Factors contribute to the successful finance of Southwest Airline.
...es’ financial success are its low- cost, “keep-it-simple” approach in its operation structure and its innovative, highly productive employees (mentioned in the human resource frame). Unlike other airlines, Southwest Airline only flies Boeing 737 planes. This eliminates the extra high cost of training pilots as well as other supporting staff, increase reliability and boost efficiency. (4) Instead of utilizing multiple expensive, time consuming Hub-and Spoke operations, Southwest Airlines’ short-haul, high-frequency, and ‘point-to-point” route structure dramatically cut down the cost of ground operations. They fly non-stop flights and stay in the air longer than other major airlines strategically. By utilizing airports with low landing fees, Southwest Airlines shift routes frequently to meet the demand of passenger load. In addition to the route structure, the skyrocketing cost of fuel is also a major factor affecting the financial status of the airline industry. “A change in fuel prices of just one cent per gallon would impact Southwest Airlines’ operating expense by approximately $ 12 million per year. Since jet fuel is not traded on an organized future exchange, liquidity for hedging is limited. Southwest Airline manages this market risk by using crude oil and heating oil contracts for fuel hedge as an insurance against significant increases in jet fuel prices.” (1) In terms of the distribution, there are also several unique strategies making a positive impact on the finance of Southwest Airlines. First of all, Southwest Airlines was the first major airline to introduce a Ticketless travel option (1) In November 2003, it consolidated its 9 telephone reservation centers to 6. In the month following, it completely stop paying commissions on travel agency. This may result in an estimated reduction of operating cost by approximately 40 million dollars annually. At the end of 2003, more than 85% of Southwest Airlines’ customers chose the Ticketless travel option and approximately 54% of the passenger revenue came through its internet site. (1) Secondly, Southwest Airline has a unique Frequent-flier Plan as well. Instead of accumulating actual flight miles, it encourage passenger loyalty by counting flight credits. Southwest fliers get the same flight credit no matter what the distance of the flight is. (3) As little as 6 short-haul round-trip flights within 12 month, a passenger can get...