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... lled by the government. With the route structuring no longer blocked, the company decided to begin service outside of Texas in 1979. By 1980 the company increased its aircraft inventory again by "adding its 22nd B737...It was the first B737 to be completely owned by Southwest Airlines" ("A Brief History," p. 2-3). Then in 1981 the company celebrated its tenth anniversary and made a commitment to continue providing excellent service to its passengers.
By this time, the company was beginning to gain the attention of other airlines due to its young age and continuous trailing profits. The company had again realized a positive net income of $34,165.00, while the other airlines were facing declined cash flows, which led to high interest debt financing to obtain money, due to the country's general economic environment. Almost ten years after deregulation, the adverse effects were still widely spread among the airline industry. Many of the airline markets had become highly intensified because of the public demand for air travel. The financial position of the company continued to be strong and this was recognized again through slow but determined service route expansions to other states. Additionally, the company earned several awards for its attention to customer satisfaction and maintaining the "Best Consumer Satisfaction record of any continental U.S carrier" ("A Brief History," p. 3).
It also received many other awards for baggage handling, on-time records, and the least of customer complaints. The public demand for air travel increased steadily through the mid-1980's causing increased competition to turn into a flow of profits for the airlines that did survive deregulation. But unfortunately, the airlines were faced with aging aircraft and they needed to be replaced. Many of the companies spent their profits on replacing their fleets with newer and larger various types of aircraft, which immediately depleted any profits gained. After almost twenty years of "spreading LUV all around" ("A Brief History," p. 3-4), the company "...announces reaching the billion dollar revenue mark and becomes a "Major" airline" ("A Brief History," p.
4) in the industry. Southwest Airlines now has the full attention of all the other airlines, analysts, and economists. Obviously this is a well-managed company, the mechanics of the infrastructure and strategies of the company have proven over time that they are sound and their intent works. Through the decade of the 90's, Southwest airlines continued to expand its service routes across the United States. Today, the airline services 58 cities utilizing over 350 B737's. The company has done so well that it has been capable of painting schemes on its aircraft in various themes to pay tribute to someone, something, or somewhere. The total net income continues to reflect the healthy economic financial status that Southwest Airlines has come to enjoy.
In 2002, the reported net income of the company was $240.97 million dollars. "Although our fourth quarter and full year 2002 financial results are disappointing relative to historical standards our performance relative to that of the industry as a whole has been excellent," said Chief Executive Officer James Parker ("Southwest Airlines posts," p. 1). During the 1990's the "public dissatisfaction with airline ticketing practices had grown-particularly because of the many restrictions on lower priced tickets and increases in the price of unrestricted tickets" (Transportation Research Board and National Research Council, p. 3). Due to the high cost of business travel, corporations were beginning to conduct their business meetings via video or conference calls, because they too were cutting back on traveling expenses.
This down turn of business travelers began to affect the airlines profits. But Southwest Airlines had already been offering low-fares and had established policies in effect and was unaffected by the public dissatisfaction or the declining profits experienced by the other airlines. The Southwest Airlines Company does have certain rule restrictions applicable to tickets and refunds. The company "...employs a relatively simple fare structure, featuring low, unrestricted, unlimited, everyday coach fares, as well as even lower fares available on a restricted basis. The majority of tickets sold are nonrefundable, which is the primary source of forfeited tickets. Tickets that are sold but not flown on the travel date can be reused for another flight, up to a year from the date of sale, or can be refunded (if the ticket is refundable). A small percentage of tickets (or partial tickets) expire unused.
Fully refundable tickets are rarely forfeited" (Annual Form 10-K Report, p.3 & 22).The new millennium brought renewed commitment from the Southwest Airlines Company to continue low-cost fares at unbeatable quality performance from its employees and executive management teams. It claims "...a title no other airline in the industry can claim: The only short haul, low-fare, high frequency, point-to-point carrier in America" ("A Brief History," p.5). At the turn of the century, the widespread financial problems of other airlines were beginning to be publicly known. Many of the "airlines financial woes, blamed by some on deregulation, can also be blamed on adverse economic conditions..." (Wolfe and NewMyer, p. 177). Some blame the terrorist attacks that occurred in September 2001. While others blame the incursion of regional jets, low-cost carriers, heavy tax burdens, and economic trends combined with rising fuel and labor costs were driving the profits of the companies lower and lower.
I do agree that regional jet aircraft are economically cheaper to operate, but they do not represent large losses of revenue for airlines. The incursion of low-cost carriers has made the market competitive and causes the other airlines to realize lower if any profits. The airline industry carries the heaviest tax burdens throughout the free-market in the US, and the heavy taxation does impede in overall profits. As for rising fuel costs, let's face it, airplanes need fuel to fly and the rising fuel costs can and are significantly affecting the airlines. But Southwest Airlines has attempted to keep their costs as low as possible by hedging fuel prices. Personally, I think all of the stated variables culminated with the lack of economic forecasting; the ability to react to current economic conditions; unsound financial consultation, recommendation, and executive decisions have rendered many airlines financial status as unpredictable and unstable. "It must be recognized that the air carrier industry has never been a strong financial performer..." (Meyer and Oster, p.
18). The higher wage rates demanded by the unions and prior precedent set by United Airlines, has caused continual problems with the airlines. Southwest Airlines is approximately 80% unionized. But the company offers profit sharing in the company to all of its employees. This profit sharing produces high productivity among employees to ensure the future success of the company, because they have a stake in the company. In fact, analysts say, "...The Company's famously faithful employees insist that Southwest is the most worker-friendly flyer there is..." ("Newsweek Web," p. 1) There is one factor that does exist today that has had a significant impact upon the entire aviation industry regardless of producer or consumer. On that fateful day, September 11, 2001, the entire US aviation industry was rendered incapacitated for 3 days.
No aircraft except military were authorized to fly within the boundaries of the continental US. This complete incapacitation caused devastating economic losses throughout the country regardless of what market. The aftermath of the attacks brought an array of additional costs required by the federal government through expansionary and discretionary fiscal policy to implement security measures. Unfortunately, the airlines were required to bear the burden of those monetary increases. From the lack of revenue and the increased security costs, the airlines turned to the federal government for assistance. The government responded through the establishment of the Air Transportation Stabilization Board (ATSB) dedicating a total of $10 billion dollars to the airline industry. Each airline received an aggregate amount based upon their aggregate losses from the complete grounding. Southwest Airlines total share of the ATSB monies was approximately $ 283 million dollars.
Since several airlines were already experiencing financial difficulty, the attacks just aggravated the financial status and conditions even worse. The monetary funds received from the ATSB were incapable of bringing companies out of the negative. The attacks affected consumers so badly, that the majority fear to fly since that day; leading to airlines struggling to fill the aircraft to capacity. This holds true especially in the northeastern corridor of the country. People have sought alternatives to their transportation needs, and it hasn't been air travel. Southwest Airlines resumed full service after the grounding was lifted.
The initial load factors were significantly low but over time they have been slowly increasing. The company continues to offer special low fares to the public that result in Southwest's ability to post profits. Their forward looking statements sound hopeful, yet they know their streak of 30 profitable years could be broken if the industry cannot return to pre-911 days or consumer confidence returns. A new Chief Executive Officer (CEO) was appointed over Southwest Airlines in July 2001, just months before the terror attacks in New York City. According to reports, the CEO has done a fabulous job leading the airline through a turbulent time in airline history. He has managed to reduce operating costs, keep in line with aircraft orders, and thwart laying off employees while other airlines have laid off thousands of its employees. Unfortunately, all the airlines face the same results when a seat is left unsold, it can never be regained back in revenue, and it is lost forever. Right now, the industry has faced and continues to face sharp downturns in the demand for air travel.
Unless we find solutions to the empty seat syndrome and the financial problems which are currently plaguing our industry, this country faces losing its major airlines; even Southwest Airlines is vulnerable to these factors which negates poor company strength and stability. The airline industry is grossly affected by economic trends in the general economy whether a recessionary or inflationary gap is in existence. I am uncertain if bailing out or re-regulating the airlines is an answer to the present day industry dilemma. Airlines today are faced with some tough issues to solve. Many are faced with no recourse other than to restructure the entire airline that is costly, filing bankruptcy, or simply closing the door. But there has been one airline, Southwest Airlines, that continues operating in the black and is still realizing profit, though not as much historically, but it is posting profits! ReferencesCompart, A. (2002, August 12). Blue Skies smile on low-cost carriers, for now. Travel Weekly. Retrieved April 20, 2003, from http://findarticles.com/cf 0/m3266/32 61/90753913/print.jhtmlGagnon, G.
(2002, December 9). James Parker/2003: Flying High. Newsweek Web Exclusive. Retrieved from http://www.msnbc.com/news/845251.aspMyer, J. R. & Oster, C.
V. (1987). Deregulation and the Future of Intercity Passenger Travel. Cambridge, Massachusetts, and London, England: The MIT Press, Massachusetts Institute of Technology Rueters. (2002). Southwest Airlines posts quarterly profit. USA Today. Retrieved April 7, 2003, from http://usatoday..com/travel/news/2003/2003-01-22-s wa-earns.htm Securities and Exchange Commission. (2002).
Southwest Airlines: 2002 Annual Form 10-K Report. Retrieved April 8, 2003 from http://www.iflyswa.com/investor relations/annual reports.html Southwest Airlines, Company Information. (n.d.). Investor Relations. Retrieved April 8, 2003 from http://www.iflyswa.com/investor relations/company information.htmlSouthwest Airlines, Southwest Airlines Fact Sheet. (n.d.). Fact Sheet.
Retrieved April 8, 2003 from http://www.iflyswa.com/about swa/press/factsheet.htmlSouthwest Airlines, The Mission of Southwest Airlines. (n.d.). Mission. Retrieved April 8, 2003 from http://www.iflyswa.com/about swa/mission.htmlSouthwest Airlines, We Weren't Just Airborne Yesterday. (n.d.). A Brief History. Retrieved April 8, 2003 from http://www.iflyswa.com/about swa/airborne.htmlTransportation Research Board & National Research Council. (1999).
Special Report 255, Entry and Competition in the U.S. Airline Industry, Issues and Opportunities. Washington, D.C.: National Academy Press. Wolfe, H. P. & NewMyer, D.
A. (1985). Aviation Industry Regulation. Board of Trustees: Southern Illinois University Press..
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