Southwest Airlines Headquartered in Dallas, Texas, Southwest Airlines is currently the U.S.’s largest domestic passenger airline, who transported 136 million passengers in 2014 alone and 1.5 billion since their inception in 1971 (Southwest, 2015b). The company has successfully created a distinctive corporate culture and business model centered on employing the friendliest people who provide exceptional customer service (Southwest, 2015b). Along with their employees, their dedication to delivering the lowest possible fares, eliminating change fees, and free checked bags, sets themselves apart in an extremely competitive industry (Southwest, 2015b). Due to the immense success of these developments, Southwest has been able to sustain an airline
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Additionally, Southwest’s capital gains growth rate for the next five years is 29.15%, which stands significantly higher than the projected industry (12.90%), transportation sector (8.56%), and S&P 500 (5.55%). Although these figures are only forecasts and are far from certain, many economic factors can both positively and negatively affect their financial outlook. For example, elements such as lower fuel costs, consumer demand, and labor negotiations are leading forecasters to predict a plateau of growth from airline industry stocks (Zacks, 2015a; Carey, 2015). Favorably, the price of oil has decreased enough and no longer represents the industry’s number one cost (overtaken by labor costs), which has allowed consumer demand to increase due to many airlines lowering fares (Carey, 2015). However, due to Southwest’s decision to continue to hedge fuel prices, Dastin (2015) contends the current drop in value will cost the company $308 million at the end of 2015, as well as produce a $1.3 negative hedge book value by the end of 2018. Although the 2018 value could improve if the prices of oil rises, Southwest’s decision has not allowed the company to fully recognize the same benefits as other airliners (Dastin, 2015). Conversely, …show more content…
Depicted in the Appendix A, both Southwest Airlines return on equity (ROE) ratios for the past three years and Delta Airlines ratio for 2014 were calculated from their balance sheet and income statement (United States Securities and Exchange Commission, 2015a; United States Securities and Exchange Commission, 2015b). Accordingly, one can determine that the company’s rising PM values represent the major reason for the upsurge. By effectively managing costs relative to their growing profits, Southwest has been able to increase their profit from $0.02 per every dollar earned in total revenue in 2012 to $0.06 in 2014 (United States Securities and Exchange Commission, 2014b). These values signify a company who continues to improve their operating efficiency through controlling their internal costs while also combating the external factors mentioned in previous paragraphs (Investopedia, 2015e). Similarly, although Southwest’s AT ratio remains consistent around the 0.92 value, it is significantly superior to Delta’s value of 0.75 and indicates Southwest is generating $0.17 more in returns from each dollar distributed towards assets (United States Securities and Exchange Commission, 2015a; United
Additionally, Southwest’s capital gains growth rate for the next five years is 29.15%, which stands significantly higher than the projected industry (12.90%), transportation sector (8.56%), and S&P 500 (5.55%). Although these figures are only forecasts and are far from certain, many economic factors can both positively and negatively affect their financial outlook. For example, elements such as lower fuel costs, consumer demand, and labor negotiations are leading forecasters to predict a plateau of growth from airline industry stocks (Zacks, 2015a; Carey, 2015). Favorably, the price of oil has decreased enough and no longer represents the industry’s number one cost (overtaken by labor costs), which has allowed consumer demand to increase due to many airlines lowering fares (Carey, 2015). However, due to Southwest’s decision to continue to hedge fuel prices, Dastin (2015) contends the current drop in value will cost the company $308 million at the end of 2015, as well as produce a $1.3 negative hedge book value by the end of 2018. Although the 2018 value could improve if the prices of oil rises, Southwest’s decision has not allowed the company to fully recognize the same benefits as other airliners (Dastin, 2015). Conversely, …show more content…
Depicted in the Appendix A, both Southwest Airlines return on equity (ROE) ratios for the past three years and Delta Airlines ratio for 2014 were calculated from their balance sheet and income statement (United States Securities and Exchange Commission, 2015a; United States Securities and Exchange Commission, 2015b). Accordingly, one can determine that the company’s rising PM values represent the major reason for the upsurge. By effectively managing costs relative to their growing profits, Southwest has been able to increase their profit from $0.02 per every dollar earned in total revenue in 2012 to $0.06 in 2014 (United States Securities and Exchange Commission, 2014b). These values signify a company who continues to improve their operating efficiency through controlling their internal costs while also combating the external factors mentioned in previous paragraphs (Investopedia, 2015e). Similarly, although Southwest’s AT ratio remains consistent around the 0.92 value, it is significantly superior to Delta’s value of 0.75 and indicates Southwest is generating $0.17 more in returns from each dollar distributed towards assets (United States Securities and Exchange Commission, 2015a; United