Financial Analysis of Southwest Airlines

Introduction 

This company analysis paper is about Southwest Airline, where overall financial statement has been carried out in which all the financial statements are analyzed, taking into account its data for last 5 years. In order to analyze the performance of the company, this report also gives the quantitative analysis of Southwest Airline. The reason for performing quantitative analysis was to get the measurement, valuation of financial instruments and performance evaluation which were further used to predict and interpret the overall performance. The channel used for quantitative examination in this report was ratio analysis, where all the major ratios where calculated along with the stock analysis of Southwest. The other half of this report covers business analysis where the overall industry and competitors are discussed with factual attributions. The final part of the company analysis paper includes recommendation which I proposed after analyzing all the financial aspects of Southwest Airline.

Company overview

Southwest Airline is an American-based, economical Airline, which was established in 1967. Southwest Airline is headquartered in Dallas, Texas, and most its passengers are those who travel within United States. The Airline provides point-to-point scheduled air transportation in United States. According to the estimates as of December 2011, Southwest Airline serves in 37 states and 72 cities all over United States (Annual report, 2011). Southwest Airline also has a subsidiary, AirTran Airways. Like Southwest Airline, AirTran also offer low cost domestic air transportation and in addition to that, it also provides service to selected international destinations as well. As of December 2011, AirTran served overall 68 international and domestic destinations. Southwest has grown large in past decades and now it is operating, along with AirTran, with a total of 698 Boeing aircraft as of December 2011(Annual report, 2011).

Southwest was formed on March 16, 1967 by Herb Kelleher and Rollin King with the objective of providing service inside the state of Texas. The reason for operating in Texas only was taken by Kelleher in order to avoid federal regulations, however other local Airlines; Continental Airlines, Braniff and Trans-Texas, launched a legal action against Southwest, which was eventually upheld in favor of Southwest later in 1970. Previously, Southwest had its headquarters in Regal Row building, in Dallas, but in 1990, it was shifted to its current headquarters. In year 1992, Southwest acquired Morris Air, which it's competitor at that pint of time. It was acquired for US $134 million in stock. After the acquisition of Morris Air, all its routes and services were taken over by Southwest Airlines, which included some destination which were previously not there in the Southwest list. During 1990s, Southwest established its place as prominent airline in US Airlines industry. Southwest was awarded its first Triple Crown award in 1992; in fact Southwest won it for 3 consecutive years (Annual report, 2011).

Financial Analysis

If we analyze the overall Airline Industry trends in US, we will come to know that lack of barriers to entry made the startup of an Airline comparatively easy, in fact the Airline ...