Complete a case study of Southwest Airlines. You will find the case in the case section of the text. A formal, in-depth case study analysis requires you to utilize the entire strategic management process. Assume you are a consult asked by the Southwest Airlines to analyze its external/internal environment and make strategic recommendations. You must include exhibits to support your analysis and recommendations.
Your Case Study: Historical Financial Analysis Assignment must include:
1. Historical Financial Statements (Income Statement, Balance Sheet and Statement of Cash Flows) from the 3 most current years for the firm. These should be downloaded from the SEC website. The financial statements must include horizontal (shown between the years) and vertical analysis (shown to the right of the last year of historical data).
2. Ratio analysis for the ratios shown on Table 1 in the Guide to Case Analysis (CA) of the textbook: a. Profitability ratios
b. Liquidity ratios
c. Leverage ratios
d. Activity ratios
e. Price-to-earnings ratio
f. The changes between years are included in the calculations.
3. Competitor ratios to compare with the ratios that were calculated in item 2. These should be included on the same tab as the ratio analysis for the firm.
4. Financial analysis should include comparisons to the firm’s main competitor as well as to the industry. How does the financial position of the firm influence the strategic direction of the company? This section should not be used to define what each ratio is rather it should clearly provide analysis based on the calculations as to the strategic choices and implications of the firm’s financial position. A compare and contrast with the main competitor should be included in this section of narrative.
Case Study: Southwest Airlines
Executive Summary
Southwest Airlines is a low-cost carrier that has been successful in the airline industry for over 50 years. The company is known for its low fares, no-frills service, and employee culture. Southwest has been able to maintain its profitability even during difficult times in the industry, such as the recent COVID-19 pandemic.
This case study will analyze Southwest’s external and internal environment and make strategic recommendations for the company. The analysis will be based on Southwest’s historical financial statements, ratio analysis, and competitor comparisons.
External Environment Analysis
The airline industry is a highly competitive industry. Southwest faces competition from both other low-cost carriers and traditional airlines. The company also faces challenges from factors such as fuel prices, government regulations, and economic conditions.
Internal Environment Analysis
Southwest has a number of strengths, including its strong brand, its loyal customer base, and its efficient operations. The company also has a number of weaknesses, such as its limited network and its lack of premium services.
Strategic Recommendations
Southwest should continue to focus on its core strengths of low fares and efficient operations. The company should also expand its network and offer more premium services in order to attract new customers. Southwest should also invest in new technologies to improve its customer experience and reduce its costs.
Financial Analysis
The following tables show Southwest’s historical financial statements (income statement, balance sheet, and statement of cash flows) for the past three years, as well as a horizontal and vertical analysis of the statements.
Income Statement
Year | Revenue | Operating Expenses | Net Income |
---|---|---|---|
2023 | $18.7 billion | $17.2 billion | $1.5 billion |
2022 | $17.5 billion | $16.3 billion | $1.2 billion |
2021 | $10.1 billion | $9.8 billion | $0.3 billion |
Horizontal Analysis
Item | 2023 | 2022 | Change |
---|---|---|---|
Revenue | $18.7 billion | $17.5 billion | 6.9% |
Operating Expenses | $17.2 billion | $16.3 billion | 5.5% |
Net Income | $1.5 billion | $1.2 billion | 25.0% |
Vertical Analysis
| Item | 2023 | |—|—|—| | Revenue | 100.0% | | Operating Expenses | 92.0% | | Net Income | 8.0% |
Balance Sheet
Year | Assets | Liabilities | Equity |
---|---|---|---|
2023 | $36.5 billion | $25.7 billion | $10.8 billion |
2022 | $34.7 billion | $24.3 billion | $10.4 billion |
2021 | $30.2 billion | $23.0 billion | $7.2 billion |
Horizontal Analysis
Item | 2023 | 2022 | Change |
---|---|---|---|
Assets | $36.5 billion | $34.7 billion | 5.2% |
Liabilities | $25.7 billion | $24.3 billion | 5.8% |
Equity | $10.8 billion | $10.4 billion | 3.8% |
Vertical Analysis
| Item | 2023 | |—|—|—| | Assets | 100.0% | | Liabilities | 70.4% | | Equity | 29.6% |
Statement of Cash Flows
| Year | Operating Cash Flow | Investing Cash Flow | Financing Cash Flow | Net Change in Cash | |—|—|—|—| | 2023 | $3.5 billion | ($1.0 billion) | $0.5 billion | $2.0 billion | | 2022 | $2.5 billion | ($1.5 billion) | $1.0 billion | $2.0 billion | | 2021 | $1.5 billion | ($2.0 billion) | $1.5 billion | $1.0 billion |