More good news about SWA business model

[lowfareair]

If you don't care for the BK laws then I suggest YOU advocate changing them. Of your carriers that SHOULD exist you left a couple that have been through BK, some more than once. So you might want to realign your arguement that BK should be an elminator. If that is the case then DL,NW,CO-more than once, AW-more than once. Would not exist. So tell me again about your grand idea?

WN will receive 500mil from hedges this year. If they don't exceed 500mil in profit then they would have lost money. My guess is they won't exceed $500mil.

SWA is a mortal. And seeing them decline is nice.

What will be interesting to see, Mags, is whether WN will make $500 million more than United this year. Who knows, we may never know seeing how your CEO is trying to whore your company out to the highest bidder, and may be successful.

 

[magsau]

What will be interesting to see, Mags, is whether WN will make $500 million more than United this year.

I could give a hoot if UAL makes 500mil or loses 500mil. My life does not depend on UAL for my happiness. The only point to this conversation is to shed some light on the fact that SWA is not a wonderful idea that has rewritten anything about how airlines operate. They have been fortunate and they also are looking at the reality of the no place to grow problem.

Kelly himself is admitting the current SWA plan is not generating the revenue due to "low fares". However, SWA touts itself as the "low fare leader". The double talk from SWA is going to be further analyzed and like the analyst said, the stock will languish. That is a good thing for those of us that dislike what SWA has done to a once proud industry.

 

[KCFlyer]

That is a good thing for those of us that dislike what SWA has done to a once proud industry.

Since you're actively flying a plane today, odds are good that had the "once proud industry" remained proud, as in the airline deregulation act of 1978 not been enacted, odds are pretty damn good that you wouldn't be flying planes for UAL today since there would have been a fraction of the demand for air travel that there has been over the past 30 years. Shoot mags...if you drop your hatred for a minute, you might see that Southwest, and airlines like them, were directly responsible for you being hired at United in the first place.

 

[magsau]

if you drop your hatred for a minute, you might see that Southwest, and airlines like them, were directly responsible for you being hired at United in the first place.

Sorry KC your argument once again does not make sense. But that is par for the course in this thread.

You can try to make this about ME. However, I prefer to make this about SWA.

 

[KCFlyer]

Sorry KC your argument once again does not make sense. But that is par for the course in this thread.

You can try to make this about ME. However, I prefer to make this about SWA.

Remind me again...who was talking about the Daily Show and what they thought were comments about Kansas? I think you'll need go back to....wait....your original post. So....were you hired after 1978 mags? If so - my point remains - you owe your job to the low cost carriers.

 

[magsau]

Remind me again...who was talking about the Daily Show and what they thought were comments about Kansas? I think you'll need go back to....wait....your original post. So....were you hired after 1978 mags? If so - my point remains - you owe your job to the low cost carriers.

Sorry, KC I was hired at UA in 1978, we had plumbers on the 737 back then if you did not know that. Furloughed during "blue skies" contract and back to UAL just in time to go on strike in 85. If you care to give me a history lesson on airlines I would then suggest you learn your history.

So NO I don't owe a thing to LCC's other than pressure from my employer to lower my wages and benefits. Had SWA and others entered the market paying rates comprable to the other carriers, had defined benefit plans and provided services the other carriers do (interline agreements, baggage transfer etc) then I would not be a bit afraid of the competition. Unfortunately SWA and others did not enter this market in such a manner and therefore has reduced flying to a iteration of bus travel.

Would the airlines have expanded services without deregulation? You speculate that NO it would not have increased services, yet your beloved SWA was in existence before deregulation. How can you correlate SWA as a post deregulation miracle when they were in the market prior? If you look at any legacy carriers domain post BK you will see a significant change in breadth and scope of cities flown. I speculate that population growth would have generated the demand you say is attributable to LCC's. We have gone from 200million to 300million people in just over 30 years. Those people have to travel and LCC's are not responsible for this growth in population. Unless you count the number of illegitimate children born on SWA flights, consumated on SWA flights or those created by the naked pilots on SWA flights.

I speculate that if the US had a high speed train system SWA would not exist as it does today. You can speculate all you want. This is a web board, do as you wish.

However, the facts are in. Kelly is speaking of decline is airframes and retraction of the airline. That is irrefutable data.

 

[NewHampshire Black Bears]

I've "toned down" my anti-WN, over the last year or so(KCFlyer can vouch for me on that), but in regard to this discussion, I feel that MAGSAU has a point !!!!

2007 year end results, should be a clear indicator to MAGSAU's theory.

I must say, that like MAGSAU, I too have wondered about WN, minus the fuel hedge advantage, WHICH is due to stellar WN management !!!!!

Like everything else in this LUNATIC ASYLUM industry that we either work in, or follow.....ONLY TIME WILL TELL.

NH/BB's

 

[ramper_in_las]

Here is the deal I agree with some of your comments Mags. Who knows what cards WN holds at this point but I am sure they have an ace up their sleeve. My disagreement is you make it seem that WN is the only airline going through these challenges. Well according to AA CEO Arpey All US airlines face the same problems.
Source

 

[BoeingBoy]

I must say, that like MAGSAU, I too have wondered about WN, minus the fuel hedge advantage, WHICH is due to stellar WN management !!!!!

What magsau either fails to understand, or just ignores, is the primary benefit of hedging - knowing what that 20+ percent of costs will be going forward. In short, is it easier to price the product at a profitable level if you know what 90+ percent of your costs are for next month, in 6 months, in a year? Or would you rather only know what 70% of your costs will be in the future when pricing the product and hope that fuel prices don't shoot up?

That's why WN started hedging fuel 14 years ago, most years making a little or losing a little on the hedges. It's only for the last few years that the hedging has had a side benefit from rapidly rising oil prices.

That's also why WN continues to hedge fuel - not to "bet" on what oil prices will do but to lock in a known cost. It's just good management to minimize the unknowns on the expense side of the ledger.

Besides, even if WN paid the same price for fuel as the other major carriers they'd still have a cost advantage since they're the lowest cost carrier on a stage length adjusted basis.

Jim

 

[mga707]

Would the airlines have expanded services without deregulation? You speculate that NO it would not have increased services, yet your beloved SWA was in existence before deregulation. How can you correlate SWA as a post deregulation miracle when they were in the market prior?

For obvious reasons, I usually no longer bother to reply to (or usually even to read) "Captain Battootie"s rants, but this howler is just too much!
Yes, WN was around prior to the initial phase of the Airline Deregulation act of 1978 (December of that year). Since mid-1971, in fact.
But, guess where their flights were restricted to during that 1971-78 time frame: Texas. Only Texas.
Why? BECAUSE OF C.A.B. REGULATION!!!
No deregulation, no Herb outside of the 'Republic of Texas'! Simple as that.

 

[NewHampshire Black Bears]

What magsau either fails to understand, or just ignores, is the primary benefit of hedging - knowing what that 20+ percent of costs will be going forward. In short, is it easier to price the product at a profitable level if you know what 90+ percent of your costs are for next month, in 6 months, in a year? Or would you rather only know what 70% of your costs will be in the future when pricing the product and hope that fuel prices don't shoot up?

That's why WN started hedging fuel 14 years ago, most years making a little or losing a little on the hedges. It's only for the last few years that the hedging has had a side benefit from rapidly rising oil prices.

That's also why WN continues to hedge fuel - not to "bet" on what oil prices will do but to lock in a known cost. It's just good management to minimize the unknowns on the expense side of the ledger.

Besides, even if WN paid the same price for fuel as the other major carriers they'd still have a cost advantage since they're the lowest cost carrier on a stage length adjusted basis.

Jim

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Well Jim(BB),
the only other thing that we might consider(which Magsau mentioned) is that WN's Costs(Employee wages) have risen significantly AFTER their latest, highly successful fuel hedge.


NH/BB's

 

[BoeingBoy]

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Well Jim(BB),
the only other thing that we might consider(which Magsau mentioned) is that WN's Costs(Employee wages) have risen significantly AFTER their latest, highly successful fuel hedge.
NH/BB's

Actually, it depends on how you define costs....

In the "household" sense - how many dollars are spent on labor per hour, for example - yes they have. But in the traditional airline sense - CASM - they haven't. For proof, just look no further than WN's ex-fuel CASM over the last 2-3 years.

Take pilots, for example. I read a report within the last week which said that WN's pilot costs on the 737 are only 95% of the average legacy carrier's 737 pilot's cost on a seat mile basis. That's despite the fact that an 8 year WN F/O makes more per hour than a top of scale 737 Captain at US, for example. Every legacy carrier pays their 737 (or eqivalent) pilots less than WN, yet WN has a cost advantage where it matters - CASM.

Plus, don't miss the point that WN is still hedging fuel, after those employee wages have risen significantly. A year ago (end of 1st qtr 06), they had hedges stretching out to 2009. Now (end of 1st qtr 07) they have hedges going to 2012.

And please don't miss the fact that for 2006, WN logged a $100+ million expense for hedges that were deemed "ineffective" per accounting rules. Yet those "losing" hedge positions provided a known cost for fuel, so were still "successful"......

Mags tends to take a grain of truth, then put it through an extra long spin cycle. A perfect example is his "if WN doesn't make at least $500 million in profits in 2007, they'd lose money without the hedges." The end of 2006 net value of all WN's outstanding hedges was indeed $500+ million ($537 I think). However, the 2007 value (at the end of 2006) was only half of that amount - ~$276 million. This thread is full of spin like that......

Here's the way I look at it:

On one side you've a model that been profitable for 30+ years straight. Through the late 70's/early 80's economy. Through the early 90's economy. Through the early 2000's economy and 911. Through the period of rapid fuel price increases of the last few years. And this is supposed to be the failing model?

On the other hand, you've got the network model. Over the last 30 years this model has produced a net loss. Five of the six remaining carriers have been through bankruptcy during that time, two of them twice. Several failed completely. The remaining legacy carriers have yet to prove that they can generate profits consistently. And this is the model that's proclaimed a success?

Once WN has a string of annual loses and files for bankruptcy, there'll be time to debate whether their future looks bleak or not. For only then will their model be as "successful" as the legacy model has been demonstrated to be.......

Jim

 

[Busdrvr]

No, they aren't looking at a balanced playing field. If the playing field were balanced, the US Airline industry would look like this: American, Delta, Northwest, Continental, Southwest, Airtran, JetBlue, America West and some smaller regional carriers. Bankruptcy is not a field leveler...it's a "do over" for bad managment.

Hmmmm... Try again. Con, Airtran (AKA Valuejet) and AWA would have gone long before UAL, and without the extra comp.....who knows 😉