SOUTHWEST AIRLINES Case Study Help
Financial Analysis:
In 2015, the company’s operating profit margin increased to 21% as compared to 12% in 2014 as a result of increase of $1215 million in operating revenuesand reduction in the maintenance cost of aircrafts as old Boeing aircrafts were subleased and replaced with large aircrafts with low operating costs. The return on equity rose slightly in 2015 as compared to 2014, due to rise of $583 in stockholder’s equity, which indicates that the company might have issued new shares. The debt to equity ratio of the company declined significantly in the last three years as compared to 41% debt to equity ratio in 2012, this indicates that the company opted for equity sources to raise finance for expansion and other investments. The debt to equity ratio of the company is quiet low considering it operates in a capital intensive industry.
The asset turnover ratio decreased to 0.93 times in 2015 as compared to 0.94 times in 2014 due to increase of $1589 in total assets as a result of adding 52 Boeing 737-800 aircrafts in its fleet in 2015. This indicates that the company ability to generate income from its assets slightly declined in 2015 as compared to 2014. The dividend payout ratio decreased to 9% as compared to 13% in 2014 despite increasing dividend per share by 3.33% due to issuing new shares in 2015. (See Appendix 1)
Recommendation:
In order to avoid intense competition in the airline industry and restricting other companies from copying its business model, it will be suggested to the organization to patent its business models and strategies in order to enjoy the competitive position in the airline industry. Similarly, in order to maintain competitive position in the market and protect its business form the volatility in oil prices and changes in regulations, the organization can expand into new profitable businesses such as provide maintenance services to other airlines as it vast expertise and knowledge in employing cost efficient measures to maintain their jets and aircrafts. Considering the company has low debt levels, the organization will be easily able to finance the expansion.
Action plan:
In order to patent its business models and maintain its competitive position in the airline industry, the organization will need to hire a patent attorney and submit a provisional patent application to the U.S patent office. The organization will also require to submit the documentation of its business model and will need to provide justification on the commercial viability of the business model. As the business model of the company is quite successful, it is likely that the organization will obtain patent for its business models. Alternatively, in order to expand its business towards providing maintenance services, the company will need to contact the airline that require maintenance services, will send the company’s maintenance team to the premises where the company keeps their aircrafts so that they can assess the current condition of their jets, will share their expertise with the airline and will provide a detailed plan to the company regarding the provision of the maintenance services and costs associated with it........................
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