Southwest ranked second among companies across all industry groups, and first in the airline industry in the magazine’s 2002 America’s Most Admired Companies List.
At Southwest Airlines, they have always governed the way they conduct business. It highlights their desire to serve Customers and gives Southwest direction when o make service-related decisions. Southwest feels it is another way of saying, "we always try to do the right thing!". Their customer focus and commitment has led the way to the airline industry's best cumulative consumer satisfaction record, according to statistics accumulated and published by the U.S. Department of Transportation. In addition, Southwest’s bold decision to maintain its operations at status quo post-September 11 has enabled it to gain market share. However, as the industry continues to ‘ramp up’, industry pricing is likely to remain under pressure.
Key Investment Positives
Southwest is regarded as the best situated US airline (Citigroup valuation). Southwest possesses the lowest unit operating costs and the strongest financial position. With the rest of the commercial airline system having cut about 20% capacity following the terrorist assaults (NY Times November 21, 2002), only
Southwest has maintained its full flight schedule. The airline is likely to gain market share, because some other carriers have shut down their low-cost airline subsidiaries. Southwest could benefit in the intermediate term it maintains the status quo. It concentrates mainly on flights to small cities, avoiding congested airports in metropolitan areas. Moreover, Airline industry officials generally believe that larger, international carriers more likely be terrorism targets. Southwest should start growing again before the rest of the industry, as the airline is to expand capacity by taking delivery of new planes throughout 2002. This will further accelerate Southwest’s market-share gains.
Financial Strength
Southwest in financial terms is the strongest carrier in the United States, if not the world. The company generated positive cash flows and was profitable in the 4th quarter of 2001 (Southwest’s annual report), when the rest of the US Airline industry had losses totaling about $3 billion in the worst period in aviation history. Southwest’s ratio of debt to total capitalization was 40% at the end of 2001, when the company had $2.3 billion in cash. Southwest focuses on short-term stabilization and maintenance of its cash position. Lower fuel prices and [next page]