Southwest Airlines Financial Analysis - 4454 Words

Executive Summary The strategy of Southwest Airlines (SWA) has remained the same, which is to give customers low-cost, point-to-point airfare, with excellent customer service. This simple strategy has resulted in SWA posting profits for 30 consecutive years. While other airlines are downsizing, SWA is showing slow steady growth. This performance is evident throughout their SEC Filings. First we will look at SWAs ROI and ROE compared to the rest of the industry. Two thousand and one and 2002 were difficult years for the airline industry. Most airlines showed negative ROIs and ROEs, however SWA posted an average ROI of 16.76% for the three years ending in 2002. Likewise, they also showed a substantial 12.87% growth in ROE, during the same†¦show more content†¦Southwest, in comparison, continued to grow. The growth rate slowed to just over five percent, in 2002. This was an attempt to keep the companys debt under control. The company did not add any new cities in 2002, and has no plan to add any more for the year 2003. However, Southwest added new stops to some of the current routs and added non-stop flights to other routs. Southwest hired more employees to satisfy the new security demands in the airports. The company, also, purchased eight new aircrafts, in 2002. Result of Operation The companys consolidated net income for 2002 was $241.0 million ($.30 per share, diluted), as compared to 2001 net income of $511.1 million ($.63 per share, diluted), a decrease of $270.1 million or 52.9%. Operating income for 2002 was $417.3 million, or 33.9% compared to 2001. Consolidated results for 2002 and 2001 included $48 million and $235 million in gains the company recognized from grants under the Air Transportation Safety and System Stabilization Act. Consolidated results for 2002 also included $36 million in additional passenger revenue from reduction in estimated refunds and exchanges. In 2002, the company had a total cash flow of $603.1 million, which was $394.7 less than the year 2001. The company purchased 23 new aircraft in the past two years. The payment for these aircrafts was recorded through the consolidation of a special purpose trust. Four of mentioned aircrafts were paid off before December 31, 2002. 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