1
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Historical Financial Analysis – Southwest Airlines
Whitney Parks
Department of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Aaron Blossom
Author Note
Whitney Parks
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to wparks@liberty.edu.
February 26, 2024
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Historical Financial Analysis
Southwest Airlines financial statements showed that they have progressively grown from
December of 2020 to December of 2022. Operating income has increased 0.51% from
December 2020 to 2022. This is favorable for Southwest because this means that the company
management is maintaining and controlling overall expenses and overhead, which corelates
with an increase in overall revenues. According Southwest Airlines Income statement, there was
an increase in net income from 2020 to 2021. Net income increased from -$3,704 (million) to
$977 (million). From 2021 to 2022 overall net income decreased from $977 (million) to $539
(million). The tremendous jump in net income from December of 2020 to December of 2021
correlates with events that were going on in the world at that time.
COVID-19 or coronavirus impacted the world as a whole and was declared a global
pandemic in 2020. The pandemic greatly impacted business worldwide causing business to shut
down, lose patrons, and close permanently. COVID-19 pandemic affected the aviation industry
tremendously. With governments closing their borders, having extreme restrictions on social
gatherings it made traveling difficult. The aviation industry as a whole took a huge hit during
this time period (Melas & Melasová, 2020). The decline in net income from 2021 to 2022
accounts for the increase in operating expenses and fuel to name a few. Southwest also took a
hit December 2022 when they had companywide systemic issue that cause millions of people to
be displaced over the holidays. As a result, the company was responsible for providing
assistance and accommodations to those individuals. Southwest also had to either give
individuals credits for their flights or reimburse members all together.
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Financial Ratios: Southwest vs. Delta Airlines
When determining how well a company is performing there are calculations that can be
conducted in order to determine the rate at which a company is performing (Thompson et al.,
2021). These calculations can show whether a company is performing well and be used to
compare companies to competitors. Ratios are used to measure multiple factors on financial
statements. The ratios provided in Tables 1-4 are Southwest Airlines results in comparison to
Delta Airlines. These ratios were gathered for southwest airlines using Appendix A-C and for
Delta Airlines using Appendix D-F.
Profitability Ratios
As shown in Table 1, the gross profit margin ratio shows that on average Southwest
airlines is acquiring about $0.65 per dollar in sales which is a favorable return. For Delta Airlines
they are averaging about $0.50 per dollar which is also a favorable return. In comparison to
Delta airline, Southwest airlines is maintaining about $0.15 / or 15.79% more of its profits. This
is a direct correlation to Southwest airlines having lower operating expenses. Southwest airlines
practicing a low-cost business structure is the likely reason for this (Thompson et al., 2021).
Delta Airlines has a greater operating profit margin, return on assets, return on
stockholders’ equity, Return on invested capital, and Earnings per share in comparison to
Southwest airlines. Conversely, Southwest airlines has a greater total return on assets. As shown
on Appendix A Southwest airlines has a total of $35,369 (million) in assets which is dramatically
less than the total assets of Delta airlines which is $72,288 (millions) as shown in Appendix D.
On average Delta Airlines is earning and retaining more per dollar per share than Southwest
airlines.
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Table 1: Profitability Ratios
Liquidity Ratios
Southwest having a current ratio of 1.43 is considered to be favorable. Having a current
ratio of 1 or greater indicates that the company will be able to cover its current liabilities.
Having a current ratio lower than one is an indicator that the company may not have enough
capital to cover its current liabilities. Delta airlines current ratio is 0.50 which is considered to be
unfavorable. The working capital of Southwest Airlines is about $17,359 greater than Delta
Airlines. This shows that Southwest airlines has more than enough funds to cover its current
liabilities and short-term obligations. Consequently, Delta airlines working capital ratio being
negative is unfavorable.
Table 2: Liquidity Ratios
Leverage Ratios and Price-earnings ratio
As shown in Table 3 both Southwest and Delta Airlines has a favorable total debt-to-
assets ratio both being under 1. Southwest airlines debt-to-asset ratio is slightly more favorable
5
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
than Delta airlines being that it is closer to zero. Both ratios are viewed as being relatively safe.
Delta airlines long-term debt-to-capital ratio being greater than 50% indicated that they rely
heavily on debt (Thompson et al., 2021). Southwest airlines having a ratio of 0.43 or 43% is
slightly favorable due to it being below 50%, however it is considerably more favorable for the
total debt-to-capital ratio to be at or below 25% (Thompson et al., 2021). Southwest airlines
have a stronger debt-to-equity ratio in comparison to Delta airlines. Having a ratio of 0.97 being
less than one is considerable favorable. Delta airlines ratio being 3.94 signals that it has a
disproportionate amount of debt in relation to equity. Southwest airlines have a favorable long-
term debt-to-equity ratio being 0.75. In contrast, Delta airlines long-term debt-to-equity ratio of
3.14 is considered to be unfavorable. Resulting in Delta airlines having a lower potential of being
approved to borrow funds (Thompson et al., 2021). Southwest airlines times-interest-earned or
coverage ratio is slightly unfavorable because it is below 3. However, Delta airlines times-
interest-earned ratio is significantly unfavorable being that it is negative.
Table 3: Leverage Ratios
Activity Ratios
6
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Giving the information provided in Table 4, both Delta and Southwest airlines have
favorable days of inventory ratios. In comparison, Delta airlines is able to convert inventory into
cash on average about 13.72 days faster than Southwest airlines. Southwest airlines having a
inventory turnover ratio of 10.55 is considered favorable. Conversely, Delta airlines inventory
ratio being 17.48 is 6.93 more than Southwest airlines which makes it more favorable. Both
Delta and Southwest airlines have favorable average collection ratio periods being 22.92/15.94.
Though this is true, Southwest average collection is more favorable than Delta airlines taking
them about 6.98 days less to receive payment on sales (Thompson et al., 2021).
Table 4: Activity Ratios
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
References
Thompson, A. A., Jr, Gamble, J. E., Peteraf, M., & Strickland, A. J., III. (2021). ISE Crafting and
Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases.
McGraw-Hill Education.
Melas, D., & Melasová, K. (2020). The Early Impact of Covid-19 Pandemic on the Aviation
Industry. Acta Avionica, 38–44. https://doi.org/10.35116/aa.2020.0005
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix A: Southwest Airlines Balance Sheet
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix B: Southwest Airlines Income Statement
10
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix C: Southwest Airlines Statement of Cash flows
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HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix D: Delta Airlines Balance Sheet
Consolidated
Balance
Sheets-USD
($)$
in
Millions
Current
Assets:
(Cash
and
cash
equivalents
‘Short-term
investments
‘Accounts
receivable,
net
of
an
allowance
for
uncollectible
accounts
of$23
and $50
Fuel,
expendable
partsand
suppliesinventories,
net
ofan
allowance
fr
absolescenceof
$136
and
$176
Prepaid
expenses
and
other
Total
current
assets
Noncurrent
Assets:
Property
and
equipment,
net
of
accumulated
deprecation
and
amortization
of
$20,370
and
$18,671
Operating
ease
right-ofuseasets
Goodwill
Identfiableintangibles,
net
of
accumulated
amortization
of
$902
and
$293
Equity
investments
Deferred
income
taxes,
net
(Other
noncurrent
assets
Total
noncurrent
assets
Total
assets
Current
Liabilities:
Current
maturities
of
debt
and
finance
leases
Current
maturities
of
operating
eases
‘Accounts
payable
‘Accrued
salaries
and
related
benefits
Fuel
card
obligation
(Other
acerued
liabilities
Total
current
liabilities
Noncurrent
Liabilities:
Debt
and
finance
eases
Pension,
postrtirement
and
related
benefits
Noncurrent
operating
leases
(Other
noncurrent
liabilities
Total
noncurrent
liabilities
‘Commitments
and
Contingencies
Stockholders
Equity:
‘Common
stock
t
$0.0001
par
value;
1,500,000,000
shares
authorized,
651,800,786
and
649,720,387,
shares
issued
‘Additional
paid-in
capital
Retained
earnings/{accumulated
deficit)
‘Accumulated
other
comprehensiveloss
‘Treasury
stock,
at
cost,
10,535,033
and
9,752,872
Total
stockholders’
equity
Total
liabilities
and
stockholders
equity
Airtratfic
‘Current
Lebilities:
Deferred
revenue
liability,
current
Noncurrent
Liabilities:
Deferred
revenue
liability,
noncurrent
Loyalty
program
Current
Liabilities:
Deferred
revenue
liability,
current
Noncurrent
Liabilities:
Deferred
revenue
liability,
noncurrent
ec.
31,
2022
$3,266
3,268
3,176
1424
13877
13011
33,109
7,036
9,753
5,992
2,128
325
934
59,277
72,288
2,359
74
5,106
3,288
1,200
4773
25,940
20,671
3,707
6,866
3,974
39,766
11526
1,170
(6,801)
13)
6,582
72,288
8,160
300
3434
$4aas
Dec.
31,2021
$7,933
3,386
2,404
1,098
ans
15,940
28,749
7,237
9,753
6,001
472
1,294
1773
56,519
72,459
1.782
703
4240
2,457
1,200
1.746
20,966
25,138
6,035
7,056
4,398
47,606
11487
(4a)
(7,130)
(282)
3,887
72,459
6228
130
2710
$449
12
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Consolidated
statements
of
Operations-
USD$)
Operating
Revenu
Total
operating
revenue
Operating
Expense:
Salariesand
related
costs
‘Aircraft
fuel
and
related
taxes
‘Ancillary
businesses
and
refinery
Contracted
services
Landing
fees
and
other
rents
Depreciation
and
amortization
Regional
carrier
expense
Aircraft
maintenance
materialsand
outside
repairs
Passenger
commissionsand
other
selling
expenses
Passenger
service
Profit
sharing
Aircraft
rent
Restructuring
charges
Government
grant
recognition
other
Total
operating
expense
Operating
Income/{Loss)
Non-Operating
Expen
Interest
expense,
net
Impairments
and
equity
method
results
GGain/loss)on
investments,
net
Losson
extinguishment
of
debt
Pension
and
related benefit
Miscellaneous,
net
Total
non-operating
expense,
net
Income/(Loss
Before
Income
Taxes
Income
Tax
(Provision)/Benefit
Nt
income/{Loss)
Basic
Earnings/{Loss)
Per
Share
(USO
per
share)
Diluted
Earnings
(Loss)
Per
Share
(USD
per
share)
(Cash
Dividends
Declared
Per
Share
(USD
per
share)
Total
operating
revenue
cargo
Operating
Revenue:
Total
operating
revenue
other
Operating
Revenue:
Total
operating
revenue
ec.
31,
2022
$
50,582,000,000
11,902,000,000
11,482,000,000
5,756,000,000
3,345,000,000
2,181,000,000
2,107,000,000
2,081,000,000
1,982,000,000
1,891,000,000
1,453,000,000
‘563,000,000
‘508,000,000
(424,000,000)
°
1,824,000,000
'46,921,000,000
3,661,000,000
(4,028,000,000),
(20,000,000)
(783,000,000)
(200,000,000)
292,000,000
(207,000,000)
(4,747,000,000),
1,914,000,000
(696,000,000)
$1,318,000,000
$207
2.06
so
$40,218,000,000
1,050,000,000,
$9,314,000,000
12
Months
Ended
Dec.
31,2021
$28,898,000,000
9,728,000,000
5,633,000,000
3,957,000,000
2,420,000,000
2,019,000,000
1,998,000,000
3,736,000,000
1,401,000,000
‘953,000,000
756,000,000
108,000,000
430,000,000
(@3,000,000)
(@,512,000,000),
1,408,000,000
228,013,000,000
£1,886,000,000
(4,279,000,000),
(837,000,000)
‘56,000,000
(619,000,000)
‘451,000,000
(60,000,000)
(4,488,000,000),
398,000,000
(218,000,000)
$
280,000,000
soaa
4a
so
$22,519,000,000
1,032,000,000
$6,348,000,000
Dec.
31,
2020
$.17,095,000,000
9,003,000,000
3,176,000,000
1,785,000,000
1,953,000,000
1,833,000,000
2,312,000,000
1,584,000,000
822,000,000
643,000,000
‘551,000,000
o
399,000,000
#,219,000,000
(2,946,000,000),
1,232,000,000
229,564,000,000
(22,463,000,000)
(@23,000,000)
(2,432,000,000),
(405,000,000)
(8,000,000),
219,000,000
137,000,000
{2,118,000,000),
(a5,587,000,000)
3,202,000,000
$
(12,385,000,000),
$119.43)
(as.49)
soao
$.12,883,000,000
{608,000,000
$3,604,000,000
13
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix E: Delta Airlines Statement of Operations (Income Statement)
consolidated
Statements
ofCash Flows-
USD
()$
in
12
Months
Ended
Dec.31,2022 Dee.31,2021
Dee.
24,2020
‘Cash
Flows
From
Operating
Activities:
Net
incore/(oss)
$1318
$280
(02,385)
‘Adjustments
to
reconcile
net
income
tonet
cath
provided
by
operating
activities:
Restructuring
charges
co)
5
aaa
Depreciation
and
amortization
2,107
1,998
2,312
Deferred
income
taxes
591
15
@,10)
(Gain/losson
fair
value
investments
a74
8)
88
Pension,
rostretirement
and
postemplayment
payments
(greater/lesthan
expense
(@s3)
(2,038)
398
20
337
2,432
(728)
(81)
1168
Fuel
inventory
(asa)
18)
354
Prepaids
and ather
current
assets
(857)
(63)
o
Profit
sharing
455
108
(@,650)
(Other
payables,
deferred
revenue
and
accrued
liabilities
1,226 1.986
240
Noncurrent
liabilities
(4a)
)
1185
Other,
net
146
7
681
Net
cash
provided
by/(used
in)
operating
activities
6363
3,264
733)
Property
and
equipment
additions:
Flight
equipment,
including
advance
payments
(4,495) (4,586)
(636)
Ground
property
and
equipment,
including
technology
(37a) (651)
(4,003)
Proceeds
rom
saleleaseback
transactions
o o
465
Purchase
of
equity
investments
(670)
°
(2,039)
Purchase
of
short-term
investments
(2,704)
(02,655)
(23,400)
Redemption
ofshort-term
investments
2,804
15,036
7,608
Other,
net
212
@2)
7
Nt
cash
used
in
investing
activities
(6.924)
(98)
(9,238)
(Cash
Flows
From
Financing
Activities:
Proceeds
fom
short-term
obligations
° ° 3,261
Proceeds
rom
long-term
obligations
° 1,902
22,790
Proceeds
rom
saleleaseback
transactions
o o
2,306
Paymentson
debt
and
finance
lease
obligations
(@.a75)
6,334)
(e559)
Repurchase
of
common
stock
° °
aa)
(cash
dividends
° °
(260)
Fuel
card
obligation
° °
364
Other,
net
(60)
80
(202)
Net
cash
(sed
in}/provided
by
financing
activities
(6535)
852)
19,356
Net
(Decrease/increase
in
Cash,
Cash
Equivalents
and
Restricted
Cash
(6,036) (2,486)
6,325
(Cash,
cashequivalents
and
restricted
cash
at
beginning
of
period
3,563
10,055
3,730
(Cash,
cashequivalents
and
restricted
cash
at
end
of
period
3.473,
3,563
10,055
‘Supplemental
Disclosureof
Cash
Paid
for
Interest
1,261 1,524
761
Non-Cash
Transactions:
Right
of
use assets
acquired
under
operating
leases
531
2113
1077
Flight
andground
equipment
acquired
under
financeleases
ot
1,049
381
Equity
investments
and
other
financings
330
0
280
Operatingleases
converted
to
financeleases
342
a
o
Airtratfic
‘Changes
in
certain
assets
and
liabilities:
Liabilitiesand
deferred
revenue 1,902
aaa
672)
Loyalty
program
‘Changesin
certain
assets
and
liabilities:
Labilitiesand
deferred
revenue
$324 $376 $455
14
HISTORICAL FINANCIAL ANALYSIS – SOUTHWEST AIRLINES
Appendix F: Delta Airlines Statement of Cashflows
