A case study of the Southwest Airlines

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With the slow but steady recovery of US economy from the recession it has been in the

recent past, the aviation industry has played a significant role in this effort to put the

economy back on track. On May 22, 2008, in a speech to the Aero Club of Washington,

former U.S. Air Force Secretary Michael Wynne declared that “Our country’s vastness and

its economy depend upon commercial aviation as the backbone of national and

international commerce… Global trade undergirds America’s strength and allows the

United States to project its economic power. In my opinion, the commercial aviation

industry [is] a crucial component of America’s economic strength. This has been true for

decades, and will remain true into the foreseeable future.” Similarly, in August 2008,

Moody’s Economy.com chief economist Mark Zandi remarked that “Aviation is the glue

that keeps the global economy together. Without widely accessible and well-priced air

travel, the global economy will quickly become less global.” We shall therefore examine

the specific impact of the Southwest airline in this regard on the US economy

Part 1

Introduction

Southwest Airline was established in 1967 and used the current name since 1971. It is the

third large Airline company in the US, and it famous for the low-cost strategy. The

company is headquartered in Dallas, Texas. According to a research, it has 44,831

employees in December 2013. Because of the low fare policy, Southwest attracts lots of

passengers. Therefore it operates more than 3,400 flights per day .Up to now, Southwest

only operate Boeing 737s, which is very important strategy to control the cost of the

company. Apart from this, Southwest is the biggest company who operates Boeing 737s.

Since the company was doing well, it was awarded a license to operate a unique flight

which brings great economic benefits for the company.

Southwest Airlines is famous for being a “low-cost carrier” and most importantly, it uses

low price to attract passengers. In the United States, Southwest airline is the most widely

used airline. A research conducted in 2005 shows that Southwest Airline is the second

largest airline and the most widely patronized. Because of the specific culture that

Southwest airline possesses in its operations which other airlines in the industry disdain, it

has gained a lot of accreditations and approval by the customers. Furthermore, Southwest

airlines became USA domestic intercity routes based Airlines, and has created a number of

good record in the aviation industry in America .For example, Southwest Airlines has the

highest net profit growth rate, the lower debt management rate than others, and the highest

credit rating in aviation industry in the United States. After the incident on 9/11, almost all

of the American Airlines got into trouble, but Southwest was an exception. After that

incident the number of airplanes by different companies dropped drastically. Besides, the

fuel price for the airplane went up. Therefore the whole airline industry lost $10 billion in

the United States in 2005.Delta Airlines and Northwest airlines filed for bankruptcy in the

same year, in contrast, American Southwest Airlines maintained profit for thirty-third

consecutive years in this year. It is worth mentioning that Southwest Airlines is the longest

consecutive profitable airline since 1973.

How have supply and demand conditions impacted the firm in recent year?

It seems that the high demand and supply of airline business is related to the booming of

economy. In recent years, people who live in America lived very well based on the

economic situation. Therefore, they want to take full advantage of their paid vacations to

enjoy their lives. Especially the people who live in the Northern part of the country

suffering the snowstorm, this group of people want to avoid the cold weather and fly from

the North to the South, maybe from New Hampshire to Florida. This is a kind of factor that

impacts the demand of airline business which means that the need of travel impacts the

airlines directly. Of course, still in economic background, business events also can affect

the airline industry. It is well-known that America’s commercial activity is more than any

other country in the world. Businessmen often fly to carry out business activities. That’s

the other factor which causes increase of the airline demand. It is necessary to mention the

“9/11″tragedy. After the most serious hijacking, almost all of the people were afraid to take

airplane to do a long distance travel. During that time, the airline industry endured a really

hard time. Airplanes only had only few passengers, but before the incident, the seating

capacities of airplanes were full. Each airline took various measures to save the low rate of

seats but nothing could change the situation. This means that the demand of people who

want to travel is the major demand of the airlines. The transportation of cargo is also very

important for the airline industry .For example, when is Apple is ready to launch new

products, it will rent many airplanes to deliver their products to the different locations

where they have Apple stores. For one thing, it protects the privacy of the product. For

another thing, airplane is the safest and fastest way to deliver packages. In some extent, the

demand of airplane is strongly related with the consumption of high-end good and

precision products which need high quality condition of delivery.

We can compare the plane to a large car; it can break down at any time. In fact, there are

billions of component parts to build an airplane. The consequence would be very serious if