Southwest Airlines financial statements analysis

Résumé du document

In 1998, US airlines carried a record of 551 million passengers1. At that time,the whole industry was in a pretty good shape2. Unfortunately, many things have changed since then. The 2001 terrorist attacks on the twin towers have marked a turnaround in the United States of America's history, and especially in the Airlines industry. From that time, people avoid flying too much and new restrictions arose, which made traveling sometimes inconvenient. As a result, thousands of employees were laid off, many airlines went bankrupt, and the Congress had to pass a $15 billion bailout package in order to reduce damages. Within this difficult context and the phenomenon of strong competition some have taken the turn of the 'low cost service' in order to attract more people and different economic classes. Some of them have done well in comparison to old school major companies. In this case we find Southwest Airlines, which has been the most profitable airline company since 19733.

Extraits

[...] We have to keep in mind that Southwest has been the most profitable airlines company since 1973. So even if the margin is low, the company never loses money www.investopedia.com 26 Page 27 of Return on Asset (Net Income / Assets) Definition 'It is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient a management is in using its assets to generate earnings.'16 Results 2007 SOUTHWEST Southwest has to be cautious because its return on assets has been decreasing year after year since 2003 (except from 2004 to 2005). [...]

[...] This enables Southwest to finance its investments using its sales. Cash flows from financing activities Net cash used in financing activities decreased from 2006 to 2007 but increased from 2005 to 2007. What is important to underline between 2006 and 2007 is the increase of repurchase of common stocks. By this way, the company tries to protect itself in keeping control and avoiding the dilution of the capital Page 15 of 33 II. External Events To better understand t h e financial data of Southwest Airlines and the moves made, like changing the strategy or adjustments, we have to assess what its environment is made of. [...]

[...] Today the domestic industry in the US is a low cost, low fare environment. Most of the major airlines have undergone cost restructuring, with United Airlines obtaining employee concessions in exchange for equity ownership. Some airlines sought the protection of Chapter 11 bankruptcy to restructure and reduce costs and then emerged as strong low-cost competitors. The majority have entered into cross-border alliances to improve profitability through synergy benefits Page 33 of 33 In 1993 President Clinton appointed the National Commission to ensure a strong competitive industry. [...]

[...] The result of these talks is eagerly awaited by airlines on both sides of the Atlantic. The last few years have seen the proliferation of airlines alliances as the so called 'global carriers' of the future are created. North American carriers have been very much at the forefront of this activity, and today much of the world aviation market is shared between several large global alliances, including KLM/NorthWest, Atlantic Excellence alliance, STAR, and the British Airways / American Airlines alliance which also include Canadian Airlines and Qantas. [...]

[...] However, it decreased by between 2005 and Page 14 of 33 The difference between 2006 and 2007 can be explained mainly by the fact that accounts payable and accrued liabilities that changed from -223 to 1,609. This budget was very volatile between 2005 and 2007. It could mean that Southwest changed its strategy. Cash flows from investing activities Net cash used in investing activities is increasing year after year. The company invests more and more money. The budget which increased most is the purchase of short term investments. As an effect, the sales of short term investments increased also. However, purchases are still more important than sales, the company thus made more investments. [...]