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Financial Analysis of Southwest Airlines and United Airlines

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documents in English
case study
14 pages
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  1. Southwest Airlines
    1. Southwest airlines brief presentation
    2. Consolidated statement of Income
    3. Southwest consolidated balance sheet
    4. Southwest ratios
    5. Consolidated statement of cash flow
  2. United Airlines
    1. United Airlines brief presentation
    2. Selected financial data of United Airlines
    3. United Airlines statement of consolidated operations
    4. United Airlines balance sheet
    5. United Airlines ratios
    6. United Airlines cash flow statement

The airline industry has significantly changed over the last few years of this century. The terrorist attacks of September 11, 2001, the attacks on Madrid and London, the Iraq conflict and the increase in fuel prices have resulted in losses for airline companies since 2001. Some of them declared bankruptcy, like UAL corporation, the parent company of United Airlines to face financial crisis. After implementing plans of restructuring to decrease costs,airline companies could renew growth and profitability in 2006, but within a context of intense competition between traditional and low-cost carriers. Southwest Airlines and United Airlines are two main airline companies in the United States, and after those major events, it is interesting to analyze and interpret the financial accounts of both in order to understand how they managed the crises to achieve commercial success.

[...] For Southwest, it means that for every dollar of current liabilities there were $ 0.84 in 2006 and $ 0.9 in 2005 of easily convertible assets. This is an indication of the company's financial weakness because the figure is less than one. We also have to put nuances in the analysis of those ratios because the airline industry is a major financial industry and companies have huge amounts of debts and assets stemming from the aircraft and their linked loans. ASSETS PRODUCTIVITY: The assets turnover ratio calculates the total sales or revenue for every dollar of assets a company owns. [...]

[...] In 2006, the company had a positive stockholder's equity of $ 2,148 million, instead of the negative $ 25560 million in United Airlines ratios LIQUIDITY RATIOS: In the case of United, in 2006 and 2005, its short term debts exceeded its short term assets because the current ratio was less than one ( 0.79 in 2006 and 0.81 in 2005). But the current ratio was less than that of Southwest. If all creditors were paid, it would account for 79% of the assets, which could put the company in difficulty. [...]

[...] The average passenger fare also increased compared to 2005 because Southwest applied less discounting in fares thanks to the strong economic demand for air travel Southwest Airlines 2006 Annual Report Consolidated operating expenses for 2006 were $ 8.152 billion, an increase of $ 1.3 billion since 2005, or compared to the increase in capacity. This amount is primarily due to an increase in jet fuel prices. Southwest's average cost per gallon of fuel increased versus 2005. Operating expenses are exponentially related to operating revenues. [...]

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