Southwest: Airline and Horizontal Analysis Essays

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Southwest Airlines (LUV)
Forty two years ago, Herbert D. Kelleher and Rolling W. King started Air Southwest Company and commenced customer service. In 1971, Southwest changed its name to Southwest Airlines Co. (“Southwest”). Since then, Southwest has grown to an extremely popular and successful airline company. They started from scratch with three 737 aircraft serving three Texas cities, and today, they manage more than 250 planes that provide flights to more than 50 cities throughout the United States. Southwest is an airline that is very popular when it comes to flying. Due to their low fare, free baggage, and friendly customer service, Southwest has proven to stay in the top throughout many economic ups and downs.
Over the past five years, Southwest has grown at a solid pace, with the exception of the economic downfall in 2009. In 2008, the company’s profit margin was 1.61%, in 2009, .96%, and then in 2010 it went to a whopping 3.79%. Southwest continues to grow stronger year after year. Even with the economic crisis, Southwest continues to hire more and more employees. In 2008, Southwest had 35,499 employees. In 2011 it had 45,392 employees. Southwest has been able to grow revenues from $14.9B USD to $16.3B USD. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 1.59% to 1.37%. This was a driver that led to a bottom line growth from $178.0M USD to $421.0M USD.

A company’s success is linked to the generation of cash, the company’s operations, the company’s ability to deal with adversity, the company’s ability to deal with opportunities, and the dividends the company generates. The financial health of a company is important to people within the company and people outside the company. Internally, it is the owner, executives, board of directors, and managers who are interested in financial analysis. Externally, it is the investors, lenders, regulatory agencies, auditors, and creditors who pay close attention to the financial statements. (See Appendix A) Internal and external users rely on horizontal analysis, vertical analysis and financial ratios to determine the financial health of a company. When doing a financial analysis it is important to look for comparable data from industry leaders and competitors, business conditions,
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