7-2 Final Project I Submission: Corporate Valuation Report

FIN 330

2-1 Final Project I Milestone One

Cierra Bogan

September 25, 2021

I(A): Market

Southwest Airlines (LUV) was introduced to Texans in 1967 due to strict air regulations.

Southwest Airlines offers a wide range different fare rates for customers that’s looking for a

quick getaway to a customer that is flying to meet a client for work. “Southwest aims to provide

affordable domestic and short-haul international are travel to consumers and corporate

customers, as well as providing reliable cargo and shipping services”(Satair,n.d.). They also

partnered with Chase Bank to form multiple credit cards that will suit every customer needs

along with perks for the different credit cards they offer. All Southwest credit cards (Personal

and Business) offers cash back and anniversary points loaded to their account. Southwest has

also made it very easy for consumers to book their flight on their mobile app that capable with

Apple and Android devices. The company is always expanding their technology advancement

within their mobile application to make it easier for all ages to navigate. Even though the

pandemic did hit the economy hard, Southwest did not lay off any of their workers. “In the fiscal

year of 2020, Southwest Airlines generated over 9 billion U.S. dollars in revenue. The airline

saw incremental increases since 2010, before declining severely in 2020” (Salas,n.d.). In the

domestic market share, Southwest Airlines came in really high in 2020 with a 17.4 percent

market share.

I(B): Customer Base

Southwest Airlines accommodate their flyers with 2 free check bags and having the

lowest prices more than their competitors. They advertise multiple sales on their flights to certain

cities on certain dates. “In its 51st year of service, Southwest Airlines Co. continues to

differentiate itself from other air carriers with exemplary Customer Service delivered by more

than 54,000 Employees to a Customer base that topped 130 million passengers in 2019.

Southwest has a robust network of point-to-point service with a strong presence across top

leisure and business markets. In peak travel seasons during 2019, Southwest operated more than

4,000 weekday departures among a network of 101 destinations in the United States and 10

additional countries” (n.d.,2021). The more discounts that Southwest is offering is attracting

more customers and future customers. COVID hasn’t stopped much traveling since a lot of

companies have figured out how to stay afloat while following CDC regulations. Southwest

hasn’t had much competition to beat their monthly deals, Spirit Airlines is the closest airlines

that offer affordable, but they do not offer free bag checks. No airlines have that type of deal for

their customers. This is one of the main reasons Southwest Airlines is one the most successful

airlines. Budget friendly fliers love the fact that they can find a bargain and enjoy an inexpensive

vacation with their free 2 bag check in. Long as their customers is wearing their mask and

Southwest flights have a high on time rate. A recent downside to flying is that Southwest airlines

did stop serving alcohol to their patrons for a few months until people understood to take

accountability for themselves. The pandemic has caused a lot of customers to get in a uproar

over the mask mandate while on the flight, which resulted to being fined $10,000 and a 10 year

no flight ban. Some people might not think that it’s a huge deal but traveling can be stressful

when you can’t utilize the airplane for 10 years and go into debt trying to pay the fine off. Rules

are now much stricter for all airlines and airports due to the FAA showing no more leniency on

unruly customers.

I(C): Company Resources

“Southwest Airline’s key resources are its fleet of aircraft, its maintenance and service

infrastructure, its sales channels and IT infrastructure, its network of partnerships, and its

personnel” (Cleverism, 2017).

Southwest Airlines has a relationship with Boeing to only use their Boeing 737 Max 8

aircraft. That line of aircraft was introduced to Southwest customers in 2017 but unfortunately

that family of aircraft had some flight scares in 2020. So, Southwest took the proper measures to

ensure all their aircrafts were thoroughly mechanically checked and their pilots were properly

trained on how to operate that line of aircrafts. Due to their great diligent Southwest describes its

purposed philosophy of treating customers honestly and fairly, low fares staying low and ensure

every aircraft is well maintained before take-off.

I(D): Market Trends

Southwest grows with the technology trend and convenience for their customers. For

their customers, they even partnered with hotel brands, ride services and resorts to allow

customers gain points through their reward program. “They currently are the world’s biggest

airline by market value, that serves 102 destinations across the U.S., Mexico and Central

America” (Mazareanu, 2021). Southwest Airlines NYSE closed is at 52.85 on September

24,2021, which is not a bad closing week due to the COVID pandemic is still in the red zone.

Southwest is attracting new and current fliers to frequently fly to stay as the leading airline, so

they are having very low fares to grab a ticket. They company did see a major dip in revenue due

to the pandemic. There are also major risks that can happen in the airline industry. “Over the

course of the next 20 years, the global commercial aircraft fleet is expected to double to

approximately 45.000 aircraft, a growth particularly driven by increased air travel due to an

expanding middle class in emerging economies. Implementation of new programs and

technologies ties up significant capital” (Satair,n.d.). Please see the list below that is provided by

Satair of the top 10 risk in aviation industry:

“The top 10 risks in the aviation industry”

1. Volatility in the geopolitical and economic environment Managing the supply chain.

2. Managing the supply chain.

3. Competition in domestic and international markets.

4. Managing and retaining talent in the aviation industry.

5. Ability to perform in key contracts.

6. Compliance with a wide range of regulations and restrictions.

7. Incapacity to innovate.

8. Failure to realize the benefits of M&As and partnership.

9. Exposure to cybersecurity events.

10. Foreign currency and commodity price fluctuations.

II(A): “Please see Key Financial Information in the attached Excel Worksheet”

II(B): Financial Highlights

As we all know a lot of companies experienced a major revenue lost in 2020. On the

excel spreadsheet, it shows a significant lost when comparing the last three fiscal years.

Southwest and other airlines did suffer from a major lost due to low ticket sales. Southwest saw

the plunge in their revenue during the summer months due to a lot of the world was on lockdown

to minimize the spread of the COVID-19 virus. Summer is the season that all airlines rely on to

make their most revenue from due to schools are out and the everyday workers are taking time

off from work to vacation and spend time with their family.

References

Mazareanu, E. (2021, June 21). Topic: Southwest Airlines. Statista. Retrieved September 26,

2021, from https://www.statista.com/topics/3041/facts-and-figures-about-southwest-

airlines-co/.

Salas, E. B. (n.d.). The Statistics Portal. Statista. Retrieved September 25, 2021, from

https://www.statista.com/aboutus/our-research-commitment/1898/erick-burgueno-salas.

Satair. (n.d.). The top 10 risks in the aviation industry in 2020 and beyond. Retrieved September

26, 2021, from https://blog.satair.com/ten-risk-in-aviation-industry.

Southwest Airlines. Cleverism. (2017, November 8). Retrieved September 26, 2021, from

https://www.cleverism.com/company/southwest-airlines/.