Southwest Airlines Risk Management Essay Sample

As with any company. Southwest Airlines has hazards that have to cover with. For starting motors. co-founder and airy leader Kelleher will shortly be less involved in the firm’s operations. Mr. Kelleher is responsible for the determination devising of Southwest Airlines so it is traveling to be interesting to state the least when he takes a lesser function in the day-to-day concern of Southwest. Possibly a more of import hazard. though. is the simple fact that Southwest is an air hose. Past fiscal indexs have shown that members of the air hose industry have been hapless performing artists for stockholders because of hazards involved.

Let us reexamine some of the hazards that air hoses face and what Southwest has done to battle these to stay the lone air hose to be profitable in the 31 old ages of their being. First airlines normally have to wing each flight. even if a flight is merely half-full. The emptier a flight is. the less gross it generates. Southwest has dealt with this hazard by prosecuting a low-cost/low-price/no-frills scheme that features offering riders a individual category of service at the lowest monetary value possible menus doing air travel low-cost to a broad section of the U. S. population.

One of the most noticeable hazards faced by the air hose industry is monetary value wars that occur when one air hose cuts menus on certain paths and forces others to follow suit ensuing in reduced profitableness. Southwest has about eliminated this hazard by developing a menu construction that is systematically by far the simplest and most straightforward of any major air hose. All of Southwest’s clients can peruse different menu options at the company’s web site. and the company’s limitations on tickets are more indulgent than menus of its challengers. Most other air hoses have complex menu structures with ticket monetary values changing widely harmonizing to several factors such as. how far in progress a ticket is purchased ; travel day of the months including a Saturday-night stay ; refundable or movable. and an mixture of other factors ( Thompson| Strickland. 2003. C-611 ) .

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As air hose clients know. the monetary value of fuel often puts force per unit area on profitableness in the air hose industry. During 2000 when fuel monetary values were on the rise consumers saw the addition of ticket monetary values of up to $ 40 for a unit of ammunition trip ticket. Southwest has used an advanced manner of protecting itself against lifting fuel monetary values called fudging. This is when a company merely buys hereafters contracts on the trade good in inquiry. locking in certain monetary values early. Since there aren’t hereafters contracts sold on jet fuel. Southwest did research and found that by purchasing contracts on warming oil. the monetary value of which tends to travel in tandem with jet fuel they were able to countervail fuel costs. In his one-year missive to stockholders. Kelleher noted that Southwest has already covered 80 % of its estimated 2001 fuel disbursals by fudging. locking in an mean monetary value of $ 22 per barrel of rough oil. when the monetary value at the clip of his authorship was $ 32 ( Trottman. 2001 ) .

Fiscal hazards due to terrorist onslaughts. like September 11. 2001. are highly of import consideration when an air hose develops its fiscal scheme. Southwest Airlines was one of merely two air hoses that did non layoff any employees after this calamity. This was due to a policy of keeping low debt degrees and comparatively high degrees of hard currency on manus. On legion occasions over the old ages. employees have pointed out on. “At Southwest. we manage good clip as though we were in bad times. ” Southwest fiscal militias are non merely coinciding. in fact. the care of fiscal militias is an built-in portion of the organization’s ability to keep and even beef up its relationships in the face of crises ( Gittell. 2003. p. 245 ) .

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Any organisation with deficient fiscal militias possibly forced to interrupt their committednesss with employees and clients when faced with crisis. Southwest on the other manus holding plentiful militias in the signifier of low debt degrees are in a better place to bolster their relationships by keeping committednesss to employees and other stakeholders in times of crisis.

Above in the predating paragraphs you can see Southwest Airlines has been successful in turning hazards into competitory advantages. In the larger strategy Southwest is able to utilize it competitory advantage to implement a policy of steady growing. Harmonizing to John Denison. Southwest’s former executive frailty president of corporate services ; “We promise the market place 10 per centum growing. but we are merely traveling to turn every bit fast as we can pull off. ” Matt Hafner. one of Southwest’s regional managers was sort adequate to explicate the Southwest doctrine a little more ; “It is nil new with Southwest. The “experts” ever think we need to spread out at a more rapid gait. What these alleged experts express is their desire for Southwest to leap at chances at a more rapid cartridge holder. Apparently growing excites investors. [ But ] cipher is forcing us. That could ne’er happen” ( Gittell. 2003. p. 246 ) .


Thompson| Strickland. Strategic Management Concepts and Cases. 13th Ed. . New York. N. Y. ; McGraw-Hill Higher Education. 2003. pp. C598-C604 ( Thompson| Strickland. 2003. C-601 ) .

Gittell. Jody Hoffer. The Southwest Airlines Way. New York. N. Y. ; McGraw-Hill. 2003. pp245-246 ( Gittell. 2003. p. 245-246 ) .

Trottman. Melanie. Southwest Airlines’ Big Fuel-Hedging Call Is Paying Off – Carrier Was Able to Protect Itself Against Soaring Energy Prices in Second Half. Wall Street Journal. Jan 16. 2001. hypertext transfer protocol: //bpaosf. bpa. Arizona. edu/~syan/SWAirline. hypertext markup language. ( Trottman. 2001 )

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