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. The Organizational and Operational Plans assignment references the possible benefits and risks of forming a strategic alliance. What would be the risks of forming a strategic alliance in terms of the firm's profitability ratios? Which of those five ratios is most likely to reveal immediate information for analysis of the alliance's effectiveness? . 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

Operating profit margin is the profitability ratio which measures how much is the company capable of earning profits out of every dollar earned. A high operating profit margin means that a company has higher profits left to cover all its non operating expenses. The Southwest Airlines operating profit margin is 13.18 which is an average ratio.

By deducting the interest and taxes from the operating income, we get the Net Profits or the Net Income. A high Net profit ratio depicts a good efficiency of a firm. 10.26 is an average Net profit ratio.

Current ratio shows how much cash and other current assets does a firm have to cover its short term liabilities. An ideal current ratio is 2. Similarly, an ideal quick ratio is 1. A current and quick ratio below 1 is considered to be low. 0.67 and 0.61 are low ratios.

A debt equity ratio is obtained by dividing the Total liabilities by the Total shareholders’ equity. A higher debt equity ratio means more risk to the company as it has more debt financing. 0.41 is a good debt equity ratio.

Fixed charge ratio indicates how much a company is capable of meeting its fixed charges using current earnings. A high fixed charge ratio means the company can meet its fixed charge obligations. 16.05 is a good indicator.

Since Southwest Airlines is currently operating at average profit ratios, an effective strategic alliance may help the firm to expand its operations thereby increasing the chances of earning higher profits. The activity ratios also seem low at present. An alliance may lead to an increase in working capital expenses which may further reduce the activity ratios for the short term. Another risk associated is an increase in the debt equity ratio since the company would require more funds for its new projects but the risk may reduce with an increase in shareholders’ value through the alliance.

Overall, it is a good opportunity for the Airlines Company to form a strategic alliance to improve its financial performance.