Question

The Firm in Question is Southwest Airlines. The purpose is to evaluate the financial condition and performance of the firm by analysis.

In an assessment of approximately 250 words, address the following:

1. Considering today's financial climate, how likely is it that the organization could acquire the capital necessary to support an aggressive value-enhancement strategy? From where would that capital originate? Compared to current interest rates, what do you believe is a realistic interest rate the firm might incur? Which of the liquidity ratios will be impacted by the influx of capital, if borrowed? . Operating profit margin 13.18, Net profit margin 10.26, Current ratio 0.67, Debt Equity ratio 0.41, Quick ratio 0.61, Fixed charge ratio 16.05. SWOT below.

   Southwest Airlines' Strength

   Some of these strengths are LUV culture, which makes each client feel like they are part of the family is a viable method to upgrade client reliability. Southwest Airlines' lower cost is behind the enormous number of faithful clients is another strength. Southwest Airlines has also been reliably positioned as one of the best businesses in America, giving in the best employer's power. Southwest Airlines was also positioned at #2 with America's Best Employers 2019 making it the most admired company. Southwest Airlines' accomplishments of high benefits are a primary motivation behind starting a new business, making them reliably profitable in the business world.

   Southwest Airlines' Weaknesses

   Some of these weaknesses are the absence of diversification when it comes to reliance in solitary income, opening the organization to cataclysmic misfortune if there is an occurrence of vulnerability or monetary disturbance inside that part of the organization. Southwest Airlines is also subjected to the U.S. market due to them not offering worldwide flights, relying upon local U.S. showcase only. Another weakness of Southwest Airlines is its overdependence on Boeing and them exclusively depending upon Boeing 737 without considering using other models of planes from Boeing or another company.

   Southwest Airlines' Opportunities

   Southwest Airlines has some opportunities within its company, like extending globally through a possible worldwide extension of their services. Southwest Airlines, through the addition of PayPal and Apple, Pay to their site, as allowed them to improve their booking process online. Developing freight business could also be another opportunity Southwest Airlines takes to grow their organization. Southwest Airlines could also look at adventuring into new technologies to help with their expanding number of offers on the internet for their clients. Southwest Airlines could also look into offering long-separation flight has the market for longer flights continues to grow.

   Southwest Airlines' Threats

   There are also some threats when it comes to Southwest Airlines and their organization. Worldwide recession with continents around the world having some monetary disturbance, specifically in the U.S., could impact Southwest Airlines. Issues with the Boeing 737 Max, which are essential for Southwest Airlines, can affect their development plans and modernization activities. Negative publicity about an issue Southwest Airlines had with flying without affirmed support record for over two years can also impact their organization. Extreme competition with other airlines, like Delta, American, and Spirit, could potentially make it hard for Southwest Airlines to get the clientele they need to survive. They also increased increments in fuel prices that could affect Southwest Airlines by expanding their work expenses to fuel planes.

   Strategic Alternatives that Create Value for Southwest Airlines.

   Strategy Drivers for Southwest Airlines

   Identifying the strengths of Southwest Airlines and using it to leverage their market position. The free-flowing cash flow for Southwest Airlines ensures that all the initiatives and the projects financed. A Strong Distribution System (Network) that enables Southwest Airlines to consolidate its position in the market. Southwest airlines as also ensured consistency in their overall organization by investing in automation and technology. The CRM (Customer Relationship Management) of Southwest Airlines has enabled a brand value in the customer's minds as the company provides a high level of customer satisfaction.

   M&A (mergers and Acquisitions) with various companies, including a lot of technology companies that have enabled Southwest Airlines to make their operations more streamlined and efficient. A considerable focus on technology has helped Southwest Airlines to build a reliable and robust Supply Chain. A successful strategic driver is the ability of Southwest Airlines to successfully venture into newer markets and establish their market position, thereby building superior performance as compared to their counterparts.

   Internal Growth Strategies for Southwest Airlines

       The focus on technology through massive automation will enable strong interlinking of the various departments of Southwest Airlines and make the internal processes faster. Making the Supply Chain more efficient and reliable will also allow a more efficient and faster means of achieving internal growth by minimizing errors and ensuring quality. Each will help the internal growth of Southwest Airlines and build them up has a company.

   Drawbacks of Internal Growth Strategies for Southwest Airlines. A considerable amount of investment is needed for automation and technological improvement in company operations; this is very cost-intensive and involves a certain risk level. Heavy reliance on automation and supply chain restructuring can cause some bottlenecks in the short term, causing technical problems and pose risks like cybersecurity threats. Each can set back Southwest Airlines' internal growth has a company.

   External Growth Strategies for Southwest Airlines

   Market Expansion can create a strong position for Southwest Airlines in the newer markets, which have not yet been ventured and can lead to new revenue streams. Focusing on M&A can provide Southwest Airlines with a strong position overall as some of these M&A can allow them to eliminate competition and acquire a stronghold in technological innovation. Each can be useful in helping Southwest Airlines.

               Drawbacks of External Growth Strategies for Southwest Airlines. The M & A risks of acquiring various companies is also cost-intensive and can create a risky position for the company if the ROI (Return on Investment) is endangered. Ensuring the success of Southwest in newer markets depends on a variety of factors, which also include the Political and Legal factors. In the case of any impediment, there can be a considerable loss to the company. Each of these can set back Southwest Airlines in the external they are wanting for a company.

Answer 1

Looking at the current situation of Southwest airlines it is very likely that the organisation will acquire capital considering the current environment. The impact of COVID has been very shaky both the life as well as on the economy of the world. But now since things have to move on the unlock procedure has also started.

And airline industry would among those that will be reopened. and infact has been opened in many nations. In order to take advantage of this Southwest airlines should go for internal growth strategies over external ones.In other words it should acquire capital and grow internally with respect to technology. The best way to raise capital would be Debt financing since the debt to equity ratio of the firm is under control and is not on the higher side. Also the firm will get the benefit of tax shield on paying the cost of debt to the debt holders. Debt financing would also ensure that the cost of equity will not go up insted t will remain stable and the overall value of the firm will increase.

The capital will originate by issuing debenture in the stock market. and since Southwest airlines is a well established entity the subscription rate will be high.

Another impact of this would be that the firm would be able to procure better technology tools for Boeing737 and which in turn will impove the overall goodwill of the firm.

Talking about the interest rate, the firm would easily manage with the interest rate issue beacause the global interest rates are on the lower side because the central banks of the contries want the money supply to increase. Hence the firm will easliy manage with the interest rate and the payment of the interest to the debt holders.

The effect of debt financing will be straight away on the debt equity ratio of the firm. The debt equity ratio currently is on the lower side and hence after the issue of debenture in the stock market it is likely to go up but not by a high pressure. It would rise from the current 0.41 to atmost 0.60 and hence this increment is not a big issue for such a global firm.