Southwest Mortgages 21 Planes

[swflyer]

So what your saying is that the salary cost of 1 FA outweighs 12-21 more seats? Rather have high frequency flights than cut back on flights and save fuel. They operate the 500 and the 300 so why not add seats. Plus the fuel burn for an 800 is better than a 500. There are routes where WN can fill up a 800 no problem on a regular basis. The only additional cost would be that 1 FA. Training and ops cost should be the same based on the passenger load.

Looks like I'm late to the game, but here's what I typed before I saw some of the same responses.

Southwest has an entirely 137 pax fleet (500+ a/c), with the exception of the 25 -500's on property. One of the problems this helps us avoid is an equipment downgrade, which adds pax re-accommodation costs, should an a/c experience a mx event.

Also, we're enjoying that nice fuel burn you mention with the -700's, which have a greater flight range than the -800.

AND, it adds a layer of complexity to schedule a line of flying for a separate a/c type, plus crewing, plus possible contract language, plus.....

All this together is why the -800, so far, isn't in the plans. I reserve the right to be corrected by Management decision, in the future.

 

[hp_fa]

Sit back, relax, and watch the ride!!! I'm sure we all will learn some ecomomics 101.

I will, and I agree that I do tend to be a contrarian so I could well be wrong. But let's just say I have long-term reservations about the wisdom of ** this ** transaction.

 

[FWAAA]

Two thoughts.

First, I agree with FWAAA. Southwest has made it's mark by having total operational flexibility and this would have the effect of adding a potential wrench into the operation. Maybe the effect is as little as having one or two more reserves sitting at the airport at their hubs, but no matter how it is resolved it adds a cost and makes things just a little less flexible.

Second is the mortgage of the planes. How is it smart to take on debt for planes that were already owned? It just means more money flowing outwards over time because that interest is a cost that otherwise would not have to been paid. Call me a contrarian, but I see a downside to this "brilliant move."

KCFlyer said it more concisely than I did. My explanation was kinda wordy.

As to the wisdom of borrowing the money, I thought I'd agree with you except for this one nugget in the WN financials:

Liquidity and Capital Resources

Net cash provided by operating activities was $964 million for the three months ended March 31, 2008, compared to $617 million provided by operating activities in the same prior year period. The operating cash flows in the first quarter of both years were largely impacted by fluctuations in counterparty deposits associated with the Company’s fuel hedging program. There was an increase in counterparty deposits of $570 million for the three months ended March 31, 2008, versus an increase of $345 million during the three months ended March 31, 2007 (counterparty deposits are classified in Accrued liabilities in the unaudited condensed Consolidated Balance Sheet). The fluctuations in these deposits in both years have been due to large changes in the fair value of the Company’s fuel derivatives portfolio. The fair value of the Company’s fuel derivatives increased from $2.4 billion at December 31, 2007, to $2.8 billion at March 31, 2008, and increased from $1.0 billion at December 31, 2006, to $1.4 billion at March 31, 2007. Depending on the fair value of the Company’s fuel derivative instruments, the amounts of collateral deposits held at any point in time can fluctuate significantly. Therefore, the Company generally excludes the cash collateral deposits in its decisions related to long-term cash planning and forecasting. See Item 3, and Notes 5 and 7 to the unaudited condensed consolidated financial statements. Cash flows from operating activities for both years were also impacted by changes in Air traffic liability. For the three months ended March 31, 2008, there was a $267 million increase in Air traffic liability, as a result of seasonal bookings for future travel. This compared to the prior year $210 million increase in Air traffic liability. Net cash provided by operating activities is primarily used to finance capital expenditures.

http://phx.corporate-ir.net/phoenix.zhtml?...hdHRhY2g9T04%3d (top of page 22)

So if the price of oil tanks, WN would have to return a portion (and maybe all) of these collateral deposits. So of the $3.1 billion of cash on hand right now, $2.8 billion of that is potentially subject to return to the other parties of their fuel hedges if the price of fuel bottoms out. While that's very unlikely to happen, conservative money management says it's time to get more cash on hand - note how WN says it doesn't consider these deposits in long-term planning.

WN has excellent credit (having never stiffed creditors in bankruptcy), so its loans are probably cheaper than any other airline debt. And interest rates have recently fallen, so now may the time to borrow.

Plus, maybe WN wants to be able to spend money on some slot auctions. Or at least have that option open to it.

 

[BuffaloJoe]

Plus, maybe WN wants to be able to spend money on some slot auctions. Or at least have that option open to it.

EWR and JFK are gonna be slot auctioned out soon, so maybe that's where they want to do. If they get some JFK, what happens to ISP? I would believe EWR would be its first choice. My Opinion only.

 

[mga707]

EWR and JFK are gonna be slot auctioned out soon, so maybe that's where they want to do. If they get some JFK, what happens to ISP? I would believe EWR would be its first choice. My Opinion only.

IF WN ever opened up shop at JFK (and I doubt that they ever will) I don't think ISP would be affected much, if at all.
Everyone always considers ISP from the NYC point of view, forgetting that LI is a HUGE market in it's own right, with multitudes of potential customers who appreciate the convenience of not having to run the gauntlet of trekking all the way into "the city" to catch a flight.