SOUTHWEST AIRLINES: A DIFFERENT WORLD - LGA EXPANSION VALUE Assume that you have been tasked by Southwest Airlines (SWA)

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Southwest Airlines A Different World Lga Expansion Value Assume That You Have Been Tasked By Southwest Airlines Swa 1 (237.01 KiB) Viewed 43 times

SOUTHWEST AIRLINES: A DIFFERENT WORLD - LGA EXPANSION VALUE Assume that you have been tasked by Southwest Airlines (SWA) CEO Gary Kelly to determine the financial implications of moving into the LaGuardia market (LGA). Based on the facts provided in the case, you have been asked to create a flexible model that can take into account the possible impacts if LGA operations affect Southwest's larger operations or its brand image. In addition, you will have to balance that potential down-side with the potential upside of running eight (8) flights (or four pairs of flights) in and out of LGA. First, gather the following information from the case: How many seats are in a 737? What is the typical load factor for a Southwest flight? What the average Southwest ticket price? Based on historical information, what is the operating income percent of sales) for Southwest? In other words, of each dollar that Southwest brings in as revenue, how much does it get to keep? . Recreate this structure: How Much is Operating Profit from LGA Ticket Sales Alone Worth? $From LGA Tkt Sales # Flights/Day (max) x % Of Flights Cancelled/Day = # Of Flights Cancelled/Day = Net Flights / Day Exob x Days / Yr = Flights Flown / Yr x Seats Available / Flight = Total Seats Avail/Yr Ex 2 x Load Factor = Total Seats Sold / Yr x Avg Price / Ticket = Sales / Yr x Operating Margin% = Operating Margins yr Please provide Gary Kelly with your best analyses to the following questions: 1. How much is in operating margin (profit) is moving into LGA expected to bring in per year? Which of the variable in this model are you most ‘iffy' or unsure about? Why? What range would you expect that variable to be in? 2. BONUS: Conduct a sensitivity analysis on the variable and your neighbor's variable, across the ranges that you discussed.
SOUTHWEST AIRLINES - LGA EXPANSION NEGATIVE IMPACT TO BRAND Assume that SWA expands into LGA, and all of the operations team's worst fears come true - delays permeate through the flight system and the SWA triple crown and brand reputation for on-time flights, and fewest lost luggage and customer complaints is in jeopardy. This hit to the brand negatively impacts customers' loyalty in terms of lower willing to purchase and willingness to pay, and increased reparations costs. First, gather the following information from the case: How many planes are in the SWA fleet? How many flights are flown by SWA in any given year? Recreate the following structure: Lost Goodwill (I QtySold, I WTP; - Reparations) Across Customers Due to Poor Service People Buy Less # of Planes x Flights / Plane / Day = # of Flights / Yr x # of Seats / Plane x Load Factor = # of Passengers Flown/Yr x % of Customers Effected = # of Customers Impacted x Average Ticket Price = Lost Ticket Sales x Operating Margin % Lost Operating Proft / Yr A Pay More to Apologize For Service Problems # of Customers Impacted x Average $ Reparation = Total Reparations / Yr B A+B = Total "I'm Sorry Costs" / Yr Please provide Gary Kelly with your best analyses to the following questions: 1. How much might ‘impact to the brand cost SWA in any given year? 2. Which of the variable in this model are you most ‘iffy' or unsure about? Why? What range would you expect that variable to be in? 3. BONUS: Conduct a sensitivity analysis on the variable and your neighbor's variable, across the ranges that you discussed.