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The Airline Industry Challenges

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Presentation on theme: "The Airline Industry Challenges"— Presentation transcript:

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2 The Airline Industry Challenges
Cyclical Capital-intensive Labor-intensive Energy-intensive!!! Technology-intensive Heavily regulated Heavily taxed Customer Service demands Brutally competitive

3 Southwest Airlines’ Success
36 years of consecutive profitability (1973 – 2008) Largest airline in the world in terms of originating passengers (as of June 30, 2009) 20% of domestic passenger market share 3,200+ daily flights Service to 67 airports in 34 states (MKE – November) Over 500 Boeing aircraft Nearly 35,000 Employees Never furloughed Employees (most heavily unionized airline ~80%) World famous Culture

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7 The Southwest Brand Low fares Lots of flights Simplicity Reliable
Friendly Safe

8 Southwest Business Strategy
Best Customer Service Low Fare leader Low Cost producer Dominant market leader Excellent labor relations Consistent financial performance Strong balance sheet Direct Customer relationship Safe, clean, efficient operation

9 Best Customer Service DOT Metrics Fewest cancelled flights
#1 in Customer Satisfaction OnTime Baggage handling Fewest cancelled flights Fewest denied boardings Generous frequent flyer program Easy ticket terms All tickets reusable Two free checked bags, free snacks, etc. Great schedule Lots of flights Expanding network (MSP, BOS, LGA, MKE, PFN)

10 Best Customer Service

11 Low Cost Producer Point-to-point route network
High asset utilization (Aircraft, Airports) High Employee productivity Common fleet strategy (Boeing 737) Lower distribution costs Primarily avoid congested/restricted airports High quality execution Successful fuel hedging program Work hard Culture Low Costs are not low wages, old aircraft, lousy service

12 Fuel Hedging

13 Sustainable Low Costs Cost per Available Seat Mile (CASM)

14 Dominant Market Share “The Southwest Effect”
Select underserved/overpriced markets Lower coach fares by two-thirds Significantly increase flights Traffic explodes Quick market penetration Favorably impacts local economies Southwest in high demand

15 Dominant Market Share

16 Dominant Market Share #1 share in 90 of our top 100 O&D markets
60% share in our top 100 O&D markets 66% share of Intra-Texas traffic 69% share of Intra-California traffic 47% share of Intra-Florida traffic 38% share of Las Vegas traffic 39% share of Phoenix traffic

17 Excellent Labor Relations
THE MISSION OF SOUTHWEST AIRLINES The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. TO OUR EMPLOYEES We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

18 Consistent Profitability (excludes special items)

19 Strong Balance Sheet Investment grade balance sheet Modest debt
BBB – S&P and Fitch (senior unsecured rating) Baa3 – Moody’s Modest debt Leverage under 50% Strong cash balance of $2.4 billion Revolving credit facility fully available – $600 million Access to capital Unencumbered aircraft worth $6 to $7 billion Reduced capital spending Able to withstand “shocks” Prepared

20 Direct Customer Relationship
Distribution today vs. ten years ago

21 Direct Customer Relationship
Nielsen/Netratings recently reported that southwest.com was the largest airline site in the world in terms of unique visitors. southwest.com is the 4th largest travel site in terms of unique visitors (source: Comscore MediaMetrix). Approximately 80 percent of Southwest Customers are checking in online or at a kiosk. More than 7 million people subscribe to Southwest’s weekly Click ‘N Save s.

22 Strong Safety Record Robust data analysis/sharing programs
Top down commitment to Safety from Senior Leadership Work with Union groups and the FAA to foster a proactive Safety Culture No accidents resulting in an onboard fatality in SWA history

23 Southwest Airlines Co. The Future Challenging environment
Reengineering business model for higher costs Well prepared to adjust Among the Lowest Cost structures Fuel hedge protection Committed and engaged Employees Operational excellence Strong Brand rankings Tops in Customer service rankings More “Value” approach (No 1st and 2nd Bag Fees)

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