Read Case 10: Southwest Airlines.  Answer questions 1-4 in a three to five page APA style paper, and supported with the concepts outlined in your text and from your previous classes. 1. Describe the current state of the airline industry and analyze what an airline can do to be successful in the current industry climate. 2. Perform a SWOT analysis for Southwest Airlines. 3. Assess the competitive position of Southwest Airlines by completing a competitor profile for Southwest airlines and at least two of its major competitors. 4. What alternatives does Southwest Airlines face to address the problem of declining financial performance? Southwest Airlines 2008 1 In 2008, Southwest Airlines (Southwest), the once scrappy underdog in the U.S. airline industry, carried more domestic passengers than any other U.S. airline. The company, unlike all of its major competitors, had been consistently profitable for decades and had weathered recessions, energy crises, and the September 11 terrorist attacks. In the first quarter of 2008, the company was profitable and experienced record first quarter revenue and a record pas- senger load factor (percentage of available seats sold). However, the earnings release made it clear that the “threat of volatile and unprecedented jet fuel prices” was a major issue that threatened future growth. Operating expenses were rising, and Southwest announced that it would cut 2009 growth in available seats to less than 3%. Over the previous decade, growth had been about 5–10% a year. This cut in planned growth was consistent with previous responses to difficult environments. An insight into Southwest’s operating philosophy can be found in the company’s 2001 Annual Report: Southwest was well poised, financially, to withstand the potentially devastating hammer blow of September 11. Why? Because for several decades our leadership philosophy has been: We manage in good times so that our Company and our People can be job secure and prosper through bad times. . . . Once again, after September 11, our philosophy of managing in good times so as to do well in bad times proved a marvelous prophylactic for our Employees and our Shareholders. THE U.S. AIRLINE INDUSTRY The U.S. commercial airline industry was permanently altered in October 1978 when Presi- dent Carter signed the Airline Deregulation Act. Before deregulation, the Civil Aeronautics Board regulated airline route entry and exit, passenger fares, mergers and acquisitions, aattract and retain the world’s top talent have combined to create a combination of path-dependent resources that are very difficult for even the wealthiest software and Internet companies worldwide to easily emulate, acquire, or accelerate. It will take years for any competitor to develop the expertise, infrastructure, reputation, and capabilities to compete effectively with Google. Coca-Cola’s brand name, Gerber Baby Food’s reputation for quality, and Steinway’s exper- tise in piano manufacture would ta ...

1. Read Case 10: Southwest Airlines. Answer questions 1-4 in a
three to five page APA style paper, and supported with the
concepts outlined in your text and from your previous classes.
1. Describe the current state of the airline industry and analyze
what an airline can do to be successful in the current industry
climate.
2. Perform a SWOT analysis for Southwest Airlines.
3. Assess the competitive position of Southwest Airlines by
completing a competitor profile for Southwest airlines and at
least two of its major competitors.
4. What alternatives does Southwest Airlines face to address the
problem of declining financial performance?
Southwest Airlines 2008
1 In 2008, Southwest Airlines (Southwest), the once scrappy
underdog in the U.S. airline industry, carried more domestic
passengers than any other U.S. airline. The company, unlike all
of its major competitors, had been consistently profitable for
decades and had weathered recessions, energy crises, and the
September 11 terrorist attacks. In the first quarter of 2008, the
company was profitable and experienced record first quarter
revenue and a record pas- senger load factor (percentage of
available seats sold). However, the earnings release made it
clear that the “threat of volatile and unprecedented jet fuel
prices” was a major issue that threatened future growth.
Operating expenses were rising, and Southwest announced that
it would cut 2009 growth in available seats to less than 3%.
Over the previous decade, growth had been about 5–10% a year.
This cut in planned growth was consistent with previous
responses to difficult environments. An insight into Southwest’s
operating philosophy can be found in the company’s 2001
Annual Report:
Southwest was well poised, financially, to withstand the

2. potentially devastating hammer blow of September 11. Why?
Because for several decades our leadership philosophy has been:
We manage in good times so that our Company and our People
can be job secure and prosper through bad times. . . . Once
again, after September 11, our philosophy of managing in good
times so as to do well in bad times proved a marvelous
prophylactic for our Employees and our Shareholders.
THE U.S. AIRLINE INDUSTRY
The U.S. commercial airline industry was permanently altered
in October 1978 when Presi- dent Carter signed the Airline
Deregulation Act. Before deregulation, the Civil Aeronautics
Board regulated airline route entry and exit, passenger fares,
mergers and acquisitions, aattract and retain the world’s top
talent have combined to create a combination of path-dependent
resources that are very difficult for even the wealthiest software
and Internet companies worldwide to easily emulate, acquire, or
accelerate. It will take years for any competitor to develop the
expertise, infrastructure, reputation, and capabilities to compete
effectively with Google. Coca-Cola’s brand name, Gerber Baby
Food’s reputation for quality, and Steinway’s exper- tise in
piano manufacture would take competitors many years and
millions of dollars to match. Consumers’ many years of
experience drinking Coke or using Gerber or playing a Steinway
would also need to be matched.
• Causal ambiguity is a third way resources can be very difficult
to imitate. This refers to situations in which it is difficult for
competitors to understand exactly how a firm has created the
advantage it enjoys. Competitors can’t figure out exactly what
the uniquely valuable resource is or how resources are
combined to create the competitive advantage. Causally
ambiguous resources are often organizational capabilities that
arise from subtle combinations of tangible and intangible assets
and culture, processes, and organizational attributes the firm
possesses. Southwest Airlines has regularly faced competition
from major and regional airlines, with some like United and

3. Continental eschewing their tra- ditional approach and
attempting to compete by using their own version of the
Southwest approach—same planes, routes, gate procedures,
number of attendants, and so on. They have yet to succeed. The
most difficult thing to replicate is Southwest’s “personality,” or
culture of fun, family, and frugal yet focused services and
attitude. Just how that works is hard for United and Continental
to figure
screen. Collectively, the industry made enough money during
this period to buy two Boeing 747s.1 The three major carriers
that survived intact—Delta, United, and American—ended up
with 80% of all domestic U.S. air traffic and 67% of trans-
Atlantic business.2
Competition and lower fares led to greatly expanded demand for
airline travel. Control- ling for inflation, the average price to
fly one domestic mile dropped by more than 50% since
deregulation. By the mid-1990s, the airlines were having
trouble meeting this demand. Travel increased from 200 million
travelers in 1974 to 700 million in 2007, with increases in
runway and airport capacity lagging far behind. Exhibits 1A–E
provide industry financial and operating data.
Despite the financial problems experienced by many airlines
started after deregulation, new firms continued to enter the
market. Between 1994 and 2004, 66 new airlines were certified
by the FAA. By 2007, 43 had shut down. Most of the new
airlines competed with limited route structures and lower fares
than the major airlines. The new airlines created a second tier of
service providers that saved consumers billions of dollars
annually, and provided service in markets abandoned or ignored
by major carriers.
Although deregulation fostered competition and the growth of
new airlines, it also cre- ated a regional disparity in ticket
prices and adversely affected service to small and remote
communities. Airline workers generally suffered, with inflation-
adjusted average employee wages falling from $42,928 in 1978

4. to much lower levels over the subsequent decades. About
20,000 airline industry employees were laid off in the early
1980s, while productiv- ity of the remaining employees rose
43% during the same period. In a variety of cases, bankruptcy
filings were used to diminish the role of unions and reduce
unionized wages. In the most recent round of bankruptcies,
airline workers at United, Delta, and other major airlines were
forced to accept pay cuts of up to 35%.
Industry Economics
About 80% of airline operating costs were fixed or semi-
variable. The only true variable costs were travel agency
commissions, food costs, and ticketing fees. The operating costs
of an airline flight depended primarily on the distance traveled,
not the number of passen- gers on board. For example, the crew
and ground staff sizes were determined by the type of aircraft,
not the passenger load. Therefore, once an airline established its
route structure, most of its operating costs were fixed.
Because of this high fixed-cost structure, the airlines developed
sophisticated software tools to maximize capacity utilization,
known as load factor. Load factor was calculated by dividing
RPM (revenue passenger miles—the number of passengers
carried multiplied by the distance flown) by ASM (available
seat miles—the number of seats available for sale multiplied by
the distance flown).
On each flight by one of the major airlines (excluding
Southwest and a few other carri- ers), there were typically a
dozen categories of fares. The airlines analyzed historical travel
patterns on individual routes to determine how many seats to
sell at each fare level. All of the major airlines used this type of
analysis and flexible pricing practice, known as a “yield
management” system. These systems enabled the airlines to
manage their seat inventories and the prices paid for those seats.
The objective was to sell more seats on each flight at higher
yields (total passenger yield was passenger revenue from
scheduled operations divided by scheduled RPMs). The higher
the ticket price, the better the yield

5. screen. Collectively, the industry made enough money during
this period to buy two Boeing 747s.1 The three major carriers
that survived intact—Delta, United, and American—ended up
with 80% of all domestic U.S. air traffic and 67% of trans-
Atlantic business.2
Competition and lower fares led to greatly expanded demand for
airline travel. Control- ling for inflation, the average price to
fly one domestic mile dropped by more than 50% since
deregulation. By the mid-1990s, the airlines were having
trouble meeting this demand. Travel increased from 200 million
travelers in 1974 to 700 million in 2007, with increases in
runway and airport capacity lagging far behind. Exhibits 1A–E
provide industry financial and operating data.
Despite the financial problems experienced by many airlines
started after deregulation, new firms continued to enter the
market. Between 1994 and 2004, 66 new airlines were certified
by the FAA. By 2007, 43 had shut down. Most of the new
airlines competed with limited route structures and lower fares
than the major airlines. The new airlines created a second tier of
service providers that saved consumers billions of dollars
annually, and provided service in markets abandoned or ignored
by major carriers.
Although deregulation fostered competition and the growth of
new airlines, it also cre- ated a regional disparity in ticket
prices and adversely affected service to small and remote
communities. Airline workers generally suffered, with inflation-
adjusted average employee wages falling from $42,928 in 1978
to much lower levels over the subsequent decades. About
20,000 airline industry employees were laid off in the early
1980s, while productiv- ity of the remaining employees rose
43% during the same period. In a variety of cases, bankruptcy
filings were used to diminish the role of unions and reduce
unionized wages. In the most recent round of bankruptcies,
airline workers at United, Delta, and other major airlines were
forced to accept pay cuts of up to 35%.
Industry Economics

6. About 80% of airline operating costs were fixed or semi-
variable. The only true variable costs were travel agency
commissions, food costs, and ticketing fees. The operating costs
of an airline flight depended primarily on the distance traveled,
not the number of passen- gers on board. For example, the crew
and ground staff sizes were determined by the type of aircraft,
not the passenger load. Therefore, once an airline established its
route structure, most of its operating costs were fixed.
Because of this high fixed-cost structure, the airlines developed
sophisticated software tools to maximize capacity utilization,
known as load factor. Load factor was calculated by dividing
RPM (revenue passenger miles—the number of passengers
carried multiplied by the distance flown) by ASM (available
seat miles—the number of seats available for sale multiplied by
the distance flown).
On each flight by one of the major airlines (excluding
Southwest and a few other carri- ers), there were typically a
dozen categories of fares. The airlines analyzed historical travel
patterns on individual routes to determine how many seats to
sell at each fare level. All of the major airlines used this type of
analysis and flexible pricing practice, known as a “yield
management” system. These systems enabled the airlines to
manage their seat inventories and the prices paid for those seats.
The objective was to sell more seats on each flight at higher
yields (total passenger yield was passenger revenue from
scheduled operations divided by scheduled RPMs). The higher
the ticket price, the better the yield
[ LS311 | Business Law ]
You Can Do IT! 1

7. Assignment | Unit 9
In this unit's Assignment you will address the features of the
Securities and Exchange Act.
Assignment 1:
Dale Emerson served as the chief financial officer for Reliant
Electric Company, a distributor of
electricity serving portions of Montana and North Dakota.
Reliant was in the final stages of
planning a takeover of Dakota Gasworks, Inc. a natural gas
distributor that operated solely
within North Dakota. Emerson went on a weekend fishing trip
with his uncle, Ernest Wallace.
Emerson mentioned to Wallace that he had been putting in a lot
of extra hours at the office
planning a takeover of Dakota Gasworks. On returning from the
fishing trip, Wallace met with a
broker from Chambers Investments and purchased $20,000 of
Reliant stock. Three weeks later,
Reliant made a tender offer to Dakota Gasworks stockholders
and purchased 57% of Dakota
Gasworks stock. Over the next two weeks, the price of Reliant

8. stock rose 72% before leveling
out. Wallace then sold his Reliant stock for a gross profit of
$14,400.
For your Assignment answer the following questions:
1. Would registration with the SEC be required for Dakota
Gasworks securities?
2. Did Emerson violate Section 10(b) of the Securities
Exchange Act of 1934 and SEC
Rule 10b-5?
3. What theory or theories might a court use to hold Wallace
liable for insider trading?
4. Under the Sarbanes-Oxley Act of 2002, who would be
required to certify the accuracy of
financial statements filed with the SEC?
Assignment 2
The Case
Langley Brothers, Inc., a corporation incorporated and doing
business in Kansas, decides to sell
no par common stock worth $1 million to the public. The stock
will be sold only within the state
of Kansas. Joseph Langley, the chairman of the board, says the
offering need not be registered
with the Securities and Exchange Commission. His brother,

9. Harry, disagrees. Who is right?
Explain.
[ LS311 | Business Law ]
You Can Do IT! 2
In responding to the question be sure to address the following:
Discuss exempt securities pursuant to the Securities and
Exchange Act.
Determine whether or not Langley Brothers would be subject to
registration requirements.
Respond in a 1–2 page paper using APA format and citation
style. Also include an additional
title page and references page.
Directions for Submitting Your Case Analysis:
Before you submit your case analysis (final manuscript–see
below), you should save your work
on your computer in a location and with a name that you will
remember. Make sure your activity
is in the appropriate format (Word), then, when you are ready,
you may submit on the Dropbox
page.

10. Paper Submissions: There are two types of APA manuscripts:
copy manuscripts (those submitted
for publication) and final manuscripts (those not submitted for
publication). Copy manuscripts are
much more formal and may contain multiple sections.
Specifically, they will have an abstract
(a one-paragraph summary of the paper). The papers you
produce for most Kaplan University
classes will be final manuscripts. Unlike copy manuscripts,
final manuscripts do not, unless
specifically required by an instructor, require an abstract. They
do include: A title page; The paper
itself (the "discussion") and A references page. Formatting the
discussion, or body, of the paper, is
also quite straightforward. APA final manuscripts are generally
double-spaced (unless your instructor
requests otherwise).
The running head appears in the upper left corner of each page,
before the page number (on the
upper right hand corner). The full title also appears, but only on
the first page of the body of the
paper. For subsequent pages, the running head is the only “title”
present. New paragraphs should
be indented (which is the default setting for the Tab key) and
there should not be an extra blank line
between paragraphs. The last thing required is the references
page. This page, like the others, has
the running head and page number in the upper-right hand
corner. Sources should be alphabetized
by the author's last name (or, for sources without authors, by
the first letter in the title) and the second
line of each source should be indented a half inch (the first line

11. is not indented).
[ LS311 | Business Law ]
You Can Do IT! 3
Here are a few additional formatting standards to keep in mind:
• Use standard margins: 1" on all sides.
• Use standard 12-point font size.
• Use standard double-spacing: average of 22 lines per page,
and between 20 and 24 lines per page.
• Use left-aligned text. Do not right-justify.
• There should be no spaces between paragraphs within the
paper.
• When citing a quote of more than four lines, you should indent
the entire quoted passage 10 spaces
from the left margin. It is not necessary to indent these block
quotes from the right margin. Continue
with the usual double-spacing, and give the usual
acknowledgements at the end of the quote. Block
quotesdo not require quotation marks.
Directions for Submitting Your Assignment:
Please label your projects: username-project-unit.doc. For
example, a student named Tina Allen would
name her file TAllen-CriminalLawEssay-Unit2.doc. Submit

12. your Assignment by selecting the
appropriate Dropbox by the end of the unit.