An Analysis of Southwest Airlines: Applying the Horngren, Datar, and Foster (2006) Strategic Profitability Analysis Approach

ABSTRACT: This case requires students to collect financial and operational data from Southwest Airlines' 2003–2006 annual reports and to use that data to conduct a strategic profitability analysis of the firm's changes in operating income. As described in Horngren et al. (2006), this analysis decomposes changes in a firm's operating income into components related to growth, price recovery, and productivity. Similar to other studies (e.g., Dikolli and Sedatole 2004), this case uses publicly available data to link textbook concepts to “real world” applications. Linking strategy with profitability allows students to see how firms manage inputs in order to compete, grow, and profit in output markets.