American Accounting Association 2006 Midwest Region Meeting March 30 – April 1 Chicago, Illinois

Saturday, April 1, 11:00 a.m. to 12:50 p.m.
Concurrent session 6A - Information, Cost Control and Performance (Management Accounting)

Title: Profits, Revenues and Cost Structure in the Airline Industry. A Comparison of Southwest Airlines to Selected Competitor Carriers: An Inventory Turnover Success Story

Richard Houts, CPA	Sid R. Ewer, Ph.D Missouri State University
Angela Thomas Missouri State University

ABSTRACT: Conventional wisdom in the airline industry claims that long flights produce better profits, because shorter flights means lower ticket prices and greater costs especially in fuel costs because take offs require relatively more fuel than cruising. Southwest Airlines, however, when compared to its competitors has shorter flights and less seat occupancy. Yet Southwest Airlines in comparison to its competitors that “specialize” in longer flights consistently earn profits when its competitors do not. This paper shows that what Southwest does better than its competitors is manage its very perishable inventory: available seat miles. In most other measures of airline industry financial metrics, Southwest does not show that large an advantage.

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