Southwest is doing well considering the economic conditions. Their second quarter earnings were $112 million, an increase from $91 million in last year’s second quarter. They have had many programs in place to promote flying. The cost of fuel is one of their biggest concerns. But they keep their fuel cost down though hedging. Approximately 55% of the third quarter fuel is hedged.
Quote from Gary Kelly regarding second quarter earnings:
“We have made excellent progress toward generating revenue levels sufficient to reach our 15 percent pretax return on invested capital target. Although business demand has not fully recovered, it has strengthened, and consumer travel demand is robust. We experienced record traffic levels during the quarter, despite flat year-over-year capacity, demonstrating a continuing and significant market share shift to Southwest, in part due to our unique and successful 'Bags Fly Free' policy. Further, we led the industry with our year-over-year domestic passenger revenue and corresponding unit revenue performance. It is, without question, our Employees who make it possible for Southwest to remain such a great Company, and I am very grateful for their hard work and steadfast delivery of outstanding Service to our Customers”(http://www.southwest.com/investor_relations/if_news_releases.html)
Although human capital is not on the balance sheet, it is obviously one of the greatest assets a company can have.
ReplyDeleteAlso, I noticed your company mentioned in Chapter 4, page 123. It was interesting to see that Southwest was benchmarking pit crews to help their turnaround time. Smart thinking.
I found an article from January that discusses fuel hedging strategies for Southwest, Delta, and United. It also talks about how Southwest buys more insurance against rising fuel costs. Southwest chooses to guard against a very rapid rise in fuel costs, while Delta and United foresee a slower rise and choose to pay less for insurance.
ReplyDeletehttp://www.investorplace.com/news-opinion/airline-stocks-fuel-hedging-strategies-united-uaua-delta-dal-southwest-luv.html
I think it's great that Southwest allows bags to "Fly free." I have enjoyed each experience on Southwest Airlines and recently flew on another airline. Paying for bags, delays, and unefficient service definitely made me wish I was flying Southwest. Great post!
ReplyDelete