Description

You’ve been told that the HR Director is pleased with the work you’ve completed for the organization and would like to take your contribution to the next level. She’d like you to review several strategic reports on the organization and provide feedback on how you think Southwest HR should move forward. Review the recommended sources in addition to your own research. Compile a strategy recommendation to the HR Director to be used for company-wide decisions. Include the following information in your report: An executive summary of the HR strategy project An analysis of current strategies and issues Identify the type of strategy Southwest Airlines is following. Identify 3 HRM implications for Southwest Airlines. Develop and justify business strategies for each of the 3 HRM implications. Determine an HR strategy. Use at least 2 sources other than those provided. Review the following sources to assist with your recommendation: Southwest Airlines case study on pages 101-102 of the text. SWOT report in detail on Business Source Complete. Format your citations according to APA guidelines.

COMPANY PROFILE
Southwest Airlines Co
REFERENCE CODE: DEFBDE99-9B78-4A63-BE9C-7EA7568D476E
PUBLICATION DATE: 22 Jun 2020
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Southwest Airlines Co
TABLE OF CONTENTS
Southwest Airlines Co
© MarketLine
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TABLE OF CONTENTS
Company Overview …………………………………………………………………………………………..3
Key Facts………………………………………………………………………………………………………….3
SWOT Analysis …………………………………………………………………………………………………4
Southwest Airlines Co
Company Overview
Southwest Airlines Co
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Company Overview
COMPANY OVERVIEW
Southwest Airlines Co (Southwest Airlines) is a provider of passenger airline services. The company
provides point-to-point flight services that offer direct nonstop routing as compared to hub-and-spoke
service. It also offers high-frequency short-haul routes supported with the long-haul nonstop service
between markets such as San Diego and Baltimore, Las Vegas and Orlando, San Diego and Newark,
Los Angeles and Nashville, and Houston and New York LaGuardia, and Oakland and Baltimore in the
US. It also offers various ancillary services such as upgraded boarding, EarlyBird Check-In (automatic
check-in), and transportation of pets and unaccompanied minors. Southwest Airlines is headquartered in
Dallas, Texas, the US.
The company reported revenues of (US Dollars) US$22,428 million for the fiscal year ended December
2019 (FY2019), an increase of 2.1% over FY2018. In FY2019, the company’s operating margin was
13.2%, compared to an operating margin of 14.6% in FY2018. In FY2019, the company recorded a net
margin of 10.3%, compared to a net margin of 11.2% in FY2018.
The company reported revenues of US$4,234 million for the first quarter ended March 2020, a decrease
of 26.1% over the previous quarter.
Key Facts
KEY FACTS
Head Office Southwest Airlines Co
PO Box 36611
Dallas
Texas
Dallas
Texas
USA
Phone 1 214 7924000
Fax
Web Address www.southwest.com
Revenue / turnover (USD Mn) 22,428.0
Financial Year End December
Employees 60,800
New York Stock Exchange Ticker LUV
Southwest Airlines Co
SWOT Analysis
Southwest Airlines Co
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SWOT Analysis
SWOT ANALYSIS
Southwest Airlines Co (Southwest Airlines) is a provider of passenger airline services. Strong financial
leverage, operational performance and fleet network are the key strengths off the company, even as
weak liquidity position remains a cause for concern. Growth prospects for aviation industry, positive
outlook for US T&T industry, business expansion and growth initiatives could provide new opportunities to
the company. However, fluctuations in fuel prices, stringent government regulations, increasing
manpower costs in US and COVID-19 impact on airline industry could affect the company’s performance.
Strength
Fleet Network
Financial Leverage
Operational Performance
Weakness
Liquidity Position
Opportunity
Positive Outlook for the US T&T Industry
Growth Prospects: Aviation Industry
Business Expansion
Growth Initiatives
Threat
COVID-19 Impact on Airline Industry
Fluctuations in Fuel Prices
Increasing Manpower Costs in US
Stringent Government Regulations
Strength
Fleet Network
Southwest Airlines has a strong fleet network. Based on the US Department of Transportation’s most
recent data, the company is the US’s largest carrier in terms of originating domestic passengers boarded.
As of December 2019, the company had 747 Boeing 737 aircraft of which 70 were finance leased and 52
were under operations. Out of 737 aircraft 505 are Boeing 737-700; 207 are Boeing 737-800; and 34 are
Boeing 737 MAX 8. The company also has plans to 380 aircrafts by 2026 comprising 219 MAX 8 Firm
aircrafts, 115 Max 8 aircrafts and 30 Max 7 Firm aircrafts. It served 101 destinations in 40 states, the
District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico,
Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and
Turks and Caicos.
Financial Leverage
The company’s financial leverage, indicated by debt-to-equity ratio, remained low in FY2019, which
enhances its earnings with less interest payments, and reduces the risk of defaulting. During FY2019, its
debt-to-equity ratio was 0.2, as compared to 0.3 in FY2018. In FY2019, the company recorded a 22.2%
decrease in debt to US$2,665 million, as compared to US$3,425 million in FY2018.
Southwest Airlines Co
SWOT Analysis
Southwest Airlines Co
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Operational Performance
Strong operating performance helps in enhancing investor confidence and the company’s ability to pursue
growth plans. In FY2019, the company recorded Revenue passengers of 134 million; Enplaned
passengers of 162.6 million; Revenue passenger miles (RPMs) of 131,345 million; and Available seat
miles (ASMs) of 157,254 million with load factor of 83.5%. It reported Average length of passenger haul of
980 miles; Average aircraft stage length of 748 miles; 1.3 million trips flown; and 206.3 million seats
flown.
Weakness
Liquidity Position
Limited cash and liquidity put the company at a disadvantage when funding any potential opportunities in
the market. Southwest Airlines’ current ratio was 0.6 at the end of FY2019. This suggests that the
company’s inability to meet its short-term obligations than some of its peers. Its total current liabilities
stood at US$8,952 million, an increase of 13.2% over the previous year. Its current portfolio of long-term
debt or capital leases also increased from US$606 million in FY2019 to US$819 million in FY2018.
Opportunity
Positive Outlook for the US T&T Industry
The company is likely to benefit from the positive outlook for the US T&T industry. According to the World
Travel & Tourism Council (WT&TC), direct contribution of US T&T industry to the country’s GDP is
expected to reach US$673.9 billion in 2028. The industry’s contribution to the US economy is expected to
increase 2.3% per annum to reach US$1,954.1 billion in 2028. Visitor exports are expected to increase
3.4% per annum, from 2018-2028, to reach US$291.7 billion in 2028. The increase in investments to
US$246.2 billion in 2028 is likely to spur the US T&T industry.
Growth Prospects: Aviation Industry
Southwest Airlines could benefit from the positive outlook for the global aviation industry, which could
drive the demand for its services in the aviation market space. According to the Airports Council
International (ACI) report, the global passenger volume is projected to reach 20.9 billion by 2040, with an
annual growth of 4.1%. China is forecasted to be the largest air passenger market with 4.0 billion
passengers, a 19% share of the global air passenger traffic. The US and India are expected to be second
and third largest air passenger traffic markets with 3.1 billion and 1.3 billion passengers, respectively.
Emerging economies including Indonesia, Turkey and Vietnam are expected to play significant roles in
the global passenger traffic market. The global air cargo volume is also expected to reach 203.4 million
tonnes by 2040. It is also expected that over 20% of all air cargo could be handled in the US alone by
2040, while China and the UAE could be considered as the second and third largest air cargo markets.
The US, China and India are estimated to be the primary markets for global aircraft movements by 2040,
representing 21%, 16% and 4% of aircraft movements, respectively.
Southwest Airlines Co
SWOT Analysis
Southwest Airlines Co
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Business Expansion
Southwest Airlines taking various initiatives to drive growth. The initiatives are expected to strengthen the
company’s operations and increase its returns. In January 2020, the company announced its plans to
launch Memphis, Tennessee, the US. In January 2020, the company opened its new maintenance facility
at William P. Hobby International Airport in Houston, Texas. In September 2019, the company launched
Baltimore-Providenciales, Houston-Cozumel services from March 2020. In November 2019, the company
expanded its service from Rick Husband to Houston. In March 2019, the company started flight services
to Hawaii, on the routes of Oakland International Airport (OAK) to Daniel K. Inouye International Airport
(HNL) and Kahului Airport (OGG).
Growth Initiatives
Southwest Airlines is taking various strategic initiatives to drive growth. The initiatives are expected to
strengthen the company’s operations and increase its returns. In August 2019, the company entered into
an agreement with Airlines Reporting Corp to expand corporate travel distribution strategy. In May 2019,
the company signed a purchase-and-leaseback agreement with BOC Aviation Limited for ten Boeing 737
MAX 8 aircraft equipped with CFM LEAP-1B engines.
Threat
COVID-19 Impact on Airline Industry
The COVID-19 outbreak has almost grounded the global airline industry. In early March 2020, the World
Health Organization (WHO) announced the outbreak of COVID-19 as a global pandemic. As the outbreak
has become rampant, several governments have imposed travel restrictions and stopped passenger flight
operations from many cities across the world. A slew of travel restriction includes EU’s 30-day ban on
non-essential travel to at least 26 European countries from the rest of the world; and US government’s
temporary ban on the travelers from Europe, as many countries have been affected by the virus in the
region. Many countries have since restricted passenger operations. As a result of these travel restrictions,
global air traffic is expected to decline further in the short-term. According to the International Air
Transport Association’s (IATA) projection on March 5, 2020, the global airline industry is expected to
experience a possible loss of US$113 billion in passenger revenues in 2020. Major markets such as
China, Australia, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam could face a combined
loss of US$49.7 billion passenger revenues in 2020. This could be also followed by the major European
markets such as Italy, Germany, Netherlands, Norway, Spain, Austria, France, Switzerland, Sweden and
the UK.
Fluctuations in Fuel Prices
The company’s business is highly dependent on the price and availability of jet fuel, and its performance
could be adversely affected by high volatility in fuel costs, increased fuel prices and disruptions in the
supply of jet fuel. The fuel market is volatile and changes according to market, political and economic
movements. Therefore, a modest decline or increase in prices could have a significant impact on the
Southwest Airlines Co
SWOT Analysis
Southwest Airlines Co
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company’s business operations. Several factors are responsible for such changes including domestic and
foreign supply of oil, global economic conditions, price and availability of alternative fuels, governmental
regulations, weather conditions and technological advances, among others. According to the International
Air Transport Association, jet fuel price was US$80.3 per barrel as of March 8, 2019, which increased
3.5% over that same period in the previous year. Such increase in jet fuel price could affect the
company’s overall profitability.
Increasing Manpower Costs in US
Increasing manpower costs could increase the company’s operating costs and hamper its profits. The
tight labor markets, government-mandated increases in minimum wages and a higher proportion of fulltime employees are resulting in an increase in labor costs. Effective January 2020, 21 states in the US
increased their minimum wages. Arizona, Alaska, Arkansas and Washington increased their hourly
minimum wage to US$12, US$10.19, US$10 and US$13.5, respectively. California, Colorado,
Connecticut, Delaware and Florida increased their hourly minimum wages to US$12, US$12, US$11,
US$11, and US$8.56, respectively. Whereas, states such as New Jersey, Ohio and South Dakota
increased their hourly minimum wages to US$11, US$8.7 and US$9.3, respectively.
Stringent Government Regulations
Airlines are subject to extensive regulatory and legal compliance requirements that result in significant
expenditures. For instance, the Federal Aviation Authority (FAA) is an authority body, which regulates all
safety issues in civil aviation operations. FAA’s safety jurisdiction includes aircraft maintenance and
operations such as equipment, ground facilities, dispatch, communications, flight training personnel, and
other matters affecting air safety. These will increase the aircraft operations cost significantly. The
company expects to continue incur expenses to fulfill the FAA’s regulations. These authorization laws,
regulations, taxes and airport rates and charges have also been imposed from time to time that
significantly increase operating expenses or reduce profit margins. As a result, complying with such laws,
regulations and actions increases the operating costs of Southwest Airlines which could have a significant
effect on its profitability and margins.
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