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Although the industry is optimistic about the future and is well positioned to move forward, the reality is that events beyond the airlines control could easily push them off course, for example: Fuel spikes Recessions Exogenous shocks such as terrorism and natural disasters and the sharp rise in oil rises after Hurricane Strain appears to be the general cause of ‘death’ of many airlines. Strategy & Structure: Goals & Objectives: Companies articulate their long-term goals and objectives to compete within the market environment.
Southwest seems to be outperforming goals even in an ever changing and challenging market environment. This above average growth is due to their low operating structure. This competitive advantage allowed the company to become profitable for its 34th consecutive year (2006). Southwest has the lowest costs adjusted for stage length, on a seat mile basis of all the major airlines (see Generic Strategies section for low cost factors). Continental Airlines, although still a leader in the industry, seem to have a less efficient operating structure than Southwest. Intention l, acknowledging ten Increasing competition Trot low cost carriers as well as large network airlines using bankruptcy laws to dramatically lower their costs, updated their Go Forward Plan to allow the company to compete and operate efficiently and effectively. Continental Airlines returned to profitability in 2006 after suffering losses for the two previous years. Governance: Both Southwest Airlines and Continental Airlines are subject to the same external industry regulations such as the Aviation Security Act, the International Air Transportation Competition Act and various regulations by the D.
O. T. In the U. S. Both companies comply with U. S. GAP. Each company has its own set of internal controls to ensure that operations are continued in an efficient and legitimate manner. Refer to the other issues section for an analysis of each company’s corporate governance structure. Risk Framework: A company can never eliminate all risk and is exposed to a certain amount of UN- diversifier external risk. The best a company can do is to try and reduce its exposure to these risks and have a framework in place so the risk will have a minimum impact.
Many factors could affect each firm’s ability to control its costs including the price and availability of fuel, employee hiring and retention rates, regulatory requirements, competition, security concerns, changes in economic conditions (consumer preferences, disposable income, interest rates etc). Organizational Structure: Each firm has a different route structure. Both firms seem to be steered by good management, Southwest with a very innovative approach, and, the Continental management team who steered the company back to profitability in 2006. Southwest seem to have a superior operating structure which gives them their low cost advantage.
Managing For Value: Financial Assets: Southwest Airlines had fuel derivatives in place for over 70% of their expected fuel needs in 2006. In contrast Continental Airlines hedged approximately 30% and 10% of projected fuel requirements for the first and second quarters of 2007 in 2006. Southwest Airlines aggressive hedging strategies is a source of their competitive advantage, however in the current environment of ever rising fuel prices it would appear that this source of competitive advantage may not be sustainable as this strategy may be easily imitated by competitors.
Continental Airlines engaged in forward contracts in 2006 to hedge approximately 48% of projected GAP denominated scofflaws for 2007 and 32% of projected Euro denominated scofflaws Tort 200/ I Nils strategy amalgamates ten company’s exchange rate rills never Walt current U. S. Trade deficit and a weakening dollar it seems somewhat unnecessary to hedge these stronger currencies. Intangible Assets: Southwest Airlines has various leases with respect to airport owned gates, terminal assenter service facilities at each of the airports it serves and land on a long term basis for its maintenance centers.
Similarly Continental has various aircraft leases and other leases in relation to real property, airport and terminal facilities, maintenance facilities, training centers and general offices. The company also has airport routes and operating rights which represent gate spaces and slots and an investment in Coop Holdings worth $mom and an investment in Holdings shares worth $mom. Physical Assets: Southwest Airlines has a fleet of 481 Boeing 737 aircrafts of which 388 are owned.
Southwest also owns three of its reservations centers and its maintenance, training centre and corporate headquarters buildings at Dallas Love Field, Houston Hobby, Phoenix Shy Harbor and Chicago Midway. Continental owns a total of 140 mainland jets and 18 regional Jets. Substantially all of the aircrafts and engines owned are subject to mortgages and a significant portion of their spare parts inventory are also encumbered. Innovation: Southwest Airlines were the first major airline to introduce a tickles travel option. The company also extended online check-in facility to 24 hours prior to departure.
Furthermore online boarding passes are available through www. Southwest. Com Continental Airlines introduced the Presidents Club which is a private membership club that offers a quiet area where travelers can work or relax. Similarly to Southwest Airlines, Continental Airlines offers online check-in to all passengers up to 24 hours in advance of flight departure. Brand and Intellectual Assets: Southwest Airlines is renowned for its low cost initiative through its point to point systems and various other cost reduction operations, it is a company where low cost fares are guaranteed.