Initial Tasks: 1. Use the industry data provided to conduct an historical analysis of capacity,...

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Initial Tasks: 1. Use the industry data provided to conduct an historical analysis of capacity, capacity utilization, revenue growth, and profitability. Be able to identify the primary economic...

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Initial Tasks:

1. Use the industry data provided to conduct an historical analysis of capacity, capacity utilization, revenue growth, and profitability. Be able to identify the

primary economic factors driving the industry and explain what has happened in the industry over the past 20 years.

2. Use the data provided for individual airline and industry capacity and capacity

utilization to measure market shares for the top 10 airlines in 2011. Be sure to measure market share for each airline company (e.g., combine United and Continental; Southwest and AirTran and any other airline carriers that have merged).

3. Estimate total industry revenue passenger miles for each of the next five years.

4. Estimate Southwest’s market share and revenue passenger miles and total

revenue for each of the next five years.

5. Conduct an analysis of the financial statements and ratios for Southwest and

other airlines available. Use your findings to develop a set of forecasting parameters

for Southwest.

6. Use your parameters to complete a five---year forecast for Southwest.

7. Use the forecast results to estimate the value of Southwest. Make a comparison

of your valuation results to themarket price of Southwest shares.

Written Analysis

Brandon Mills, Executive Director of the DD Investment Fund has hired you to conduct an analysis and valuation of Southwest Airlines. He has asked you

to include the following in your report:

Overview of the airline industry and prospects for growth for the next

five years

Analysis of the sustainability ofthe Southwest business model
Forecast and valuation of Southwest with comparison to the current

market value of the company as measured by its stock price.

Present your analysis and findings in a three to five page written report

supported by appropriate exhibits

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Answered Same Day Dec 29, 2021

Robert · Accepted Answer

Airline Industry – United States                                                                                             1
Airline Industry – United States
Airline Industry – United States                                                                                             2
Introduction: 
The airlines industry comprises of different aspects like the passenger air transportation which 
includes scheduled as well as chartered flights. It does not include freight transportation. The 
volume of the industry is defined by the total number of revenue passengers who have departed 
at all the airports of the country. It excludes the transit passengers who have arrived and departed 
on the same flight code. The industry value of the airlines for a particular country is highly based 
on the total revenue that has been obtained by the by transporting these passengers to their 
destination.  
Considering the growth rate of the United States in the airline industry it is estimated that the 
company has shown tremendous growth over the period and is expected to grow more in the 
coming future.  
The US airlines industry had total revenues of $186.6 billion in 2011, with the compound annual 
growth rate (CAGR) of 2.6% between 2007 and 2011.  
The performance of the industry is forecasted to grow in the future with the anticipated growth 
rate of 11.1% for the five-year period 2011 - 2016, with which the value of the industry will be 
increased to the value of $316.4 billion by the end of 2016.  
Domestic flights is the largest segment of the airlines industry in the United States, accounting 
for 87% of the industry's  total volume. The International flights segment accounts for the 
remaining 13% of the industry. 
Factors affecting the industry: 
Considering the industry in past 20 years it is seen that the prices in the fuel has immensely 
affected the industry. Apart from that the changing preferences of the consumers is also one of 
the major factors which has affected the airline industry in past 20 years. 
Airline Industry – United States                                                                                             3
With the increase in the prices of the fuels the profits and the capacity utilization of the industry 
has been affected badly. There are different low cost airlines which are now highly preferred by 
the consumers.  
According to the data of International Air Transport Association (IATA) data it was estimated 
that the prices of the crude oil accounted for about 33% of total airline costs in 2008 which was 
less than 18% before 2005,

Initial Tasks: 1. Use the industry data provided to conduct an historical analysis of capacity, capacity utilization, revenue growth, and profitability. Be able to identify the primary economic...

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