Financial Analysis of Southwest Airlines and United Airlines

Résumé du document

The airline industry has significantly changed over the last few years of this century. Incidents such as the terrorist attacks of September 11, 2001, of Madrid and London, Iraq war and fuel prices increase have caused losses since 2001 in the accounts of airline companies. Some of them declared bankruptcy, and some like UAL Corporation, faced financial crisis. After implementing a plan of restructuring to decrease costs, airline companies could renew with growth and profitability in 2006. However, as there was intense competition between traditional and low-cost carriers, it became a case of survival of the fittest. The Southwest Airlines and United Airlines are two main companies in the United States. It will be interesting to analyze and interpret the accounts of both these airline in order to understand how they transformed bankruptcy to success.

Extraits

[...] The cash generated in both years serve firstly to finance aircraft expenditures and to provide working capital. Net cash flows provided by investing activities was $ 1.495 billion in 2006 compared to $ 1.146 billion in 2005. The main investment operations done in 2006 were the payment of new aircrafts and progress payments for future deliveries of aircrafts. 6/14 Analysing Financial Statements 2. United Airlines United Airlines brief presentation: United Airlines is a major airline company of the United States and the principal subsidiary of UAL Corporation. [...]

[...] The average passenger fare also increased of compared to 2005 because Southwest applied less fares discounting thanks to the strong economic demand for air travel coupled Southwest Airlines 2006 Annual Report 3/14 Analysing Financial Statements Consolidated operating expenses for 2006 were $ 8.152 billions and increased of $ 1.3 billion since 2005, or compared to the increase in capacity. This amount is primarily due to an increase in jet fuel prices. Southwest average cost per gallon of fuel increased versus 2005. [...]

[...] United showed a decrease of $23 million in 2006 in cash flow provided by reorganization activities in 2006. Cash flow provided by investing activities was $ 12 million in 2006, compared to $ 291 million in 2005. Restricted cash decreased $ 203 million in 2006, compared to $ 80 million in 2005, and had slightly decreased since 2005 thanks to the fresh emergence from bankruptcy. The 10/14 Analysing Financial Statements company had also sale 9 non-operating aircraft and then it provided cash fro property and equipment. But this account still decreased. [...]

[...] But thanks to their restructuring accomplishments, they were able to rise their revenues and then to reach profitability in years after their bankruptcy and losses of $854 million in 2004. Salaries and related cost count for 23% in 2006 results, which is normal for a healthcare company. Reorganization income is for the first time in 2006 since their fresh-start plan, was about $ million. United could not distribute dividend to its shareholders because of restructuring plan. They were focused to continuously improve products and services delivery to customers, to reduce unit cost and increase unit revenues. [...]

[...] It could be interesting to see if in three or five years, the 4 All ratio results are calculated at the end of this assignment in an Excel sheet. 9/14 Analysing Financial Statements company would improve this ratio and then settle a better environment for its customers and creditors. FINANCIAL LEVERAGE: The debt ratio indicates that United had of debt, relative to its assets. This shows a high risk for investors because of its important debts. This is linked to United restructuring plan over the past 4 years: the company had invest in intangible assets in 2006, and to finance it required long-term debt. [...]