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Homework answers / question archive / You’ve been told that the HR Director is pleased with the work you’ve completed for the organization and would like to take your contribution to the next level

You’ve been told that the HR Director is pleased with the work you’ve completed for the organization and would like to take your contribution to the next level

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  1. You’ve been told that the HR Director is pleased with the work you’ve completed for the organization and would like to take your contribution to the next level. She’d 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:
    • 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.

    Use at least 2 sources other than those provided. Review the following sources to assist with your recommendation:
    Format your citations according to APA guidelines.
    Submit your assignment.

Page 101 SELF-ASSESSMENT EXERCISE Think of a company you have worked for, or find an annual report for a company you are interested in working for. (Many companies post their annual reports on their website.) Then answer the following questions. QUESTIONS 1. How has the company been affected by the trends discussed in this chapter? 2. Does the company use the HR practices recommended in this chapter? 3. What else should the company do to deal with the challenges posed by the trends discussed in this chapter? Page 102 EXERCISING STRATEGY Southwest Airlines Comes of Age 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. QUESTIONS 1. What do you think has made Southwest Airlines so successful? 2. What do you think are the major challenges facing Southwest? 3. How would a strategic approach to HRM help Southwest successfully address these challenges? SOURCES: Based on T. Maxon, “Southwest Airlines Tops $1 Billion in Annual Profits for First Time,” Dallas Morning News, January 22, 2015, http://aviationblog.dallasnews.com; J. Nicas and S. Carey, “Southwest Airlines, Once a Brassy Upstart, Is Showing Its Age,” The Wall Street Journal, April 1, 2014, www.wsj.com. A Progressive Digital Media business COMPANY PROFILE Southwest Airlines Co REFERENCE CODE: DEFBDE99-9B78-4A63-BE9C-7EA7568D476E PUBLICATION DATE: 10 Feb 2021 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED Southwest Airlines Co TABLE OF CONTENTS TABLE OF CONTENTS Company Overview ........................................................................................................3 Key Facts ......................................................................................................................... 3 SWOT Analysis ...............................................................................................................4 Southwest Airlines Co © MarketLine Page 2 Southwest Airlines Co Company Overview Company Overview 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 San Diego and Baltimore, Las Vegas and Orlando, San Diego and Newark, Los Angeles and Nashville, and Houston and New York LaGuardia, and Oakland and Baltimore in the US. It also offers various ancillary services such as upgraded boarding, EarlyBird Check-In (automatic 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$22,428 million for the fiscal year ended December 2019 (FY2019), an increase of 2.1% over FY2018. In FY2019, the company’s operating margin was 13.2%, compared to an operating margin of 14.6% in FY2018. In FY2019, the company recorded a net margin of 10.3%, compared to a net margin of 11.2% in FY2018. The company reported revenues of US$1,008 million for the second quarter ended June 2020, a decrease of 76.2% over the previous quarter. Key Facts KEY FACTS Head Office Southwest Airlines Co PO Box 36611 Dallas Texas Dallas Texas USA Phone 1 214 7924000 Fax Web Address www.southwest.com Revenue / turnover (USD Mn) 22,428.0 Financial Year End December Employees 60,800 New York Stock Exchange Ticker LUV Southwest Airlines Co © MarketLine Page 3 Southwest Airlines Co SWOT Analysis SWOT Analysis SWOT ANALYSIS Southwest Airlines Co (Southwest Airlines) is a provider of passenger airline services. Strong financial leverage, operational performance and fleet network are the key strengths off the company, even as weak liquidity position remains a cause for concern. Growth prospects for aviation industry, positive outlook for US T&T industry, business expansion and growth initiatives could provide new opportunities to the company. However, fluctuations in fuel prices, stringent government regulations, increasing manpower costs in US and COVID-19 impact on airline industry could affect the company's performance. Strength Weakness Fleet Network Financial Leverage Operational Performance Liquidity Position Opportunity Threat Positive Outlook for the US T&T Industry Growth Prospects: Aviation Industry Business Expansion Growth Initiatives COVID-19 Impact on Airline Industry Fluctuations in Fuel Prices Increasing Manpower Costs in US Stringent Government Regulations Strength 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 2019, the company had 747 Boeing 737 aircraft of which 70 were finance leased and 52 were under operations. Out of 737 aircraft 505 are Boeing 737-700; 207 are Boeing 737-800; and 34 are Boeing 737 MAX 8. The company also has plans to 380 aircrafts by 2026 comprising 219 MAX 8 Firm aircrafts, 115 Max 8 aircrafts and 30 Max 7 Firm aircrafts. It served 101 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. Financial Leverage The company’s financial leverage, indicated by debt-to-equity ratio, remained low in FY2019, which enhances its earnings with less interest payments, and reduces the risk of defaulting. During FY2019, its debt-to-equity ratio was 0.2, as compared to 0.3 in FY2018. In FY2019, the company recorded a 22.2% decrease in debt to US$2,665 million, as compared to US$3,425 million in FY2018. Southwest Airlines Co © MarketLine Page 4 Southwest Airlines Co SWOT Analysis Operational Performance Strong operating performance helps in enhancing investor confidence and the company’s ability to pursue growth plans. In FY2019, the company recorded Revenue passengers of 134 million; Enplaned passengers of 162.6 million; Revenue passenger miles (RPMs) of 131,345 million; and Available seat miles (ASMs) of 157,254 million with load factor of 83.5%. It reported Average length of passenger haul of 980 miles; Average aircraft stage length of 748 miles; 1.3 million trips flown; and 206.3 million seats flown. Weakness Liquidity Position Limited cash and liquidity put the company at a disadvantage when funding any potential opportunities in the market. Southwest Airlines' current ratio was 0.6 at the end of FY2019. This suggests that the company’s inability to meet its short-term obligations than some of its peers. Its total current liabilities stood at US$8,952 million, an increase of 13.2% over the previous year. Its current portfolio of long-term debt or capital leases also increased from US$606 million in FY2019 to US$819 million in FY2018. Opportunity Positive Outlook for the US T&T Industry The company is likely to benefit from the positive outlook for the US T&T industry. According to the World Travel & Tourism Council (WT&TC), direct contribution of US T&T industry to the country’s GDP is expected to reach US$673.9 billion in 2028. The industry's contribution to the US economy is expected to increase 2.3% per annum to reach US$1,954.1 billion in 2028. Visitor exports are expected to increase 3.4% per annum, from 2018-2028, to reach US$291.7 billion in 2028. The increase in investments to US$246.2 billion in 2028 is likely to spur 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. Southwest Airlines Co © MarketLine Page 5 Southwest Airlines Co SWOT Analysis Business Expansion Southwest Airlines taking various initiatives to drive growth. The initiatives are expected to strengthen the company’s operations and increase its returns. In January 2020, the company announced its plans to launch Memphis, Tennessee, the US. In January 2020, the company opened its new maintenance facility at William P. Hobby International Airport in Houston, Texas. In September 2019, the company launched Baltimore-Providenciales, Houston-Cozumel services from March 2020. In November 2019, the company expanded its service from Rick Husband to Houston. In March 2019, the company started flight services to Hawaii, on the routes of Oakland International Airport (OAK) to Daniel K. Inouye International Airport (HNL) and Kahului Airport (OGG). Growth Initiatives Southwest Airlines is taking various strategic initiatives to drive growth. The initiatives are expected to strengthen the company’s operations and increase its returns. In August 2019, the company entered into an agreement with Airlines Reporting Corp to expand corporate travel distribution strategy. In May 2019, 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. Threat COVID-19 Impact on Airline Industry The COVID-19 outbreak has almost grounded the global airline industry. In early March 2020, the World Health Organization (WHO) announced the outbreak of COVID-19 as a global pandemic. As the outbreak has become rampant, several governments have imposed travel restrictions and stopped passenger flight operations from many cities across the world. A slew of travel restriction includes EU’s 30-day ban on non-essential travel to at least 26 European countries from the rest of the world; and US government’s temporary ban on the travelers from Europe, as many countries have been affected by the virus in the region. Many countries have since restricted passenger operations. As a result of these travel restrictions, global air traffic is expected to decline further in the short-term. According to the International Air Transport Association’s (IATA) projection on March 5, 2020, the global airline industry is expected to experience a possible loss of US$113 billion in passenger revenues in 2020. Major markets such as China, Australia, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam could face a combined loss of US$49.7 billion passenger revenues in 2020. This could be also followed by the major European markets such as Italy, Germany, Netherlands, Norway, Spain, Austria, France, Switzerland, Sweden and the UK. 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 Southwest Airlines Co © MarketLine Page 6 Southwest Airlines Co SWOT Analysis 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$80.3 per barrel as of March 8, 2019, which increased 3.5% over that same period in the previous year. 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 fulltime employees are resulting in an increase in labor costs. Effective January 2020, 21 states in the US increased their minimum wages. Arizona, Alaska, Arkansas and Washington increased their hourly minimum wage to US$12, US$10.19, US$10 and US$13.5, respectively. California, Colorado, Connecticut, Delaware and Florida increased their hourly minimum wages to US$12, US$12, US$11, US$11, and US$8.56, respectively. Whereas, states such as New Jersey, Ohio and South Dakota increased their hourly minimum wages to US$11, US$8.7 and US$9.3, 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. Southwest Airlines Co © MarketLine Page 7 Copyright of Southwest Airlines Co. SWOT Analysis is the property of MarketLine, a Progressive Digital Media business and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.

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