• How would the Advertising for a price cut or other alternative fit in with current promotions, advertising and year advertising budget? Industry/Market Analysis • Position Analysis: o Southwest is one of three major competitors in a Texas intrastate air service between Dallas-Fort Worth, Houston and San Antonio. Southwest currently (Feb 1st, 1973) is second in market share holding approximately 41.2% of the total Market. (See Exhibit 1). o Southwest is considerably smaller than both of the other competing airlines as far as planes (3 total compared to Braniff’s 69 and TI’s 45 total aircraft) which limited the amount of flights that could be increased in any one route.
If this year the sales mix is different than the historical average, explain what affect this would have on the breakeven point. Any change in proportion in which the products are sold has significant impact on the break-even point. ("Sales mix and break-even point analysis - explanation and example | Accounting For Management", n.d.) If the sales mix changes, the effect on the breakeven point will depend on the unit contribution margin. If the sales mix were changed in favor of the type of aircraft with the higher unit contribution margin than the breakeven point will actually be reduced because of the higher total revenue. Conversely if the sales mix were changed in favor of one of the lower contribution margin aircraft then the volume of aircraft sold would need to be increased in order to make up for the reduced profit per aircraft.
Financial Management Analysis MBA 6160 September 30, 2011 Table of Contents Introduction………………………………………………………………………………………3 Senior Management Profiles…………………………………………………………………..3 Competition………………………………………………………………………………………5 Financial Analysis……………………………………………………………………………….7 Financial Techniques………………………………………………………………………….11 Capital Funding………………………………………………………………………………...12 Working Capital………………………………………………………………………………..14 Summary………………………………………………………………………………………..16 Recommendations…………………………………………………………………………….17 Income Statement……………………………………………………………………………..19 Balance Statement…………………………………………………………………………….20 Cash Flow Statement………………………………………………………………………….22 References……………………………………………………………………………………..25 Introduction The airline industry is currently in turmoil, as rising fuel prices coupled with poor economic conditions and fierce competition makes it difficult for an airline to operate profitably. Therefore, this financial analysis is to prove the necessity for Delta Airlines to merge its cargo operations, passenger operations and aircraft maintenance with the other Skyteam Alliance Airlines. Thus, the cargo operations will be split off, and merged with the other cargo operations from the Skyteam Cargo Alliance to form a new company named Skyteam Cargo Handling, which would only handle the cargo activities for all the Skyteam Cargo Alliance members. The same would happen with their passenger business and maintenance. Delta Airlines, Inc. was incorporated in the State of Delaware, but their corporate office and primary hub is in Atlanta, Georgia.
Because of its efficient cost-saving strategies, Southwest's 37-year streak of profitability is unmatched in the airline industry. Here is a little information about its major competitors: • AirTran Holdings - is one of America’s largest low-fare passenger airlines. The airline has managed to achieve low operating costs despite relying on a hub-and-spoke system, in which most of its flights originate and terminate at its hub in Atlanta, Georgia. • American Airlines - the second largest airline in the world based on available seat miles and revenue passenger miles. On an
The smaller, more efficient aircraft is the trademark of Embraer’s success. In 2009 when the global ecnomic crisis hit sales fell by a substantial amount. Executive jets are normal goods so the overall decrease in consumer income along with fewer buyers led to a sharp decrease in demand. Another factor that causes demand to shift left is the tastes and preferences of the buyer. During rough financial periods people tend to look down on Executive Jets as unnecessary and overkill.
The A380 is a high capacity aircraft capable of transoceanic flights, while the 787 has relatively the same traveling distance, but a maximum passenger count of 280. Both aircrafts have at least a 15% reduction in operating costs per seat in comparison to their older counterparts. The real comparison comes into usability of each aircraft; The A380 requires major airport modifications at boarding gates to allow for its enormous size, also requiring larger taxiways and more runway for takeoff and landing. These limitations allow for this aircraft to be used only at major hub airports. The 747 is able to travel to all regional airports with ease, as its size is much smaller than the A380.
Such technological advancement placed a lot of financial burden on the operations of Jet Blue. The airline industry continues to feel the effect from the U.S economic slowdown and rise of crude oil/jet fuel prices, which have risen to record numbers with no predictable end in sight. The slow economic growth has compelled both business and individual travelers to cut back on travel expenditure thereby compelling airlines such as Jet Blue to initiate energy conservation measures, targeting specific markets and exploring the possibility of partnership with other airlines. Linked to the volatility of jet fuel prices is the increased in competition posed by new entrants to the airline industry. New entrants such as Virgin America are bracing the competition by offering lower fares to customers.
Southwest Airlines – 2008 Case Study Executive Summary Millions of people fly everyday. Southwest airlines provide low-fare travel among 58 cities in the United States. Although the airline industry suffered greatly in the aftermath of September 11, Southwest was able to continue to hold strong. Southwest airline continues to maintain steady sales as much of the industry was affected by changes in laws/regulations and competition entering the market. In the following report there is a brief introduction to Southwest Airlines and their strategy and then what, if anything, they need to do or not do to remain at the top and competitive in the airline industry.
The summer of 1971 found the once formidable company on the brink of disaster. Despite the nearly a $1 billion in sunk costs, Lockheed was in need of $250 million more to bring the plane to market, but its bankers would not commit without federal loan guarantees. Spokespersons for Lockheed claimed before Congress that the Tri-Star program was economically sound and that their problem was mere liquidity crisis. However, opposition to the guarantee focused on estimated break-even sales – the number of jets that would need to be sold for total revenue to cover all accumulated costs. This case illustrates the importance of NPV analysis in capital budgeting.
Also, with the unrealistic estimation of future growth in global demand for commercial jets, the guarantee of selling such a high number of Airbus’ units is doubtful. Finally, the actual sales figures is tantamount to determining share price and the overall effect of revenue on the shareholders. Company Objectives Lockheed is pushing to achieve more than just a break-even figure for the Airbus – they wish to exceed the break-even