Wk 5, org 535: summative assessment: strategies

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Summative Assessment: Strategies

Assignment Content

You have been told that the HR Director is pleased with the work you have completed for the organization and would like to take your contribution to the next level. She would like you to review several strategic reports on the organization and provide feedback on how you think Southwest HR should move forward.

Review the recommended sources in addition to your own research.

Compile a strategy recommendation to the HR Director to be used for company-wide decisions. Include the following information in your report:


· Introduction

· An executive summary of the HR strategy project

· An analysis of current strategies and issues

· Identify the type of strategy Southwest Airlines is following.

· Identify 3 HRM implications for Southwest Airlines.

· Develop and justify business strategies for each of the 3 HRM implications.

· Determine an HR strategy.

· Conclusion

Use at least 2additional sources other than those provided below. Review the following sources to assist with your recommendation:

· Southwest Airlines case study on pages 101-102 of the text. (See Southwest Airlines Case Study)

Reference: Noe, R, Hollenbeck, J., Gerhart, B., & Wright, P. (2018). Human resource management (11th ed.). McGraw-Hill Education. 

· SWOT report in detail on Southwest Airlines SWOT Analysis (See Attached)

Reference: Southwest Airlines Co SWOT Analysis. (2021). Southwest Airlines Co. SWOT Analysis, 1–7. https://web.s.ebscohost.com/bsi/pdfviewer/pdfviewer?vid=6&sid=e052f27e-414d-417e-85d4-4f55e6b159e6%40redis

Format your citations according to APA guidelines.

***Please use page # with in-text citations

Example (Noe et al, 2018, p. 101)

Example (Southwest Airlines Co SWOT Analysis, 2021, p. 5)


Southwest Airlines Comes of Age

Page 101

Southwest Airlines has perennially been considered a model of how an innovative strategy combined with strong culture and a strong relationship between management and employees can lead to business success. The company was founded in 1967 and was built on low costs, labor harmony, simplicity, and rapid expansion. Although labor strife seems endemic to the airline industry, Southwest always stood up for its workforce, which seemed unflinchingly committed to the company’s success.

However, as the company has expanded and grown older, the original strategy seems to be in peril. Mergers among the major airlines such as American/US Airways, United/Continental, and Delta/Northwest have enabled them to reduce their cost structures and come closer to Southwest on price. In addition, ultra-discount airlines, such as Spirit Airlines, can undercut Southwest on price. Finally, airlines like JetBlue and Virgin America compete for Southwest’s traditional middle-class customers.

While Southwest faces a number of competitive and technological challenges, its labor costs stand front and center. Because Southwest is not expanding as fast, the company cannot hire as many new employees at the lowest rungs of the wage scale. With 83% of its workforce unionized, Southwest now seeks to negotiate wage freezes and tighten rules on sick time. In addition, the airline wants to hire more part-time workers and has floated the idea of outsourcing a number of jobs.

Employees pine for the former CEO and co-founder, Herb Kelleher, who was beloved by employees. Says Randy Barnes, a union representative for the ramp workers, “Ever since Herb . . . left, this has been more of a corporation and less of a family.”

Page 102

Southwest Airlines’ challenges face every company sooner or later. Although firm success can be sustained for a number of years, at some point competition begins to take its toll. In addition, with changes in leadership (Herb Kelleher retired from the CEO role and handed it off to Gary Kelly in 2004), it is difficult to maintain the same strong culture. This has profound effects on how people must be managed to sustain success amid a changing competitive landscape.

In spite of these challenges, Southwest’s performance remains strong. The airline made a record $2.24 billion in profits in 2016. In addition, the airline will continue to expand internationally, providing new opportunities for revenue growth.


Noe, R, Hollenbeck, J., Gerhart, B., & Wright, P. (2018). Human resource management (11th ed.). McGraw-Hill Education. 


Southwest Airlines Co


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Southwest Airlines Co

Southwest Airlines Co
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Company Overview ………………………………………………………………………………………….. 3
Key Facts …………………………………………………………………………………………………………. 3
SWOT Analysis ………………………………………………………………………………………………… 4

Southwest Airlines Co
Company Overview

Southwest Airlines Co
© MarketLine

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Company Overview


Southwest Airlines Co (Southwest Airlines) is a provider of passenger airline services. The company
provides point-to-point flight services that offer direct nonstop routing as compared to hub-and-spoke
service. It also offers high-frequency short-haul routes supported with the long-haul nonstop service
between markets such as Dallas Love Field and Houston Hobby, Denver Chicago Midway, Los Angeles
International and Las Vegas, Phoenix and Denver, Los Angeles and Nashville, Los Angeles and
Baltimore, and San Diego and Baltimore in the US. It also offers various ancillary services such as
upgraded boarding, EarlyBird Check-In, and transportation of pets and unaccompanied minors.
Southwest Airlines is headquartered in Dallas, Texas, the US.

The company reported revenues of (US Dollars) US$9,048 million for the fiscal year ended December
2020 (FY2020), a decrease of 59.7% over FY2019. The operating loss of the company was US$3,816
million in FY2020, compared to an operating profit of US$2,957 million in FY2019. The net loss of the
company was US$3,074 million in FY2020, compared to a net profit of US$2,300 million in FY2019.
The company reported revenues of US$2,052 million for the first quarter ended March 2021, an increase
of 1.9% over the previous quarter.

Key Facts


Head Office Southwest Airlines Co
2702 Love Field Dr
PO Box 36611
PO Box 36611

Phone 1 214 7924000
Web Address www.southwest.com
Revenue / turnover (USD Mn) 9,048.0
Financial Year End December
Employees 56,051
New York Stock Exchange Ticker LUV

Southwest Airlines Co
SWOT Analysis

Southwest Airlines Co
© MarketLine

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SWOT Analysis


Southwest Airlines Co (Southwest Airlines) is a provider of passenger airline services. Strong liquidity
position, fleet network and business expansion are the company’s key strengths, even as operating
performance remains a cause for concern. Growth prospects for aviation industry, positive outlook for US
T&T industry and growth initiatives could provide new opportunities to the company. However,
fluctuations in fuel prices, increasing manpower costs in US, coronavirus (COVID-19) and stringent
government regulations could affect the company’s performance.


Fleet Network
Liquidity Position
Business Expansion


Operating Performance


Positive Outlook for US T&T Industry
Growth Prospects: Aviation Industry
Growth Initiatives


Coronavirus (COVID-19)
Fluctuations in Fuel Prices
Increasing Manpower Costs in US
Stringent Government Regulations


Fleet Network

Southwest Airlines has a strong fleet network. Based on the US Department of Transportation’s most
recent data, the company is the US’s largest carrier in terms of originating domestic passengers boarded.
As of December 31, 2020, the company had 718 Boeing 737 aircraft of which 70 were finance leased and
67 was under operations. Out of 737 aircraft 470 are Boeing 737-700; 207 are Boeing 737-800; and 41
are Boeing 737 MAX 8. The company also has plans to add 380 aircrafts by 2026 comprising 219 MAX 8
Firm aircrafts, 115 Max 8 aircrafts and 30 Max 7 Firm aircrafts. It served 107 destinations in 40 states, the
District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico,
Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and
Turks and Caicos.

Liquidity Position

Adequate cash reserves and high liquidity place the company at an advantage when it attempts to fund
any potential mergers and acquisitions, and expansions. Southwest Airlines’ current ratio was 2.0 at the
end of FY2020, as compared to 0.7 at the end of FY2019. A higher current ratio than the previous year
indicates that the company has relatively high liquidity. At the end of FY2020, the company had total
current assets of US$15,173 million, as compared to US$5,974 million at the end of FY2019, with cash

Southwest Airlines Co
SWOT Analysis

Southwest Airlines Co
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and equivalents worth US$11,063 million. Its total current liabilities stood at US$7,506 million at the end
of FY2020, which shows a decline of 16.2% over that in the previous year. Its current portfolio of long-
term debt or capital leases also fell from US$819 million in FY2019 to US$220 million in FY2020.

Business Expansion

Southwest Airlines has strengthened its business operations by expanding the existing businesses that
complement its operations. An inorganic growth strategy enhances the company’s depth of expertise,
broadens its product and service portfolio, and increases its shareholder value. The company launched
six new destinations in 2020, which are Hilo International Airport, Cozumel International Airport, Miami
International Airport, Palm Spring International Airport, Montrose Regional Airport and Yampa Valley
Regional Airport. The company has plans to add other new destinations in 2021, which are Chicago
O’Hare International Airport, Sarasota Bradenton International Airport, Colorado Springs Municipal
Airport, Savannah/Hilton Head International Airport, Houston’s George Bush Intercontinental Airport,
Santa Barbara Airport, Fresno Yosemite International Airport and Jackson-Medgar Wiley Evers
International Airport in Mississippi.


Operating Performance

Poor operating performance may reduce investor confidence and impact its ability to pursue growth
plans. Southwest Airlines recorded poor operating performance in FY2020 during which it recorded
revenues of US$9,048 million, with an annual decline of 63.1%, representative of a negative CAGR of
18.3% during 2016-2020. In FY2020, the company reported an operating loss of US$3,816 million, as
compared to operating income of US$2,957 million in FY2019. This was caused by 63.1% decline in
passenger revenue to US$7,665 million in FY2020, as compared to US$20,776 million in FY2019.
Decline in passenger revenue was due to reductions in capacity and a decline in passenger demand and
bookings during 2020. Its freight revenue was declined by 6.4% to US$161 million in FY2020, as
compared to US$172 million in FY2019 due to lower trips flown and disruptions in supply chain.
Moreover, the company recorded 17.4% decline in other revenue to US$1,222 million in FY2020, as
compared to US$1,480 million in FY2019 due to decrease in income from business partners. The
company’s operating margin was negative 42.2% in FY2020, as compared to 13.2% in FY2019. The
company also reported a negative ROE of 34.6%, as compared to 23.4% in FY2019.


Positive Outlook for US T&T Industry

The company is likely to benefit from the positive outlook for the US Travel and Tourism (T&T) industry. In
spite of being affected by the COVID-19 pandemic, the Travel and Tourism (T&T) sector is optimistic
about growth as vaccine distribution across the world gains momentum and economic activities return to
pre-Covid levels. According to the World Travel & Tourism Council (WT&TC), in 2028, the direct
contribution of the US T&T industry to the country’s GDP is expected to reach US$673.9 billion, while the

Southwest Airlines Co
SWOT Analysis

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industry’s contribution to the US economy is expected to reach US$1,954.1 billion. Visitor exports are
expected to reach US$291.7 billion in 2028. The increase in investments to US$246.2 billion in 2028 is
likely to spur growth in the US T&T industry.

Growth Prospects: Aviation Industry

Southwest Airlines could benefit from the positive outlook for the global aviation industry, which could
drive the demand for its services in the aviation market space. According to the Airports Council
International (ACI) report, the global passenger volume is projected to reach 20.9 billion by 2040, with an
annual growth of 4.1%. China is forecasted to be the largest air passenger market with 4.0 billion
passengers, a 19% share of the global air passenger traffic. The US and India are expected to be second
and third largest air passenger traffic markets with 3.1 billion and 1.3 billion passengers, respectively.
Emerging economies including Indonesia, Turkey and Vietnam are expected to play significant roles in
the global passenger traffic market. The global air cargo volume is also expected to reach 203.4 million
tonnes by 2040. It is also expected that over 20% of all air cargo could be handled in the US alone by
2040, while China and the UAE could be considered as the second and third largest air cargo markets.
The US, China and India are estimated to be the primary markets for global aircraft movements by 2040,
representing 21%, 16% and 4% of aircraft movements, respectively.

Growth Initiatives

Southwest Airlines taking various initiatives to drive growth. The initiatives are expected to strengthen the
company’s operations and increase its returns. In March 2021, the company announced to buy advanced
CFM International LEAP-1B engines to power 100 Boeing 737 MAX 7 aircraft. In November 2020, the
company launched a new nonstop flight from the Memphis International Airport to Phoneix, Arizona. In
October 2020, the company and Amadeus announced to expand their partnership to offer for business
travel through the Amadeus Travel Platform. In October 2020, the company launched its nonstop service
from Phoenix to Cabo San Lucas and Puerto Vallarta. In October 2020, the company announced the
expansion of its services in Chicago and Houston at Midway International Airport and William P. Hobby
Airport. In May 2020, the company signed a purchase-and-leaseback agreement with BOC Aviation
Limited for ten Boeing 737 MAX 8 aircraft equipped with CFM LEAP-1B engines. In January 2020, the
company opened its new maintenance facility at William P. Hobby International Airport in Houston, Texas.


Coronavirus (COVID-19)

The impact of Covid-19 on airline industry is expected to be very severe due to the curtailment of
international and domestic air travel in 2020. Country-specific regulations on international flights, long-
distance travel bans, and cancellation of trips affected the global airline industry and resulted in huge
losses to the aviation industry. Governments in various countries imposed several restrictions to contain
the spread of the virus such as US-Canada border closure for non-essential traffic, EU’s 30-day ban on
non-essential travel to about 26 countries in Europe from the rest of the world, the US’s 30-day ban on
Schengen travelers, and lockdown in Italy, the UK, Australia, India and other countries. As a result of
these travel restrictions, the global air traffic declined in the short-term. According to International Air

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SWOT Analysis

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Transport Association’s (IATA) projection on March 24, 2020, the global airline industry is predicted to
report a passenger revenue loss of US$252 billion in 2020. Asia Pacific, Europe, North America, the
Middle East, Latin America, and Africa are expected to report passenger revenue loss of US$88 billion,
US$76 billion, US$50 billion, US$19 billion, US$15 billion and US$4 billion, respectively, in 2020.

Fluctuations in Fuel Prices

The company’s business is highly dependent on the price and availability of jet fuel, and its performance
could be adversely affected by high volatility in fuel costs, increased fuel prices and disruptions in the
supply of jet fuel. The fuel market is volatile and changes according to market, political and economic
movements. Therefore, a modest decline or increase in prices could have a significant impact on the
company’s business operations. Several factors are responsible for such changes including domestic and
foreign supply of oil, global economic conditions, price and availability of alternative fuels, governmental
regulations, weather conditions and technological advances, among others. According to the International
Air Transport Association, jet fuel price was US$182.85 per barrel as of April 9, 2020, as compared to
US$182.9 as of April 01, 2020, which increased 0.5% one week ago. Such increase in jet fuel price could
affect the company’s overall profitability.

Increasing Manpower Costs in US

Increasing manpower costs could increase the company’s operating costs and hamper its profits. The
tight labor markets, government-mandated increases in minimum wages and a higher proportion of full-
time employees are increasing labor costs. Effective January 2021, 21 states in the US increased their
minimum wages. Alaska, Florida, Minnesota, Montana, Ohio, South Dakota, and Vermont increased their
hourly minimum wage based on the cost of living to US$10.34, US$8.65, US$10, US$8.8, US$9.45 and
US$11.7, respectively. Arizona, Arkansas, California, Colorado, Illinois, Maine, Maryland and
Massachusetts increased their hourly minimum wages to US$12.15, US$11, US$13, US$12.32, US$11,
US$12.15, US$11.75 and US$13.5, respectively. Whereas states such as Michigan, Missouri, New
Jersey, New Mexico, New York, and Washington increased their hourly minimum wages due to previously
approved legislation to US$9.65, US$10.3, US$12, US$10.5, US$12.5 and $13.69, respectively.

Stringent Government Regulations

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant
expenditures. For instance, the Federal Aviation Authority (FAA) is an authority body, which regulates all
safety issues in civil aviation operations. FAA’s safety jurisdiction includes aircraft maintenance and
operations such as equipment, ground facilities, dispatch, communications, flight training personnel, and
other matters affecting air safety. These will increase the aircraft operations cost significantly. The
company expects to continue incur expenses to fulfill the FAA’s regulations. These authorization laws,
regulations, taxes and airport rates and charges have also been imposed from time to time that
significantly increase operating expenses or reduce profit margins. As a result, complying with such laws,
regulations and actions increases the operating costs of Southwest Airlines which could have a significant
effect on its profitability and margins.

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