Southwest, Aa Not Worried About A New Us Airways

[Dog Wonder]

"The United employees cannot stand that their company was a takeover target of US Airways backed by RSA funding, which I broke on this website with my acronym of the UCT/ICT."

This person (please note I did not say man) sold his soul at the company store for any one wearing a suit to talk to him. Not a high price, but his soul is worth so little the devil wouldn't even offer him anything for it.

 

[Busdrvr]

Much talk of SW's "eroding hedges". You guys are missing the boat. An airline could lose a lot of money hedging fuel if fuel decreases significantly in price. The fuel hedging then becomes a liability. SW management feels that fuel prices may gradually come down in coming years thus the slow decrease (or "erosion") in the hedges. Ideally it'd be in proportion to the decreasing fuel prices....which would be another perfect call by SWA managment. In the event fuel prices don't go down, they will still be competitive....but they think fuel prices will slowly come down in the future.

[post="274095"][/post]​

Personally, I don't think $20 oil two to three years from now would be out of the question, but the entire point of the hedges is that they make fuel cheaper at SWA. Threfore, they give SWA a temporary psuedo cost advantage (I don't consider it a real cost advantage since it's a gain on an investment, and each additional flight they add is at the high fuel cost). If the SWA fuel hedging folks were so confident in their ability, they'd immediately quit SWA and make BILLIONS in the futures markets themselves. They have less hedges in the future merely because they are less and less sure about the proper move on donw the line. When they bought those futures, they could have hedged at 100%, and if they actually had any clue that fuel would drop to below those hedged levels in the future, they'd make much more money by liquidating those positions immediately.

 

[insp89]

Much talk of SW's "eroding hedges". You guys are missing the boat. An airline could lose a lot of money hedging fuel if fuel decreases significantly in price. The fuel hedging then becomes a liability. SW management feels that fuel prices may gradually come down in coming years thus the slow decrease (or "erosion") in the hedges. Ideally it'd be in proportion to the decreasing fuel prices....which would be another perfect call by SWA managment. In the event fuel prices don't go down, they will still be competitive....but they think fuel prices will slowly come down in the future.

[post="274095"][/post]​

Cfm56, I agree with you 100 %, Hedging fuel is a gamble..Obviously Southwest previous gamble on fuel hedging paid off BIG TIME. My hat's off to them.

Looking towards the future, and if in fact Fuel prices decline, Southwest's fuel cost advantage will also decline.

 

[767jetz]

I am hearing that United may have to shed maybe as many as 100 of its mainline jets in exchange for financing so the airline can be "rightsized" and the aircraft sent offshore where the lease rates are higher.

USA320Pilot

[post="273579"][/post]​

Hmmm... Just received this update from Steve Forte, Sr. VP Flight Ops.:

"As we noted in yesterday's special edition of Hotline, we announced that we
are returning a B767-300 to its leaseholder, which will result in the early
suspension of our Chicago-Buenos Aires route. That route will now be
suspended in June rather than as initially scheduled in August.

We will also now be returning three other B767-300s to their respective
leaseholders. The return of these aircraft will have a limited operational
impact on our schedule and network. We are working to determine what changes
will be required in crew schedules and will provide updates to affected crews
as they become available.

We made competitive offers on all of these aircraft, but it is not in our
best interest to pay above-market rates for these planes. We are continuing
negotiations for new leases on four other B767-300s currently in our fleet.
We'll keep you posted."

------------------------------------------------------------
How many jets did you say we were going to lose???? Care to admit you were wrong???? Any chance you might admit to exagerating the truth in order to mislead people????

Cosmo, PineyBob, & 767jetz:

Separately I had a FAA inspector on our jumpseat today who just had crossed the Pacific on United. He said that that his office was concerned about a United strike could occur next week.

USA320Pilot

[post="273764"][/post]​

Oh yeah, and how about this quote, also from Steve Forte:

"AMFA RATIFIES TA

This morning the results of the AMFA ratification vote were tallied, and the
membership voted to ratify the tentative agreement. The Bankruptcy Court
subsequently approved the agreement and dismissed AMFA from the 1113©
proceedings. This is an important step in providing the cost savings we need
to finish our restructuring successfully.

AGREEMENT IN PRINCIPLE WITH IAM

This afternoon it also was announced that we have reached an agreement in
principle with the IAM on changes to the IAM CBAs. The Judge agreed to
postpone any 1113© ruling on the IAM until June 17 to give both parties
additional time to perform due diligence necessary for the agreement. He
also extended interim cost savings for IAM-represented employees until that
date. If ratified, an agreement with the IAM would mean we have reached
agreements with all labor groups and would move us significantly forward in
our restructuring and set the stage for our exit from bankruptcy."


-------------------------------------------------------------
So I guess once again your "informed sources" are WRONG, as are you. Didn't Ma Ma ever tell you not to believe everything people tell you on the jumpseat? When would now be a good time for you to get over your "venomous" loathing of UA and stop falsely predicting our doom and gloom?

 

[mrman]

Cfm56,  I agree with you 100 %,  Hedging fuel is a gamble..Obviously Southwest previous gamble on fuel hedging paid off BIG TIME. My hat's off to them.

Looking towards the future, and if in fact Fuel prices decline, Southwest's fuel cost advantage will also decline.

[post="274225"][/post]​

Actually its not really a gamble but a planning tool. If one knows what their major cost is going to be 1, 2, 3 years down the line they can plan and budget for the fututre. They can get a firm idea what pricing and costs will be in the future. Since WN is setting the price the industry uses, it can model pricing and costs for the future and set priceing and costs to meet the known cost. This is why the assumption that if WN did not have hedges they would be in a loss is a bad assumption, because those assumptions assume WN would not have done anything different. Since they know their future costs they can properly plan purchase of new planes etc. U and UA can not even get a bankruptcy plan out in 2 years, they don't know their future costs. This is being behind the eight ball big time.

 

[biztraveller29]

Right now, it seems as if WN and AA are more worried about each other, if all of the back and forth regarding the Wright Ammendment is any indication. WN and HP have been competing for years. WN and U have been competing more recently. AA doesn't really compete with either too much, as far as I can tell (except perhaps the Caribbean with U).

Of course they are not worried (yet). U and HP have A LOT of issues to sort out for the merger, and in any case, they have indicated they are shedding planes upon merging. That is hardly a warrior cry to strike fear in the hearts of competitors.

 

[insp89]

Actually its not really a gamble but a planning tool. If one knows what their major cost is going to be 1, 2, 3 years down the line they can plan and budget for the fututre. They can get a firm idea what pricing and costs will be in the future. Since WN is setting the price the industry uses, it can model pricing and costs for the future and set priceing and costs to meet the known cost. This is why the assumption that if WN did not have hedges they would be in a loss is a bad assumption, because those assumptions assume WN would not have done anything different. Since they know their future costs they can properly plan purchase of new planes etc. U and UA can not even get a bankruptcy plan out in 2 years, they don't know their future costs. This is being behind the eight ball big time.

[post="274606"][/post]​

I guess it's all well and good to know your future costs...Until your competition can get cheaper fuel than you..Actually, Fuel hedging IS a gamble..

Southwest evidently thinks the price of fuel is going down in 2006, Which is why they are not hedging as much fuel % wise as they did in 2005..

Southwest's previous gamble worked out quite well for them..We'll have to see what the future holds for this industry. A lot will depend on the price of fuel.

 

[sfb]

Actually, the structure of the fuel hedges does not lock Southwest into effectively paying that price for the underlying commodity; rather, some of the hedges are in the form of call options which place a cap on the amount Southwest would pay for fuel. If the price of oil were lower than the call price, they would simply choose not to use the option and write off whatever the purchase price of that call had been. So, if the price of oil were to drop to $10 per barrel, Southwest would not be locked into those hedge positions.

And this still doesn't address all of Southwest's other cost advantages. Southwest's CASM, excluding fuel, was 6.32 cents for the first quarter on an average stage length of 596 miles. America West's non-fuel CASM (removing "operating" gains from hedge positions for future quarters) was 6.43 cents -- but their average stage length was over 70% higher at 1022 miles. Longer stage lengths lower CASM, but they also reduce yields; Southwest's yield of 12.03 cents/mile blew away America West's at 10.15 cents/mile. US Airways' mainline CASM, excluding fuel, of 8.46 cents/mile was still 34% higher than Southwests on a longer average stage length (768 miles) -- and Southwest's yield was still higher than US's mainline yield at 11.74 cents. Moreover, this doesn't even scratch the surface of all the high-cost RJ feed which the proposed merger product would continue to use.

Honestly, I can't see why people think that Southwest would be "worried" about this proposed combination. One need only look at the history of past airline mergers to see how much value they have managed to destroy for shareholders. The presence of America West has done little to hinder Southwest's growth at PHX and LAS, which have respectively grown from 168 and 141 daily departures in March, 1999 to 191 and 195 daily departures today. It will likely be 2007 or 2008 by the time all the dust settles from the merger and Southwest will probably be 20% larger if they grow at plan. The removal of 50-60 jets from the US mainline fleet will mean growth opportunities for all the LCC's on the East Coast. PHL will come under further attack when the gate leases all expire in 12 months and the carriers get shuffled.

Look, a little bit of confidence in being able to turn the business around is healthy, but the assumption that America West's team is going to kick Southwest's @$$ is unrealistic. Right now I'd just hope that they can guide a merged airline to profitability before the money runs out again.

 

[ngneer]

Excellent post, SFB! You hit the nail squarely on the head.

 

[insp89]

Actually, the structure of the fuel hedges does not lock Southwest into effectively paying that price for the underlying commodity; rather, some of the hedges are in the form of call options which place a cap on the amount Southwest would pay for fuel. If the price of oil were lower than the call price, they would simply choose not to use the option and write off whatever the purchase price of that call had been. So, if the price of oil were to drop to $10 per barrel, Southwest would not be locked into those hedge positions.

And this still doesn't address all of Southwest's other cost advantages. Southwest's CASM, excluding fuel, was 6.32 cents for the first quarter on an average stage length of 596 miles. America West's non-fuel CASM (removing "operating" gains from hedge positions for future quarters) was 6.43 cents -- but their average stage length was over 70% higher at 1022 miles. Longer stage lengths lower CASM, but they also reduce yields; Southwest's yield of 12.03 cents/mile blew away America West's at 10.15 cents/mile. US Airways' mainline CASM, excluding fuel, of 8.46 cents/mile was still 34% higher than Southwests on a longer average stage length (768 miles) -- and Southwest's yield was still higher than US's mainline yield at 11.74 cents. Moreover, this doesn't even scratch the surface of all the high-cost RJ feed which the proposed merger product would continue to use.

Honestly, I can't see why people think that Southwest would be "worried" about this proposed combination. One need only look at the history of past airline mergers to see how much value they have managed to destroy for shareholders. The presence of America West has done little to hinder Southwest's growth at PHX and LAS, which have respectively grown from 168 and 141 daily departures in March, 1999 to 191 and 195 daily departures today. It will likely be 2007 or 2008 by the time all the dust settles from the merger and Southwest will probably be 20% larger if they grow at plan. The removal of 50-60 jets from the US mainline fleet will mean growth opportunities for all the LCC's on the East Coast. PHL will come under further attack when the gate leases all expire in 12 months and the carriers get shuffled.

Look, a little bit of confidence in being able to turn the business around is healthy, but the assumption that America West's team is going to kick Southwest's @$$ is unrealistic. Right now I'd just hope that they can guide a merged airline to profitability before the money runs out again.

[post="274652"][/post]​

Who said anything about kicking Southwest's @$$ ?

Who said anything about Southwest being "worried" ?

Nothing new was said about the fuel hedges...Fact of the matter is other carriers will soon be able to buy fuel in 2006 at a more competitive cost than they did in 2005.

It will not be neccessary for the New Usairways to match Southwest's CASM, The 2 airlines are totally different...Usairways will continue to fly out of the Continential US...Once the 2 airlines are merged together [if it happens] and Competent management takes over, CASM will drop...

 

[USA320Pilot]

767jetz, Cosmo, & BoeingBoy:

USA320 Pilot said: “By the way, there are new financial community reports that United may have to go the same route as US Airways to obtain exit financing. I am hearing that United may have to shed maybe as many as 100 of its mainline jets in exchange for financing so the airline can be "rightsized" and the aircraft sent offshore where the lease rates are higher.â€

Cosmo said: “Could you please post or provide a link to those "financial community" reports? Or at least name the people and/or organizations issuing them? Otherwise, this appears to be yet another case of offering your unsubstantiated opinion as fact. â€

767jetz said: So where are these reports from the financial community that prove your assertions about UA’s ability to emerge? Who ever your sources are, they are wrong, as usual. Or are you going to lie again and post some Op-Ed article stating the opinion of one uninformed person and claim it represents the views of the “financial community.â€

BoeingBoy said: “It could possibly be that if you didn't apparently take such pleasure from putting a little dig at UA in your posts, those pesky UA folks wouldn't feel that it was necessary to defend their airline on this forum so much.â€

767jetz said: How many jets did you say we were going to lose???? Care to admit you were wrong???? Any chance you might admit to exagerating the truth in order to mislead people????

USA320Pilot comments: Yesterday in an article titled “UAL fails to reach new terms with lessors, will return 4 planesâ€, the Wall Street Journal (WSJ) said United Airlines must return four Boeing 767-300 aircraft to leasing companies because the airline and the lessors couldn’t agree to new rental terms.

Yesterday, a United spokeswoman confirmed that four of the eight planes will be taken out of service soon and returned to their owners. The spokeswoman said UAL remains in negotiations with the lessors that own four other airplanes, which remain at risk of being returned.

UAL has interim lease agreements with multiple investors who own about 130 planes. Last year, the carrier tried to reach a global settlement with the group on new terms. The airline’s creditors committee objected. Since then the dispute has become mired in the courts, aircraft rental-values have risen and some of the investors being paid agreed-upon, court approved lower rates have grown impatient.

Conceivably, UAL could face other repossessions – or be forced to pay higher market rates – for a larger number of leased planes in its fleet, at a time when it is battling to lower its costs.

Reuters reported today that “Analysts have warned that United must brace for possible loss of aircraft that fly profitable international routes.â€

See Story

The AP noted today, “Heading the to-do list is resolving a costly standoff over airplane leases. United's initial goal of slicing $900 million a year off its plane rental costs was dealt a major blow last month when it lost a risky court bid to have the leasing companies declared an illegal cartel, giving them the upper hand in negotiations.â€

See Story

Finally, in a column titled “United's skies still cloudy - Despite union pact, airline's expenses too high, experts say†that newspaper echoed my comments made earlier this week.

United Airlines made huge headway Tuesday in obtaining the $700 million in annual labor savings it needs to emerge from bankruptcy this fall. The nation's second-largest carrier also defused the immediate threat of worker strikes, which some experts say would doom the airline. Despite its progress, though, observers say United still faces turbulence ahead. "If this had gone the wrong way and led to strikes, I think it would've meant the end for United," said Anthony Sabino, a law professor at St. John's University in New York. "But does this mean United is out of the woods? Heck no. They still have a long way to go. The patient is still very, very sick and remains on life support."

A bankruptcy court judge initially barred lessors from repossessing their planes if United didn't pay the full price for its leased planes, but an appeals court recently overturned that decision. United said Tuesday it will return four of its Boeing 767s because it couldn't reach an agreement on new contract terms. The airline also warned it could lose four more if ongoing negotiations fail.

Because of the appeals court ruling, the carrier could have to pay more than it expected for other leases or give up more of its planes.

See Story

Cosmo, I believe the WSJ, Reuters, and Rocky Mountain Times reports, published after I made my comments regarding further United aircraft repossessions, meets your request for “people and/or organizations issuing them.â€

I do not "take such pleasure from putting a little dig at UA" or anybody else for tata matter. I simply report information with people who have knowldege of airline discussions. What's interesting is that if my comments do not have merit, then why would certain United employees visit the US Airways message board on a daily basis, seek obscure comments about their company, and then dispute them with so much emotion and vigor? Why would the United employees go out of their way to dispute my claims if they're not true and why so much emotion, especially when the information is proven to be right over-and-over again?

Finally, I was wrong about 100 United aircraft that have a risk of repossession -- because according to the WSJ it's 130 aircraft with interim agreements that need to be renegotiated...since the court ruled against the company and in favor of the creditors committee.

Regards,

USA320Pilot

 

[700UW]

Kinda of funny how you omit the fact GECAS forced US to return planes and US is in the same situation with planes as they have not finalized all the 1110 leases.

 

[USA320Pilot]

700UW:

You're correct, GECAS forced US Airways to return aircraft to the financier and the same thing is happening at United...that's exactly the point. Moreover, it's likely to be a big, big number for both companies.

Regards,

USA320Pilot

 

[WNjetdoc]

<<<<<<<

Perhaps you should take your own advice.

Insp89 is correct in that the advantage may be declining:

SWA fuel hedge:

2005 80% of their supply is hedged at $25/bbl
2006 60% is hedged at $31/bbl
2007 40% is hedged at $30/bbl
While these are certainly still very large advantages, as Insp89 said it is a declining advantage.>>>>>>>


Actually SWA is hedged for about 85% of fuel for the 2nd half of 05 at $26 per barrel,
2006 65% @ 32/bbl
2007 45% @ 31/bbl
2008 30% @ 33/bbl
2009 25% @ 35/bbl

These investments are tying up 980 million of SWA's cash and Kelly said they tail off because favorable terms are increasingly hard to find. Eventually , if it senses a softening of oil prices SWA might even sell some of its positions, taking a profit, Kelly speculated. In any event, SWA has more than enough money to play the game-cash on hand totaled $2.3 billion on june 30, and the carrier's $575 million in revolving credit line was fully available.

The article also states: Impressive labor cost reductions left SWA with 72 employees per a/c on June 30, compared with 78 a year earlier. The carrier will have 446 Boeing 737's by year-end.

 

[usair_begins_with_u]

The Transaction is expected to be financed with approximately $1.5 billion of new capital from:

-- $350 million of committed new equity plus a planned rights offering

-- More than $675 million from partners and suppliers

-- $250 million or more from aircraft-related financings and/or sales

-- Expected release of $200-300 million in cash reserves

That represents the "Financial Community" ? You're a joke.

$350 Million from hedge fund (you know what a hedge fund is A320?) investors does not represent the "financial community" bud... No one with a brain invests in commercial airline stocks. Matter of fact, ask anyone who has experience working on the 'street' about airline stocks and they will get a puzzled look on their face and shake their head back and forth in disbelief. There is LITTLE TO NO PROFIT MARGIN in commercial avation, and there never will be. The structure and maturity of the market cancels out most above B/E returns, and the unions will all make sure to that.

Also, most mergers fail... and thats completely independant of industry. Don't believe it? Look at the empirical data..