Southwest Airlines was founded in 1966. Considering its economics, the airline has more than 436 new jets flying to almost every United States’ city. According to the world airline statistics, southwest is the largest domestic airline. Its strength is that it keeps on improving its wages and taking extra responsibilities. The increased wages mathematically translate to high operating costs, something that may be seen as its weakness. Apart from the wages, terrorism attacks that have been experienced by the airline have also increased its operating costs and consequently become a threat since the consumers move away for fear of their lives being harmed. Terrorism thus remains the biggest threat to the airline (Williams, 2007).
In order to counteract these losses from the high operating costs, and make the company to have a higher competitive advantage, the management has capitalized on the airline’s fuel hedges. By so doing, the company becomes less vulnerable to changes in oil prices. On the other hand, these changes greatly diminish the profits of the rival organizations, especially when the oil prices rise.
Considering the impact of current and past fiscal policies in 2003, the fuel expenses of Southwest Airlines has been lower (Williams, 2007).
In 2005, the fuel cost in Southwest airline was 85% compared to those of its rival airlines. The hedging of the fuel was done at $26 for every barrel. When the oil prices went at $ 68 per barrel, in the second quarter period of 2005, the saving of Southwest Airlines hit the $196 million. This became the opportunity for Southwest Airline. Consequently, it earned the company a competitive advantage over those airlines who disregarded the hedging technique. Furthermore, the total sales of the company in 2007 were $ 9, 862.0 M, while its yearly growth in the same year was 8.5%. There was also a 29.3% growth in the net income of the company. In terms of the number of employees, there was also a growth of 5.2% in 2007 (Southwest, 2008).
References:
Southwest Airlines Company Overview. Retrieved on December 31, 2008 from
www.hoovers.com/southwest-airlines/--ID 11377--/free-co-factsheet.xhtml 2008
Williams, J. L. (2007). History and Analysis-Crude Oil Prices. Retrieved on January 7, 2009
from http://www.wtrg.com/prices.htm.
